Optional computer software maintenance contracts taxable exempt statuterule citecomment 30300 optional computer software maintenance contracts with respect to prewritten computer software that only provide updates or upgrades with respect to the software x nrs 360b. Software maintenance agreements software is sometimes sold or licensed for use with a maintenance agreement. Alabama supreme court rules software is subject to sales. Sales and use tax treatment computer hardware, software. However, warranties, extended warranties, maintenance agreements or service contracts covering exempt equipment would also be exempt. Michigan streamlined sales tax governing board section 328 taxability matrix effective date. Each category encompasses a variety of specific services. In the state of oklahoma, it is considered to be exempt so long as there is a tangible personal property transferred with custom software, which is incidental to sale of the software. If an optional computer software maintenance contract includes taxable and nontaxable products that are not separately itemized on an invoice, 40 percent of the purchase price of the contract is subject to sales tax. Sales of computer hardware, software or computer related services from march 6, 2009 through september 30, 2009. This includes the resale of maintenance agreements that are offered by various software and hardware manufacturers which it sells separately from the initial product or software.
In illinois, the taxability of a maintenance agreement depends in part upon whether charges for the agreement are included in the selling price of the tangible personal property it covers. Mar 18, 2016 the north carolina department of revenue advises that, for sales and use tax purposes, the state taxability matrix was updated effective march 1, 2016 taxday, 20160309, s. This document serves as notice that the north carolina state taxability matrix was updated effective march 1, 2016 in regards to software. The update includes a change in the taxability for optional computer software maintenance contracts with respect to prewritten computer software that only provide support services to the software. Charges for maintenance agreements or warranty contracts are taxable if they are included in the selling price. Charges for an optional maintenance contract must always be separately stated on the invoice to the customer. Software updates and maintenance agreements colorado. The taxability of maintenance agreements or warranty contracts is dependent upon whether the charges for those agreements are included in the selling price of tangible personal property. Nebraska taxability of warranties and maintenance agreements. So to say that many of the rules governing software taxation lack clarity is a bit of an understatement. A software maintenance agreement builds a bridge between your business needs and a software professional. City of colorado springs city of colorado springs tax guide.
Taxation of software downloads issues to consider when licensing a solution jul 25, 2016 too often the sales and use tax considerations of licensing software are overlooked when entering into the licensing agreement, only to find out years down the road that the transaction is under scrutiny in a state sales and use tax audit. Whether the arrangement is structured as a service agreement or a license to use software may impact the taxability of the transaction in hand. State law imposes the sales tax whether the price of the software maintenance contract is a mandatory or optional charge made by the software. This includes software maintenance contracts that provide services, i. Jul 25, 2016 taxation of software downloads issues to consider when licensing a solution jul 25, 2016 too often the sales and use tax considerations of licensing software are overlooked when entering into the licensing agreement, only to find out years down the road that the transaction is under scrutiny in a state sales and use tax audit. Maintenance contracts that provide solely for the furnishing of repair labor are contracts for services and charges for such contracts are not taxable. If youre the one who owns a software support company or youre an independent software contractor, make sure you have a paper trail. Generally, when it products and services are sold as a nonitemized package, the entire transaction is subject to retail sales or use tax.
Software maintenance agreements taxable at 50% in georgia. Computer software department of taxation and finance. Are sales of maintenance agreements or warranty contracts. Lr 7615 taxability of canned software, custom software, software licenses and maintenance agreements. They are treated as charges for the installation of tangible personal property. The sellers charge to modify canned software is subject to tax unless it is separately stated on. The sale of contracts, including service contracts, maintenance agreements, computer software maintenance contracts for prewritten computer software, and warranties, that provide, in whole or in part, for the future performance of or payment for the repair, service, alteration, fitting, cleaning, painting. The term taxable services is defined in tax code section 151. The sale of a maintenance contract for prewritten software is generally subject to tax. For sales occurring on october 1, 2009 and thereafter.
