May 7, 1999

You have requested a letter ruling on behalf of *************** together with its individual members (the "Association"). Your request pertains to the taxation of the charge for a transcript, whether in written or electronic form, by a court reporter under a variety of circumstances.

FACTS

The Association's members (the "Reporters") are engaged in the business of recording legal proceedings and preparing written and electronic transcripts of such proceedings (i.e., "legal transcripts"). The Reporters also similarly record non-legal events under certain circumstances (i.e., "non-legal transcripts). A transcript may be furnished on paper, on a storage medium, or electronically.

Legal transcripts are generally furnished for a fee to the persons that participate in a legal proceeding. This fee includes labor, transcription costs, and copies of the transcript. Reporters generally charge these persons at rates per page for time spent recording proceedings and preparing transcripts. The fee for the legal transcript is set at a price that anticipates that many if not all persons that participate in the legal proceeding will purchase a transcript. As a result, the Reporter typically prices the original legal transcript at a price below that which the Reporter would otherwise charge. The invoices sent by the Reporter specifically reference "copies," which is a term commonly used to denote each person's allocable share of the charge for the Reporter's services. [1]

DISCUSSION

Massachusetts law imposes a sales or use tax on the retail sale of tangible personal property. See G.L. c. 64H, § 2; G.L. c. 64I, § 1. A "retail sale" is a sale of tangible personal property for any purpose other than for resale in the ordinary course of business. G.L. c. 64H, § 1. However, a retail sale does not include personal "service transactions which involve no sale or which involve sales as inconsequential elements for which no separate charges are made." Id.

When personal services produce tangible personal property, the application of the service exclusion depends upon the "object of the transaction." See Houghton Mifflin Co. v. State Tax Commission, 373 Mass. 772 (1977). As stated in Houghton Mifflin:

Whether a particular transaction involving the transfer of property is a personal service transaction depends on the facts. Both parties argue, and we agree, that where the services and the property are inseparable, because of the integrated nature of the transaction, the character of the transaction must be analyzed to ascertain whether the buyer's basic purpose was to acquire the property which was sold to it, or to obtain the services .... The test is the object of the transaction. If the buyer's fundamental object is to obtain the item of personal property transferred to it, the sale of that object cannot reasonably be considered one for personal service.

Id. at 774. Accord Commissioner of Revenue v. Houghton Mifflin Co., 396 Mass. 666, 670 (1986).

The factual nature of the object test makes it difficult to apply in certain instances. See generally 2 Hellerstein & Hellerstein, State Taxation ¶ 12.07[1] (2d ed. 1992 & Supp. 1996/97). For example, the two Houghton Mifflin cases referenced above each reached a different determination on somewhat similar facts. Compare Houghton Mifflin, 373 Mass. 772 (1977) with Houghton Mifflin, 396 Mass. 666 (1986). The SJC has stated that it will "not attempt to define the circumstances in which professional or artistic skills might become such a major aspect of a transaction that the personal service nature of the arrangement becomes dominant." See Houghton Mifflin, 373 Mass. at 774-775.

The Department's long-standing position has been that when a person contracts for a written transcript, the creation of this initial transcript constitutes a non-taxable service. In these cases, it is irrelevant whether the transcript pertains to a legal or non-legal proceeding. The more difficult question is whether the sale of a copy of a transcript, legal or otherwise, is subject to sales tax.

In general, the sale of a transcript copy is taxable since the service was previously rendered, and the purchaser obtains an item of tangible personal property that was previously produced. However, in the instance of a legal transcript, two separate considerations alter this analysis.

First, a person who participates in a legal proceeding generally purchases a legal transcript to evaluate the legal issues involved in the claim. Second, although typically a single party contracts for the Reporter's services, the Reporter performs the service of preparing a legal transcript as if each of the persons participating in the legal proceeding had originally requested it. Thus, in practice, a legal transcript is prepared for not one person, but rather for each of the persons who participate in the legal proceeding.

