A California administrative law judge recently determined that bundled packages of ultrasound services and tangible personal property were taxable. The bundled packages included property such as photos, CDs, and DVDs.
California taxes transactions that include taxable tangible personal property and nontaxable services when the property is more than incidental to the service and the true object of the transaction is the taxable property. The judge determined that the ultrasound procedure was not a substitute for a diagnostic medical ultrasound by a healthcare provider. The taxpayer provided complimentary re-scans for customer visits that did not result in high quality photos. Additionally, the price of a package varied based on how many photos, CDs, and DVDs a package contained. The judge concluded that the property was more than incidental to the services, and the true object of the packages was the photos, CDs, and DVDs.