A computer software maintenance contract obligates one person to provide to another person future updates, upgrades, andor support services for computer software. This quick reference guide is intended to provide guidance regarding the taxability of information technology it products and services nonitemized charges. Computer software maintenance agreements typically include. The following are answers to questions frequently asked of the department related to the suspension of the two policy statements. The term taxable services is defined in tax code section 151. Taxation of optional maintenance agreements is discussed below in section iiid. A maintenance agreement that is required to be purchased with prewritten software is fully taxable. Charges for maintenance agreements or warranty contracts are taxable if they are included in the selling price. 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. The south carolina department of revenue has issued a revenue ruling to remind taxpayers that effective september 1, 2011, a warranty or maintenance contract purchased after the tangible personal property is purchased is no longer taxable, with limited exceptions. 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. Nebraska taxability of warranties and maintenance agreements. 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.
A list of questions will appear pertaining to that category. 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. However, if a software maintenance agreement provides for the sale of both taxable elements such as upgrades to prewritten software and. Are computer software maintenance contracts subject to sales and use tax. At the time of this writing, microsoft has not indicated whether it will appeal. Software maintenance agreements software is sometimes sold or licensed for use with a maintenance agreement. A software maintenance agreement builds a bridge between your business needs and a software professional. Are sales of custom computer software subject to tax. Sales and use tax treatment computer hardware, software. Apr 29, 20 the taxpayer sold and taxed prewritten software transferred on a cd medium in may 2010. Taxable and non taxable services the following discussions have been divided into several sections and are designed to assist you with your filing responsibilities with current information and rates. The sale of a maintenance contract for prewritten software is generally subject to tax.
Calculation of tax for additional information regarding the taxability of maintenance agreements. Mandatory computer software maintenance contracts taxable exempt statuterule citecomment. 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. Illinois ruling clarifies taxability of maintenance agreements. In georgia, separatelystated charges for software maintenance agreements are taxable at fifty percent of the agreements total stated sales. 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. Sales of computer hardware, software or computer related services from march 6, 2009 through september 30, 2009.
Illinois guidance on software maintenance agreements the. Sales of offtheshelf or canned computer software are taxable unless certain criteria are met. Are optional maintenance contracts taxable in michigan. August 1, 2010 recertification library of definitions sstgb form f0014 revised may 2010 4 personal property and is not taxable in wisconsin. Computer software that is not custom software is considered.
Repair, maintenance, or restoration of a computer program is taxable when performed by a person who sold the computer program. 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 taxpayer in this case, is an it consulting business who resells technology related equipment and software. Taa 15015 software upgrade florida sales tax attorney. 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 warranties, maintenance agreements, or service contracts subject to the sales tax. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise. When is computer software subject to the sales tax in.
Provincial sales tax pst bulletin software bc government. 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. When an optional warranty is mandatory wacky tax wednesday. Generally, sales of warranties, guarantees, service agreements, and maintenance agreements are taxable. Nontaxable computer software sales computer software is not subject to colorado sales tax if it is provided, delivered, or transferred to the. Whether the arrangement is structured as a service agreement or a license to use software may impact the taxability of the transaction in hand. Taxpayers case involves software maintenance agreements, not other warranties on tangible personal property. The kansas statutes that tax sales of computer software have been amended many times over the past twentyeight years. 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.
When is computer software subject to the sales tax in tennessee. Additional resources the following is a list of statutes, regulations, forms, and guidance pertaining to sales tax on computer software. Taxability of software maintenance contracts in south carolina. Maintenance agreements differ from extended warranties in that they generally provide for routine, periodic repairs to property. 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. Computer software department of taxation and finance. 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. Computer software that is not custom software is considered to be canned software. 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. 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. Contract programming may result in the creation of tangible personal property, but it does not constitute the sale thereof.
Maintenance contracts that provide solely for the furnishing of repair labor are contracts for services and charges for such contracts are not taxable. 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. When your maintenance agreement sale is considered a mixed element. Therefore, prewritten computer software is taxable whether sold. Figuring out the treatment of pst on software purchases is not as easy as you might think. And what about maintenance contracts and software upgrades. So to say that many of the rules governing software taxation lack clarity is a bit of an understatement. Taxability of software maintenance contracts in south carolina explained. The agreement must be optional, as described in 830 cmr 64h. Tax compliance guide topic 348 maintenance agreements. Sales of custom software, which is prepared to the special order of the customer, are not taxable.
Michigan streamlined sales tax governing board section 328 taxability matrix effective date. An optional computer software maintenance contract is an optional contract that requires a seller to provide. Software maintenance agreement template w sample rocket. 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. Faq articles north dakota office of state tax commissioner. 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. Section b is the only section that addresses taxability. In addition to the various benefits that may be available through software maintenance or support agreements, diverse conditions exist in conjunction with the terms of these agreements. However, warranties, extended warranties, maintenance agreements or service contracts covering exempt equipment would also be exempt. 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. 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. 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. Are sales taxes still imposed upon the sale, use, or lease of canned computer software or software maintenance agreements. Pub 64, utah sales tax info for computer service providers.
