DRS: PS 92(9), Sales and Use Taxes on Investment Banking and Advisory Services



450 Columbus Blvd
Hartford CT 06103


PS 92(9)

Sales and Use Taxes on Investment
Banking and Advisory Services

PURPOSE: This Policy Statement discusses whether investment banking and advisory firms generally are considered to be providing business analysis, business management and business management consulting services, as described in Conn. Gen. Stat. 12-407 (2) (i) (J)

BACKGROUND: 1990 Conn. Pub. Acts 148, 31 amended Conn. Gen. Stat. 12-407 (2) (i) (J) by adding the adjective "management" to the term "consulting services". Subsequent to the enactment of 1990 Conn. Pub. Acts 148, Conn. Agencies Regs. 12-407(2)(i)(J)-l was adopted and made applicable to sales of services occurring on and after July 1, 1991.

SPECIALIZED CONSULTING SERVICES NOT INTENDED TO BE TAXED: In amending the definition of "sale" and "selling" for purposes of the Sales and Use Taxes Act to include business management consulting services, rather than mere consulting services, the General Assembly clarified that it had not been its intent, in enacting 1989 Conn. Pub. Acts 251, l, which amended Conn. Gen. Stat. 12-407(2)(I)(J), to tax specialized consulting services, such as investment advisory and investment banking services. The remarks of Representative Cibes, the House Co-Chairman of the joint Finance, Revenue and Bonding Committee and the principal proponent of the bill that was enacted as 1990 Conn. Pub. Acts 148, 31, indicate that the bill was intended to

[clarify] the existing tax on business consulting services to limit those services to the furnishing of operating advice and assistance pertaining to the management of businesses. Management consulting services would pertain to the general operations and functions of businesses. It would not include providing specialized consulting services such as marketing, investment advice, investment banking, engineering, insurance, auditing and accounting.

33 H.R. Proc., Pt. 24, 1990 Sess., p. 8412.

Conn. Agencies Regs. 12-407(2)(i)(J)-1(f) excludes specialized services, such as investment banking services from the purview of business management consulting services. The Connecticut Supreme Court has noted that in the absence of any evidence to the contrary a regulation's submission to the regulation review committee and its subsequent ratification "[support] the position that the regulation is consistent with the general statutory scheme that the regulation was designed to implement." Texaco Refining & Marketing Co. v. Commissioner of Revenue Services, 202 Conn. 583, 600 522 A.2d 771 (1989).

NONTAXABLE SERVICES RENDERED BY INVESTMENT BANKING AND ADVISORY FIRMS: The following services, which are among those typically rendered by investment banking and advisory firms, are not taxable because they fall within the meaning of "investment banking services" or are not generally regarded as being directly related to a service recipient's core business activities, or are not otherwise regarded as services enumerated under Conn. Gen. Stat. 12-407(2)(i):

  • Providing services in connection with mergers and acquisitions such as evaluating acquisition candidates, formulating and executing takeover or defense strategies, and rendering fairness opinions on transaction prices. Buying or selling stock, securities, annuities, futures, options, and similar financial products, either on behalf of a firm's clients or for the firm's own account.
  • Orchestrating financings by designing a financing package, marketing it, and/or arranging the transaction details. Examples of transactions in which investment bankers may render such services are public securities offerings, private placements (involving the sale of securities to institutional investors instead of to the public), project or equipment financings and debt restructuring.
  • Providing underwriting services, involving the acquisition by the investment banker of a securities issue and the distribution thereof at a pre-determined price. In the alternative, investment bankers may offer "stand-by" services to purchase any portion of a securities offering not subscribed to by those already approached.
  • Furnishing investment information and advice and supervising client investments, as well as locating and monitoring investment advisors on behalf of clients.
  • Providing proxy solicitation and transfer agent services.
  • Providing financial research, analysis and information services, dealing with, for example, industry conditions or developments in money and capital markets.

TAXABLE SERVICES RENDERED BY INVESTMENT BANKING AND ADVISORY FIRMS: The following services, which are also among those typically offered by investment banking and advisory firms, are taxable when rendered by such firms because they are services specifically enumerated under other subdivisions of Conn. Gen. Stat. 12-407(2)(i):

Real estate maintenance services are taxable under Conn. Gen. Stat. 12-407(2)(i)(I) where the investment banking or advisory firms provide such services themselves. If the investment banking and advisory firms merely assist their clients in locating and contracting with maintenance service providers, such services are not subject to tax. Investment banking and advisory firms may also render advice in connection with the sale, acquisition and financing of real estate assets, and such services are not taxable.

Providing computer services such as computer programming, data processing and software design and analysis, and modification and training services related to custom software, where such services are the true object of the transaction between the service provider and the service recipient and are not merely incidental to the rendering of another service by the service provider to the service recipient. (See Ruling No. 91-11 for a discussion of when the true object of a transaction is a computer or data processing service.) Computer and data processing services, including those related to custom software, are taxable under Conn. Gen. Stat. 12-407(2)(i)(A).


FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.

Electronic Delivery Options: You can also obtain tax forms and publications 24-hours a day from our Web home page at http://www.ct.gov/drs.  Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.

PS 92(9)
Sales and use taxes
Issued: 9/9/92