00-0257
Sales & Use
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
PETITIONER, )
) ORDER
Petitioner, )
) Appeal No. 00-0257
v. ) Account No. #####
)
AUDITING DIVISION OF ) Tax Type:
Sales & Use
THE UTAH STATE TAX )
COMMISSION, ) Judge: Phan
)
Respondent. )
_____________________________________
Presiding:
Jane Phan,
Administrative Law Judge
Appearances:
For Petitioner: PETITIONER REP, Tax Director,
PETITIONER
For Respondent: Susan Barnum, Assistant Attorney General
Shelly Robinson, Tax
Audit Manager
STATEMENT
OF THE CASE
This matter came before
the Utah State Tax Commission for an Initial Hearing pursuant to the provisions
of Utah Code Ann. '59-1-502.5, on August 7,
2000.
Petitioner is appealing
additional sales tax of $$$$$ assessed by Respondent following an audit for the
period of October 1, 1996 through June 30, 1999. The portion of the assessment appealed pertains to a transaction
between Petitioner and COMPANY A.
Petitioner licensed to COMPANY A the use of a software program called
the PROGRAM, in connection with the sale of what was clearly a custom program
developed solely for COMPANY A. In the
Master Software License and Service Agreement, Petitioner listed separately the
charges for the PROGRAM as well as the training and maintenance of the PROGRAM
system, from the charges for the custom portion of the program.
Petitioner explained
that the PROGRAM is merely a pre-existing routine which is the very basic base
upon which it builds custom software programs.
The PROGRAM can be used in any type of software program. Besides the testing program Petitioner
produced for COMPANY A, Petitioner has used the PROGRAM in a medical program,
an energy usage program and a casualty insurance program. Petitioner explains that it is not even a
"basic shell" type program, because a "basic shell" would
be like a basic billing program which would be modified to meet each customer's
use but would always be a billing program.
Petitioner indicates that pursuant to the licensing agreement, COMPANY A
may not use the PROGRAM separately from the final custom program.
Petitioner argues that
the charges for the PROGRAM are exempt from sales tax pursuant to Utah
Administrative Rule 865-19S-92 (A)(2) because it is a program component of the
final custom software application which Petitioner built for COMPANY A. Petitioner points out that the rule allows
for the use of preexisting routines, utilities or similar program components in
developing custom software. In addition
Petitioner relies on Tax Commission Advisory Opinion 97-062.
Respondent states that
Petitioner teaches intensive training courses on, and has training manuals for,
the use of the PROGRAM. During any one
training course there may be several of Petitioner's various clients who attend
as well as Petitioner's recently hired employees. It is Respondent's position that the PROGRAM is "canned
software," and is, therefore, subject to sales tax pursuant to Utah Administrative
Rule R865-19S-92 (A) (5). Respondent
points out that Petitioner has separate charges for the PROGRAM as well as the
maintenance and training related to the
PROGRAM. Respondent states that where
charges for canned and custom software are stated separately they are given
different tax treatment, pointing to Utah Administrative Rule R865-19S-92(D).
APPLICABLE
LAW
There is levied a tax on
the purchaser for the amount paid or charged for the following: (a) retail
sales of tangible personal property made within the state . . . (Utah Code Ann. '59-12-103(1).)
"Canned computer
software" or "prewritten computer software" means a program or
set of programs that can be purchased and used without modification and has not
been prepared at the special request of the purchaser to meet their particular
needs. (Utah Admin. Rule R 865-19S-92
(A)(1).)
"Custom computer
software" means a program or set of programs designed and written
specifically for a particular user. The
program must be customer ordered and can incorporate preexisting routines,
utilities or similar program components.
The addition of a customer name or account titles or codes will not
constitute a custom program. (Utah
Admin. Rule R 865-19S-92 (A)(2).)
The sale, rental or
lease of canned or prewritten computer software constitutes a sale of tangible
personal property and is subject to the sales or use tax regardless of the form
in which the software is purchased or transferred. Payments under a license agreement are taxable as a lease or
rental of the software package. Charges
for software maintenance, consultation in connection with a sale or lease,
enhancements or upgrading of canned or prewritten software are taxable. (Utah
Admin. Rule R 865-19S-92 (B).)
The sale, rental or
lease of custom computer software constitutes a sale of personal services and
is exempt from the sales or use tax, regardless of the form in which the
software is purchased or transferred.
Charges for services such as software maintenance, consultation in
connection with a sale or lease, enhancements, or upgrading of custom software
are not taxable. (Utah Admin. Rule R
865-19S-92 (C).)
DECISION AND ORDER
After review of the
facts as presented by the parties in this matter, the Commission determines
that the PROGRAM is canned software and subject to sales tax. Based on the forgoing the audit assessment
is sustained.
This decision does not
limit a party's right to a Formal Hearing.
However, this Decision and Order will become the Final Decision and
Order of the Commission unless any party to this case files a written request
within thirty (30) days of the date of this decision to proceed to a Formal
Hearing. Such a request shall be mailed
to the address listed below and must include the Petitioner's name, address,
and appeal number:
Utah
State Tax Commission
Appeals
Division
210
North 1950 West
Salt
Lake City, Utah 84134
Failure to request a
Formal Hearing will preclude any further appeal rights in this matter.
DATED this 20th day of October
, 2000.
____________________________________
Jane Phan
Administrative Law Judge
BY ORDER OF THE UTAH STATE TAX
COMMISSION.
The Commission has
reviewed this case and the undersigned concur in this decision.
DATED this 20th day of October
, 2000.
Pam Hendrickson R.
Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc
B. Johnson
Commissioner Commissioner