CHAPTER
1. General Provisions and Definitions
7195.
(a) This part is known and may be cited as the “Service Tax Law.”(b) “Services tax” means the tax imposed by this part.
7195.1.
Except where the context otherwise requires, the definitions given in this chapter govern the construction of this part.7195.3.
“Business” includes any activity engaged in by any person or caused to be engaged in by the person with the object of gain, benefit, or advantage, either direct or indirect.7195.4.
“Department” means the California Department of Tax and Fee Administration.7195.5.
“In this state” means within the exterior limits of the State of California and includes all territory within these limits owned by or ceded to the United States of America.7195.7.
“Occasional sale” means a sale of services not held or used by a seller in the course of activities for which the seller is required to register with the department or would be required to register with the department if the activities were conducted in this state, provided that the sale is not one of a series of sales sufficient in number, scope, and character to constitute an activity for which the seller is required to register with the department or would be required to register with the department if the activity were conducted in this state.7195.9.
“Person” means an individual, trust, firm, joint stock company, business concern, corporation, including, but not limited to, a government corporation, partnership, limited liability company, and association. “Person” also includes any city, county, city and county, district, commission, the state or any department, agency, or political subdivision thereof, any interstate body, and the United States and its agencies and instrumentalities to the extent permitted by law.7195.11.
“Purchase” means and includes any provision, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of service for a consideration.7195.12.
“Qualified business” means a person, including, but not limited to, a corporation, partnership, sole proprietorship, limited liability company, and limited liability partnership, engaged in business to provide a product or service for the purpose of producing income that is taxable under federal income tax law.7195.13.
“Receipt of the benefit of a service” means the receipt of services for any purpose other than resale of those services in the regular course of business.7195.15.
“Retail sale” or “sale at retail” means a sale for any purpose other than resale in the regular course of business in the form of services.7195.17.
(a) “Retailer” includes every seller who makes any retail sale or sales of a service.(b) Every person making more than two retail sales of services during any 12-month period shall be considered a retailer within the provisions of this part.
7195.19.
(a) “Retailer engaged in business in this state” means any retailer that has substantial nexus with this state for purposes of the commerce clause of the United States Constitution and any retailer upon whom federal law permits this state to impose a use tax collection duty. “Retailer engaged in business in this state” specifically includes, but is not limited to, any of the following:(1) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business.
(2) Any
retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, providing, or the taking of orders for any services.
(3) Any retailer that is a member of a commonly controlled group, as defined in Section 25105, and is a member of a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations, that includes another member of the retailer’s commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with services to be sold by the retailer, including, but not limited to, design and development of services sold by the retailer, or the solicitation of sales of services on behalf of the retailer.
(4) (A) Any retailer entering into an agreement or agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers of services to the retailer, whether by an Internet-based link or an Internet Web site, or otherwise, provided that both of the following conditions are met:
(i) The total cumulative sales price from all of the retailer’s sales, within the preceding 12 months, of services to purchasers in this state that are referred pursuant to all of those agreements with a person or persons in this state, is in excess of ten thousand dollars ($10,000).
(ii) The retailer, within the preceding 12 months, has total cumulative sales of services to purchasers in this state in excess of one million dollars ($1,000,000).
(B) An agreement under which a retailer purchases advertisements from a person or persons in this state, to be delivered on television, radio, in print, on the Internet, or by any other medium, is not an agreement described in subparagraph (A), unless the advertisement revenue paid to the person or persons in this state consists of commissions or other consideration that is based upon sales of services.
(C) Notwithstanding subparagraph (B), an agreement under which a retailer engages a person in this state to place an advertisement on an Internet Web site operated by that person, or operated by another person in this state, is not an agreement described in subparagraph (A), unless the person entering the agreement with the retailer also directly or indirectly solicits potential customers in this state through use of flyers, newsletters, telephone calls, electronic mail, blogs,
microblogs, social networking sites, or other means of direct or indirect solicitation specifically targeted at potential customers in this state.
(D) For purposes of this paragraph, “retailer” includes an entity affiliated with a retailer within the meaning of Section 1504 of the Internal Revenue Code.