A mandatory maintenance agreement that accompanies the sale of software or grant of a license is considered part of the selling price and is taxable. To complicate matters further, lawmakers tend to root software taxability rules in old legal codes written long before something like software as a service saas even existed. Some states specifically include or exclude digital goods and services e. This document serves as notice that the north carolina state taxability matrix was updated effective march 1, 2016 in regards to software support services. Prewritten computer software is taxable as tangible personal property, whether it is sold as part of a package or as a separate component, regardless of how the software is conveyed to the purchaser. Provincial sales tax pst bulletin software bc government.
The taxpayer claims that no cds or diskettes were provided for software maintenance. Information release ohio department of taxation home. Maintenance warranty agreements a warranty or service contract may be sold in connection with the sale of computer hardware and software. The fees for computer software maintenance agreements are not subject to tax if the software is a custom. Wipfli has the state and local tax resources to help clients navigate through contracts involving software download arrangements and the potential taxability for sales and use tax purposes. Illinois guidance on software maintenance agreements the. Sales of custom software, which is prepared to the special order of the customer, are not taxable. In georgia, separatelystated charges for software maintenance agreements are taxable at fifty percent of the agreements total stated sales. Revenue determines the taxability of computer software. An optional contract is one that the customer is not obligated to purchase as a condition to acquiring the software.
See illinois administrative code, title 86, section. The term cloud computing is defined by the national institute of standards and technology. Just make sure everyone understands the arrangement. Installation and maintenance services and service contracts fees for the service of installing software for the customer are subject to sales tax. The agreement must be optional, as described in 830 cmr 64h. A summary of the tax treatment of sales of computer software and computer software maintenance contracts both prior to and on or after. Contract programming may result in the creation of tangible personal property, but it does not constitute the sale thereof. The taxpayer also charged and collected the virginia retail sales tax on the sale of an annual software maintenance contract but questions whether the tax should apply. Ruling 19200901 sets forth the sales tax treatment of computer software maintenance agreements, as of january 1, 2009. This is a letter ruling issued by the director of revenue under section 536. Yes, sales tax continues to be imposed upon these transactions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise. Charges for optional software maintenance contracts that do not include upgrades are generally not taxable.
The agreement may be sold as a mandatory agreement or optional agreement. The south carolina department of revenue has issued a revenue. Virginia taxability of prewritten software and maintenance agreements posted on may 9, 20 by zasalt no comments v salt report 2465 the virginia tax commissioner issued a ruling regarding the application of sales and use tax to prewritten software, software maintenance agreements, updates to prewritten software, and training. If a computer is purchased with custom software and the charges are not separately stated, the entire purchase is deemed taxable. Are sales taxes still imposed upon the sale, use, or lease of canned computer software or software maintenance agreements. Calculation of tax for additional information regarding the taxability of maintenance agreements. While michigans sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes.
Are software and digital products taxable in oklahoma. A chronology of these changes can be found in a question and answer that is published in the departments policy library at. Optional computer software maintenance contracts taxable exempt statuterule citecomment optional computer software maintenance contracts with respect to prewritten computer software that only provide updates or upgrades with respect to the software x 77. Are computer software maintenance contracts subject to sales and. Are sales of custom computer software subject to tax. Publication 119, warranties and maintenance agreements. Taxpayers case involves software maintenance agreements, not other warranties on tangible personal property. What is a single article, and how is sales tax on a single article calculated. However, the taxability of software maintenance agreements remained a narrow exception to the presumed nontaxability of other tangible personal property maintenance agreements. Figuring out the treatment of pst on software purchases is not as easy as you might think.