In light of the above analysis, we conclude that the sale of a transcript to a person who participates in a legal proceeding is not subject to the sales tax. For purposes of this analysis, it is irrelevant whether the transcript is transferred in written form, or in the form of a computer disk or some other electronic medium. We note that this analysis generally comports with that used by other states. District of Columbia v. Acme Reporting Co., 530 A.2d 708 (D.C. Ct. App. 1987); Askew v. Bell, 248 So. 2d 501 (Fla. D. Ct. App. 1971); Booth v. City of New York, 68 N.E. 2d 870 (App. Div. 1946); Texas Comptroller of Public Accounts, Hearing #34,752, 1997 Tex. Tax LEXIS 112 (March 14, 1997); Virginia 1995 Va. Tax LEXIS 100, P.D. 95-116 (May 12, 1995); New Mexico St. Tax Rep. (CCH), ¶ 40-742, Ruling 82-185-1 (Jan. 14., 1982); West Virginia St. Tax Cas. (CCH), ¶ 64-084, Admin. Dec. 80-31-C (July 1981). [2]

We have defined the terms used in this ruling to effectuate the ruling's intent. For example, a person who participates in a legal proceeding includes the parties to the dispute, any party intervening in the dispute and the legal counsel for these persons. In addition, a person who participates in a legal proceeding includes a person or entity that forms a part of the legal proceeding, including any witness called by a party to a legal dispute, counsel for the witness and the adjudicating or arbitrating body. The term "legal proceeding" means any proceeding in which legal rights and responsibilities are determined, whether it be determined by adjudication, arbitration, or ruling by a board with quasi-judicial powers. The term "legal proceeding" also means any fact-finding proceeding that is preliminary to or procedurally necessary for the determination of legal rights and responsibilities. For example, the term "legal proceeding" includes a court hearing, a deposition, an insurance exam under oath, a zoning board's hearing, and a public hearing if the proceeding is preliminary to, or procedurally necessary for, the initiation of a lawsuit or the receipt of a legal authorization.

Although we have broadly construed the terms used in this ruling, we note that there are some limitations on these terms. For example, we note that you have urged us to extend our analysis to the situation in which a legal transcript is provided to a person who is contemplating joining a lawsuit. We decline to extend our ruling to these situations because the purchase of a transcript copy in these cases resembles the purchase of a publication, and the sale of a publication is subject to tax. See c. 64H, § 1. We note that other jurisdictions apply a similar rule. See Askew v. Bell, 248 So. 2d 501 (Fla. D. Ct. App. 1971) ("the sales of the transcripts are taxable only when made to third parties who are not parties to the proceedings for which the court reporter was engaged"); Virginia 1995 Va. Tax LEXIS 100, P.D. 95-116 (May 12, 1995) (stating that "transcript copies provided to third parties who are not part of the legal proceedings would be considered taxable sales"). See also District of Columbia v. Acme Reporting Co., 530 A.2d 708 (D.C. Ct. App. 1987) (noting the taxpayer's stated position that "sales and use taxes do not apply to sales of transcripts by court reporters .... except when purchased by a non-party to the proceeding being recorded").

RULINGS

You have provided several fact patterns describing the situations in which legal and non-legal transcripts may be sold. Those fact patterns and our sales/use tax rulings with respect to them are as set forth below.

Sale of a Legal Transcript

1. A sues B for personal injury arising from an accident. A's attorney takes the deposition of C who witnessed the accident. A's, B's and C's attorneys attend the deposition and request a copy of the transcript. Copies of the deposition transcript are sent to each of the three attorneys. The three attorneys are separately invoiced for the Reporter's services on a per page basis. These transactions are not taxable since each of the purchasers represents a person who participates in a legal proceeding.

2. Same facts as #1, except that the attorneys also request the written transcript in the form of an ASCII file (a standardized computer file format which can be transmitted electronically or on a storage medium) and the Min-U-Script (a written version of a transcript in which four pages are condensed into one.) These transactions are not taxable for the reasons set forth in #1.