Charges for an optional maintenance contract must always be separately stated on the invoice to the customer. Are computer software maintenance contracts subject to sales and. 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. 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. However, in california many types of labor charges are subject to tax. Information release ohio department of taxation home. 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. Letter rulings lr 7615 missouri department of revenue. 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. Software maintenance agreements taxable at 50% in georgia. While michigans sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes. Revenue determines the taxability of computer software.
The sellers charge to modify canned software is subject to tax unless it is separately stated on. The fees for computer software maintenance agreements are not subject to tax if the software is a custom. 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. See illinois administrative code, title 86, section. What is a single article, and how is sales tax on a single article calculated.
Alabama supreme court rules software is subject to sales. If a computer is purchased with custom software and the charges are not separately stated, the entire purchase is deemed taxable. The taxpayer claims that no cds or diskettes were provided for software maintenance. 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. 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. Computer software maintenance agreements washington. Yes, sales tax continues to be imposed upon these transactions. A maintenance agreement for custom software is not taxable. Maintenance agreements in general, any charge for a mandatory maintenance agreement included in the sale of taxable computer software is also taxable. The agreement may be sold as a mandatory agreement or optional agreement. Taxability depends on whether the transactions meet conditions of sections b note.
A summary of the tax treatment of sales of computer software and computer software maintenance contracts both prior to and on or after. Lr 7615 taxability of canned software, custom software, software licenses and maintenance agreements. Are software and digital products taxable in oklahoma. 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. 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. Each category encompasses a variety of specific services. For sales occurring on october 1, 2009 and thereafter.
Publication 119, warranties and maintenance agreements. This includes software maintenance contracts that provide services, i. Taxability matrix changes regarding software support services. This includes license agreements for use of such software. Rules for taxability of software and maintenance agreements vary. Software updates and maintenance agreements colorado.
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. An optional contract is one that the customer is not obligated to purchase as a condition to acquiring the software. Some states specifically include or exclude digital goods and services e. 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. Installation and maintenance services and service contracts fees for the service of installing software for the customer are subject to sales tax. This document serves as notice that the north carolina state taxability matrix was updated effective march 1, 2016 in regards to software. Software and maintenance agreements sales of canned computer software are taxable as retail sales in illinois.
The south carolina department of revenue has issued a revenue. This is a letter ruling issued by the director of revenue under section 536. Maintenance warranty agreements a warranty or service contract may be sold in connection with the sale of computer hardware and software. Sales of custom computer software are not taxable as long as certain criteria are met. This document serves as notice that the north carolina state taxability matrix was updated effective march 1, 2016 in regards to software support services. Its great that youre about to sign on a new client. 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. Dor sales and use tax treatment computer hardware, software. 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. 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 youre the one who owns a software support company or youre an independent software contractor, make sure you have a paper trail.
City of colorado springs city of colorado springs tax guide. Taxability of software maintenance contracts in south. Are sales of maintenance agreements or warranty contracts. Information technology products and services washington. In general, canned software is subject to sales tax in most states. 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. Taxable services texas comptroller of public accounts. Computer software offered for sale to the general public is taxable, regardless of whether the software has been modified for an individual customer.
A chronology of these changes can be found in a question and answer that is published in the departments policy library at. To view the questions, click on the select category bar and then click on the category you are interested in. Just make sure everyone understands the arrangement. Generally, when it products and services are sold as a nonitemized package, the entire transaction is subject to retail sales or use tax. They are treated as charges for the installation of tangible personal property.
The term cloud computing is defined by the national institute of standards and technology. 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. 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. Illinois sales tax on software and maintenance agreements. Illinois guidance on software maintenance agreements. If you must purchase a software maintenance agreement as part of purchasing taxable software, you must pay pst on the. 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. 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. The fees for computer software maintenance agreements are not subject to tax if the software is a custom program. Are computer software maintenance contracts subject to. Ruling 19200901 sets forth the sales tax treatment of computer software maintenance agreements, as of january 1, 2009. Presumption of taxability or non taxability of services consistent with general sales and use tax theory, the sale or use of tangible personal. The ohio department of taxation has compiled a list of frequently asked questions covering many different categories. Maintenance services may include including technical assistance and consultation.
This page describes the taxability of optional maintenance contracts in michigan, including parts purchased for use in performing service under optional maintenance contracts. Charges for optional software maintenance contracts that do not include upgrades are generally not taxable. Dec, 2011 taxability of software maintenance contracts in south carolina explained. 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. Michigan streamlined sales tax governing board section 328 taxability matrix. Sales of computer hardware, software or computer related services prior to march 6, 2009. 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. Are computer software maintenance contracts subject to sales. The taxability of the maintenance agreement, in turn, affects whether the service provider.
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