(E) This paragraph shall not apply if the retailer can demonstrate that the person in this state with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the commerce clause of the United States Constitution.
(5) The retailer, within the preceding 12 months, has total cumulative sales of services in this state that exceed five hundred thousand dollars ($500,000). For purposes of this paragraph, sales of the retailer include sales
by an agent or independent contractor of the taxpayer. For purposes of this paragraph, sales in this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by regulations under Section 25137.
(b) Except as provided in this subdivision, a retailer is not a “retailer engaged in business in this state” under paragraph (2) of subdivision (a) if that retailer’s sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code, and if the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than 15 days, in whole or in part, in this state during any 12-month period and did not derive more than one hundred thousand dollars ($100,000) of
net income from those activities in this state during the prior calendar year. Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a “retailer engaged in business in this state,” and is liable for collection of the service tax, with respect to the receipt of the benefit of any services occurring at the convention and trade show activities and with respect to the receipt of the benefit of any services made pursuant to an order taken at or during those convention and trade show activities.
(c) Any limitations created by this section upon the definition of “retailer engaged in business in this state” shall only apply for purposes of tax liability under this part. Nothing in this section is intended to affect or limit, in any way, civil liability or jurisdiction under Section 410.10 of the Code of Civil
Procedure.
7195.21.
“Sale” means and includes any provision, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of a service for a consideration.7195.23.
(a) “Sales price” means the total amount for which a service is sold, valued in money, whether paid in money or otherwise, without any deduction on account of the cost of any expenses.(b) Notwithstanding subdivision (a), “sales price” does not include cash discounts allowed and taken on sales.
7195.25.
(a) “Seller” includes every person engaged in the business of selling services of a kind the sales price from the retail sale of which is required to be included in the measure of the services tax.(b) For the purposes of this section, the phrase “services of a kind the sales price from the retail sale of which are required to be included in the measure of the services tax” includes all services of a kind the sales price from the retail sale of which is, or would be, required to be included in the measure of the services tax if sold at retail, whether or not the service is ever sold at retail or is suitable for sale at retail.
7195.27.
(a) “Service” means a commodity consisting of activities engaged in by a person for another person for consideration.(b) “Services” does not include any of the following:
(1) Activities performed by a person who is not in a regular trade or business offering its services to the public.
(2) (A) Intercompany services rendered, furnished, or performed by and to members of an affiliated group of companies.
(B) For the purposes of this section, an
affiliated group would consist of any of the following:
(i) Corporations that are members of a commonly controlled group as defined by subdivision (b) of Section 25105, as that section read on the effective date of the act adding this section.
(ii) Entities considered as a single unit for purposes of Section 28 of Article XIII of the California Constitution.
(3) Services rendered, furnished, or performed by an individual for an employer that pays the individual wages subject to Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.
CHAPTER
2. Imposition of Tax
CHAPTER
2.
7196.
(a) An excise tax is hereby imposed on the receipt of the benefit of a service in this state that is purchased by a qualified business from any retailer at the following rates of the sales price of the services:(1) On and after January 1, 2020, and before January 1, 2021, 3/4 percent.
(2) On and after January 1, 2021, and before January 1, 2022, 11/2 percent.
(3) On and after January 1, 2022, 3 percent.
(b) The place in which the benefit of a service is received is the location where the qualified business that has purchased the service has either directly or indirectly received value from delivery of that service.
7196.1.
Every qualified business receiving a benefit from a service in this state purchased from a retailer is liable for the tax. The liability of the qualified business is not extinguished until the tax has been paid to this state except that a receipt from a retailer engaged in business in this state or from a retailer who is authorized by the department, under the rules and regulations as it may prescribe, to collect the tax and who is, for the purposes of this chapter relating to the tax, regarded as a retailer engaged in business in this state, given to the qualified business pursuant to Section 7196.2, is sufficient to relieve the qualified business from further liability for the tax to which the receipt refers.7196.2.