To view the questions, click on the select category bar and then click on the category you are interested in. Aug 24, 2016 illinois sales tax on software and maintenance agreements software and maintenance agreements sales of canned computer software are taxable as retail sales in illinois. The sale of contracts, including service contracts, maintenance agreements, computer software maintenance contracts for prewritten computer software, and warranties, that provide, in whole or in part, for the future performance of or payment for the repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection, or. If you have additional inquiries, you may submit them to. Nontaxable computer software sales computer software is not subject to colorado sales tax if it is provided, delivered, or transferred to the customer by way of any of the methods described in the table to the right. A list of questions will appear pertaining to that category. Section b is the only section that addresses taxability. Taxability of software maintenance contracts in south. And what about maintenance contracts and software upgrades.
Taxability matrix changes regarding software support services. A maintenance agreement that is required to be purchased with prewritten software is fully taxable. Are computer software maintenance contracts subject to. An optional computer software maintenance contract is an optional contract that requires a seller to provide. Illinois guidance on software maintenance agreements. A computer software maintenance contract obligates one person to provide to another person future updates, upgrades, andor support services for computer software. Sales of custom computer software are not taxable as long as certain criteria are met. Computer software maintenance agreements typically include. Taxation of optional maintenance agreements is discussed below in section iiid.
This includes license agreements for use of such software. Apr 08, 20 however, the taxability of software maintenance agreements remained a narrow exception to the presumed nontaxability of other tangible personal property maintenance agreements. The taxability of the maintenance agreement, in turn, affects whether the service provider. Taxable services texas comptroller of public accounts.
If the maintenance contract is optional to the lessee of the c anned software, the rental tax will not apply to the gross receipts derived therefrom. Taxability depends on whether the transactions meet conditions of sections b note. The fees for computer software maintenance agreements are not subject to tax if the software is a custom program. If the department rules that the original software maintenance contract is taxable on 50% of the contract price, are the subsequent maintenance contract renewals subject to the same tax treatment. The ohio department of taxation has compiled a list of frequently asked questions covering many different categories. Its great that youre about to sign on a new client. If the maintenance agreement for prewritten software is optional, includes updates to the software and the update charges are separately stated, the maintenance agreement is not subject to tax but the software updates are subject to tax. Are computer software maintenance contracts subject to sales and use tax. Are warranties, maintenance agreements, or service contracts subject to the sales tax. Dor sales and use tax treatment computer hardware, software. The term computer software maintenance contract means a contract that obligates a person to provide a customer with future patches, updates, upgrades, or repairs of computer software. Nontaxable computer software sales computer software is not subject to colorado sales tax if it is provided, delivered, or transferred to the.
Although microsoft is a corporate income tax case, the courts ruling on software as tangible personal property should be authoritative under the principle of stare decisis for purposes of the sales and use tax, to maintain consistency between both tax types. Information technology products and services washington. Software maintenance contracts or warranty contracts that provide for computer and data processing services, such as telephone support and other services, and include upgrades of prewritten software where tangible personal property is provided to the purchaser, are presumed to be contracts for the sale of tangible personal property taxable at 6. Maintenance contracts, service agreements and warranties maintenance contracts, service agreements and extended warranties sold to maintain a specific piece of equipment or computer software beyond the manufacturers original warranty may be subject to salesuse tax. When is computer software subject to the sales tax in. Jun 26, 20 however, if the sale of a maintenance agreement includes charges for updates of canned software, such as new releases or new versions designed to replace an older version of the same product, and also includes product enhancements and improvements, the rules governing the taxability of maintenance agreements do not apply. Faq articles north dakota office of state tax commissioner. If the optional computer software maintenance contract includes both taxable and exempt elements that are not itemized separately on the invoice or similar billing document, the contract shall be characterized as a sale of prewritten computer software, which is defined to be tangible personal property by division yy of r. Computer software maintenance agreements washington. Illinois ruling clarifies taxability of maintenance agreements. However, if a software maintenance agreement provides for the sale of both taxable elements such as upgrades to prewritten software and.