3. A has a dispute against B. A has not yet commenced litigation. A and B agree to submit their dispute to arbitration. A's and B's attorneys attend the arbitration and request a copy of the transcript. The arbitrator also requests a copy of the transcript. A's and B's attorneys are separately invoiced for the Reporter's services. A's and B's attorneys share the cost of the arbitrator's copy. The Reporter's services are billed to A's and B's attorneys on a per page basis. These transactions are not taxable since each of the purchasers is a person who participates in a legal proceeding.

4. A dies. The attorney general requires that an inquest be held. The court is provided with a copy of the transcript of the inquest. The Reporter's services are billed to the court on a per page basis. This transaction is not taxable since the court is a person that participates in the legal proceeding.

5. Company A wishes to build a pipeline through Town B. Town B holds a public hearing regarding this matter. The Town's Board of Selectmen and Company A's attorney request a copy of the transcript of the public hearing. The Reporter's services are billed to the Board of Selectmen and Company A's attorney on a per page basis. The public hearing is a legal proceeding since it is a proceeding preliminary to a determination whether the Company may build a pipeline. The transaction with the Board of Selectmen is not taxable since the Town contracted for the transcript and the Board of Selectmen represents the Town. The transaction with Company A's attorney is not taxable because the public hearing is a legal proceeding and the attorney represents the Company at that proceeding.

6. A is injured in a motor vehicle accident. In contemplation of litigation, Insurance Company B conducts an examination under oath of A. A and Insurance Company B's attorneys attend the examination under oath and request a copy of the transcript. Copies of the transcript are sent to A, and Insurance Company B's attorneys. A, and Insurance Company B's attorneys are separately invoiced for the Reporter's services on a per page basis. The examination is a legal proceeding since it is a fact-finding proceeding that is preliminary to the initiation of a lawsuit. The transaction with Insurance Company B's attorney is not taxable since Insurance Company B contracted for the transcript. The transaction with A is not taxable since A is a person that participates in a legal proceeding.

7. A, B, and C are involved in a motor vehicle accident where A hits B who is then pushed into C. B sues A and takes A's deposition. C has not decided whether to bring suit. C's attorneys does not attend A's deposition, C's attorney requests a copy of A's deposition transcript. The Reporter's services are billed to each of the attorneys for A, B and C on a per page basis. The transactions with A and B are not taxable since these two purchasers are persons who participate in the legal proceeding. However, the transaction with C is taxable since C is not a person participating in the proceeding.

Sale of a Non-legal Transcript

1. Company A holds its annual shareholder's meeting. The Board of Directors of Company A requests copies of the transcript of the shareholder's meeting. The Reporter's services are billed to the Board of Directors on a per page basis. This transaction is not taxable since the Company contracted for the creation of the transcript and the Board represents the Company.

2. A is charged with a crime. The Reporter transcribes the trial proceedings for a publisher so that the publisher's subscribers can read the trial transcript. The Reporter's services are billed to the publisher on a per page basis. This transaction is not taxable since the publisher contracted for the creation of the transcript.

3. Same facts as #2 above, except that a second publisher also purchases a copy of the trial proceedings transcript from the Reporter. This transaction is taxable since the object of the transaction is tangible personal property.

4. A has a hearing impairment. A is enrolled as a student in a bar review class. The Reporter transcribes the class lecture so that A may read the text of the lecture on her computer screen during class. The Reporter's services are billed to A on a per hour basis. This transaction is not taxable since the student contracted for the creation of the transcript.

Very truly yours,

/s/Frederick A. Laskey

Frederick A. Laskey
Commissioner of Revenue

FAL:DMS:mf

LR 99-11



[1] The charge to each person is not necessarily the same. For example, the charge to the moving party in a deposition is generally higher than the charge to the other parties or persons participating in the deposition.

[2] But see Cal. Bd. of Equal, Annot. #515.0070 (April 26,1978) (stating that, in the context of a legal proceeding, the only non-taxable sale of a transcript is that to the contracting party).