Every retailer engaged in business in this state and making sales of services whose benefit is received in this state, not exempted under Article 1 (commencing with Section 7196.60) of Chapter 4, shall, at the time of making the sales or, if the receipt of the benefit is not then taxable hereunder, at the time the receipt of the services becomes taxable, determine whether the purchaser is a qualified business, collect the tax from the qualified business purchasing the service, and give to the qualified business a receipt therefor in the manner and form prescribed by the department.7196.3.
The department, in consultation with the Franchise Tax Board, shall adopt regulations to implement the taxes imposed pursuant to this part that establish an apportionment methodology with respect to the receipt of the benefit of a service by a qualified business of a service that is engaged in business in this state and outside this state or is a part of an affiliated group of businesses as defined in Article 1 (commencing with Section 25101) of Chapter 17 of Part 11 that are engaged in business in this state and outside this state.7196.4.
Section 6203.5, regarding worthless and charged-off accounts, shall apply to this part. Except where the context otherwise requires, for purposes of this part the references in that section to tangible personal property shall include services.7196.5.
(a) The tax required to be collected by the retailer and any amount unreturned to the purchaser which is not tax but was collected from the purchaser under the representation by the retailer that it was tax constitutes debts owed by the retailer to this state.(b) It is unlawful for any retailer to advertise or hold out or state to the public or to any purchaser, directly or indirectly, that the tax or any part thereof will be assumed or absorbed by the retailer or that it will not be added to the selling price of the property sold or that if added it or any part thereof will be refunded.
(c) The tax required to be collected by the retailer from the purchaser shall be
displayed separately from the list price, the price advertised in the premises, the marked price, or other price on the sales check or other proof of sales.
(d) Any person violating Section 7196.2 and subdivision (b) or (c) is guilty of a misdemeanor.
CHAPTER
3. Permits and Registration, Presumptions, and Resale Certificates
7196.50.
(a) Every person desiring to engage in or conduct business as a seller within this state, or a retailer engaged in business in this state, selling services whose benefit is received in this state shall register with the department on a form prescribed by the department, providing information as the department may require. (b) An application filed pursuant to this section may be filed using electronic media as prescribed by the department.
(c) “Electronic media” includes, but is not limited to, computer modem, magnetic media, optical disk, facsimile machine, or telephone.
7196.51.
(a) For the purpose of the proper administration of this part and to prevent evasion of the service tax and the duty to collect the service tax, if a service is purchased from a seller or a retailer engaged in business in this state, then it shall be presumed that the receipt of the benefit of that service is in this state until the contrary is established. The burden of proving the contrary is upon the person who makes the sale unless the person takes from the purchaser a certificate to the effect that the service is purchased for resale.(b) The certificate relieves the person selling the service from the duty of collecting the service tax only if taken in good faith from a person who is engaged in the business of selling services and
who holds the permit provided for by Section 7296.50.
(c) (1) The certificate shall be signed by and bear the name and address of the purchaser, shall indicate the number of the permit issued to the purchaser, and shall indicate the general character of the service sold by the purchaser in the regular course of business. The certificate shall be substantially in such form as the department may prescribe.
(2) If the purchaser is a contractor of services that purchases services from a subcontractor of services for resale, the contractor may provide the subcontractor with a certificate that complies with this section.
(d) If a purchaser who gives a resale certificate or purchases services for the purpose of reselling receives the benefit of that service purchased in this state, that receipt of the
benefit of that service is taxable as of that time of receipt.
7196.52.
The department, whenever it deems necessary to ensure compliance with this part, may require any person subject to this part to place with it any security that the department determines to be reasonable, taking into account the circumstances of that person. The department may sell the security at public auction if it becomes necessary to do so in order to recover any fee or any amount required to be collected, including any interest or penalty due. Notice of the sale shall be served upon the person who placed the security personally or by mail.If service is made by mail, the notice shall be addressed to the person at his or her address as it appears in the records of the department. Service shall be made at least 30 days prior to the sale in the case of personal service, and at
least 40 days prior to the sale in the case of service by mail. Upon any sale, any surplus above the amounts due shall be returned to the person who placed the security.