In a recent private letter ruling, the illinois department of revenue explained the sales and use tax treatment of software licensing charges and software maintenance and consulting services. The type of software, where it is being used, how it is billed on the invoice, and the items included in the charge determines its taxability. Three policy statements related to the sales taxation of canned computer software, computer software maintenance agreements, and electronic discovery services continue to represent the position of the louisiana department of revenue and are not suspended including. Pub 64, utah sales tax info for computer service providers. Repair, maintenance, or restoration of a computer program is taxable when performed by a person who sold the computer program. Listed below are the types of services that are taxable, including examples and references to additional information. Computer software offered for sale to the general public is taxable, regardless of whether the software has been modified for an individual customer. Additional resources the following is a list of statutes, regulations, forms, and guidance pertaining to sales tax on computer software. Illinois sales tax on software and maintenance agreements. Software and maintenance agreements sales of canned computer software are taxable as retail sales in illinois. However, in california many types of labor charges are subject to tax. Software maintenance agreement template w sample rocket. Apr 29, 20 the taxpayer sold and taxed prewritten software transferred on a cd medium in may 2010.
Jun 21, 20 salt report 2598 the nebraska department of revenue issued a sales and use tax information guide that discusses the taxability of warranties, guarantees, and service maintenance agreements. In general, canned software is subject to sales tax in most states. Sales tax in alabama is levied on the sale of tangible personal property, which is broadly defined as property that can be seen, weighed, measured, felt, touched, or in any other way perceived by the senses. Optional computer software maintenance taxable exempt statuterule cite comment contracts optional computer software maintenance contracts with respect to 30300 prewritten computer software that only x 9. If you must purchase a software maintenance agreement as part of purchasing taxable software, you must pay pst on the. Letter rulings lr 7615 missouri department of revenue. Maintenance agreements differ from extended warranties in that they generally provide for routine, periodic repairs to property. Aug 05, 2014 therefore, if a purchaser has employees who use the software located both in and outside of new york state, the seller of the software should collect tax based on the portion of the receipt attributable to the users located in new york. The following are answers to questions frequently asked of the department related to the suspension of the two policy statements.
Sales of offtheshelf or canned computer software are taxable unless certain criteria are met. Mandatory computer software maintenance contracts taxable exempt statuterule citecomment. Therefore, prewritten computer software is taxable whether sold. Although the list of examples of the services subject to sales tax are not intended to be all inclusive, it should be used as a guide to answer. When is computer software subject to the sales tax in tennessee. Michigan streamlined sales tax governing board section 328 taxability matrix. Generally, sales of warranties, guarantees, service agreements, and maintenance agreements are taxable. The kansas statutes that tax sales of computer software have been amended many times over the past twentyeight years. The repair, service, alteration, fitting, cleaning, painting, coating, towing, maintenance, and inspection of tangible personal property is also subject to wisconsin sales or use tax. The arizona together initiative established by governor ducey connects individuals and businesses to resources, information, and volunteer opportunities to support arizonans during the covid19 outbreak. At the time of this writing, microsoft has not indicated whether it will appeal. Taxability of software maintenance contracts in south carolina.
Computer software that is not custom software is considered to be canned software. Presumption of taxability or non taxability of services consistent with general sales and use tax theory, the sale or use of tangible personal. When your maintenance agreement sale is considered a mixed element. Tax compliance guide topic 348 maintenance agreements. Sales of computer hardware, software or computer related services prior to march 6, 2009.
Maintenance agreements in general, any charge for a mandatory maintenance agreement included in the sale of taxable computer software is also taxable. This quick reference guide is intended to provide guidance regarding the taxability of information technology it products and services nonitemized charges. The taxpayer in this case, is an it consulting business who resells technology related equipment and software. A separate charge for an optional software maintenance agreement is 50 percent taxable if you provide the purchaser with any physical products during the term of the agreement for example, your customer will receive software updates on cd. Dec, 2011 taxability of software maintenance contracts in south carolina explained. Are sales of maintenance agreements or warranty contracts taxable. Taa 15015 software upgrade florida sales tax attorney. Taxability of software maintenance contracts in south carolina explained. Computer software that is not custom software is considered.
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