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Sales and Use Tax Memorandum Opinions

John Dexter Sheldon, Inc.

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The embossing of a consumer furnished blank credit card is an operation which results in the production of the completed credit card ready for use. It constitutes taxable fabrication labor.

BEFORE THE STATE BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA

In the Matter of the Petition of JOHN DEXTER SHELDON, INC., dba MULTI-SERVICE, INC.

Appearances:

MEMORANDUM OPINION

A petition has been filed by John Dexter Sheldon, Inc., dba Multi-Service, Inc., for redetermination of sales and use taxes for the period April 1, 1965, to March 31, 1968, in the amount of $6,059.69, plus statutory interest.

Petitioner manufactures and sells credit cards; embosses credit cards and addressograph plates; performs bookkeeping, billing, and mailing services; and sells forms, envelopes and other items.

The disputed amount represents charges made for embossing credit cards with the names, addresses, etc., of the persons to whom petitioner's customers will distribute the cards.

The embossing, which is done on a graphotype machine, is usually performed at a later date after the blank cards have been manufactured. In some cases the new cards are held by petitioner until petitioner's customer furnishes petitioner with the information to be embossed. In other cases the cards are first delivered to the customer but later returned to petitioner for embossing. In still other cases embossing is done for customers who have purchased the blank cards from other manufacturers.

The basic issue presented is whether the embossing of blank credit cards constitutes the performance of taxable fabrication labor or the performance of a nontaxable service.

Petitioner contends that embossing is an exempt service similar to addressing envelopes for clients, in that there is no difference between typing names and addresses on envelopes using a manual typewriter and typing names and addresses on credit cards with a graphotype machine.

We find that the tax has been properly applied in this instance.

Section 6012 of the Revenue and Taxation Code provides that "Gross receipts," the measure of the tax, mean the total amount of the sale price of the property sold without any deduction on account of "the cost of the materials used, labor or service cost … or any other expense." Thus, where a transaction is regarded as a sale of tangible personal property, tax applies to the gross receipts from the furnishing thereof, without any deduction on account of the work, labor, skill, thought, time spent, or other expense of producing the property.

Ruling No. 24, "Printing and Related Industries," (Cal. Admin. Code 1934), adopted by the board pursuant to the authority granted it by the Legislature in section 7051 of the code to prescribe and adopt rules and regulations relating to the administration and enforcement of the Sales and Use Tax Law, specifically provides that:

"Tax applies to charges for services in connection with the sale of printed matter, such as die cutting, embossing, folding, and other binding operations, regardless of whether or not the said printed matter is furnished by the customer." [Emphasis added.]

In regard to blank cards furnished by petitioner's customer to petitioner for embossing, section 6006(b) of the code provides that "Sale" includes "the producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish directly or indirectly the materials used in the producing, fabricating, processing, printing or imprinting."

Ruling No. 15, "Producing, Fabricating and Processing Property Furnished by Consumers—General Rules" [Superseded as of September 6, 1969, by regulation 1526 (Cal. Admin. Code 1526)] provides that:

"Producing, fabricating, and processing [as opposed to repairing and reconditioning] include any operation which results in the creation or production of tangible personal property or which is a step in a process or series of operations resulting in the creation or production of tangible personal property."

We find the embossing of a consumer-furnished blank credit card to be an operation which results in the production of the completed credit card ready for use.

The analogy drawn by petitioner between embossing names on credit cards and manually addressing envelopes is not persuasive. Charges for the latter service, when performed in connection with the preparation of material for mailing are, if separately stated on invoices and in accounting records, specifically exempted from the sales tax under ruling No. 24 and ruling No. 7.5, "Mailing House Transactions." (Cal. Admin. Code 1907.5.) Even though the embossed credit cards may be mailed in "window" envelopes and thus serve for mailing purposes as the addresses of the intended holders, that purpose would only be incidental to the main purpose of the embossing, i.e., to complete credit cards ready for use as such.

For the reasons indicated above, the petition for redetermination is hereby denied.

Done at Sacramento, California, this 5th day of November 1970.

George R. Reilly, Chairman

John W. Lynch, Member

Paul R. Leake, Member

Richard Nevins, Member

Attested by: H. F. Freeman, Executive Secretary