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Bullock v. Statistical Tabulating Corp., 549 S.W.2d 166

Facts

Statistical Tabulating Corporation paid $20,800.47 in sales taxes under a deficiency determination made by the Comptroller of Public Accounts. The company provided data processing services where customers brought in raw data, which was then translated into a coded format that computers could read. The transaction involved the delivery of key punch cards containing the coded data, but the essence of the transaction was the service of translating the data, not the sale of the cards themselves.

The facts are uncontested. Plaintiff company is engaged in various aspects of data processing. The allegedly taxable transaction occurs in the following manner. A customer brings raw data, i. e., business records, invoices, and the like, to Plaintiff.

Issue

The main legal issue was whether the services provided by Statistical Tabulating Corporation constituted a 'sale of tangible personal property at retail' subject to sales tax under Texas law.

The sole question before us requires that we determine whether a certain aspect of Plaintiff's business involves a 'sale of tangible personal property at retail,' such that a sales tax is due under the 'Sales, Excise and Use Tax,' contained in the Revised Civil Statutes of Texas, Title 122A, Taxation-General, Article 20.01 and following.

Rule

The court applied the 'essence of the transaction' test to determine whether the transaction involved a sale of tangible personal property, as defined in Article 20.01 of the Texas Taxation-General statutes.

The particular portions of the statute to be construed are in Section K of Article 20.01. They read: (K)(1)(a) 'Sale' means and includes any transfer of title or possession . . . in any manner or by any means whatsoever, of tangible personal property for a consideration.

Analysis

The court analyzed the nature of the transaction and concluded that the true object of the transaction was the intangible product of coded data, rather than the tangible key punch cards. The court emphasized that the essence of the transaction was the service of translating raw data into a format usable by computers, which did not fall under the definition of taxable sales of tangible personal property.

The customer brings in raw data which is conceded by both parties to be an intangible item, but perceptible to humans. The customer then buys Plaintiff's capabilities in effecting a translation of the data such that it becomes perceptible to a computer.

Conclusion

The Supreme Court affirmed the judgment of the Court of Civil Appeals, ruling that the transaction did not involve a taxable sale of tangible personal property and thus no sales tax was due.

The judgment of the Court of Civil Appeals is affirmed.

Who won?

Statistical Tabulating Corporation prevailed in the case because the court found that the essence of their transaction was the provision of a service, not the sale of tangible personal property, which exempted them from sales tax.

Statistical Tabulating Corporation prevailed in the case because the court found that the essence of their transaction was the provision of a service, not the sale of tangible personal property.

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