BEFORE THE UTAH STATE TAX
COMMISSION
__________________________________
XXXXX : FINDINGS OF FACT,
Petitioner, : CONCLUSIONS OF LAW
: AND FINAL
DECISION
v. :
AUDITING
DIVISION OF THE : Appeal No. 91-1319
UTAH STATE TAX COMMISSION, :
: Account
No. XXXXX
Respondent. :
____________________________
STATEMENT OF CASE
This
matter came before the Utah StaTe Tax Commission for a formal hearing on
XXXXX. Paul F. Iwasaki, Presiding
Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was
XXXXX. Present and representing the
Respondent was XXXXX, Assistant Utah Attorney General.
Based
upon the evidence and testimony presented at the hearing, the Tax Commission hereby
makes its:
FINDINGS OF FACT
1. The tax in question is sales tax.
2. The audit period in question is XXXXX
through XXXXX.
3. The Petitioner is an XXXXX which sells XXXXX
and XXXXX. One of the primary XXXXX the
Petitioner represents is XXXXX.
4. As a representative of XXXXX, the Petitioner
is also a member of the XXXXX which is an XXXXX which share XXXXX.
5. Because of a lack of XXXXX to the mailing
list and customer list needs of the representatives, a committee was formed by
XXXXX to seek out and obtain a XXXXX.
The Petitioner was a member of that committee.
6. The committee retained XXXXX to develop the
necessary software and a fixed price was settled upon. The cost was apportioned among the eight
members of XXXXX, of which Petitioner was one, who desired to obtain the
software. That amount was determined to
be $$$$$ each.
7. The $$$$$ was paid by each of the
participating members to one member of XXXXX who acted as the "bank"
that member would pay the bills incurred and would be reimbursed by the
Petitioner and other members.
8. In XXXXX the Petitioner paid $$$$$ to XXXXX
for computer software programs. XXXXX
was a subsidiary of XXXXX which was also a XXXXX for XXXXX.
9. The software enabled the Petitioner's computers
to directly interface with the order entry system of XXXXX.
10. The XXXXX had been developed by XXXXX for
XXXXX several years prior to the purchase by the Petitioner of the software.
CONCLUSIONS OF LAW
"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. "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 pre-existing routines,
utilities, or similar program components.
The addition of a customer name or account titles or codes will not
constitute a custom program.
The
sale, rental or lease of canned or prewritten computer software constitutes a
sale of tangible personal property and is subject to the sales and use tax.
The
sale, rental or lease of custom computer software is exempt from the sales and
use tax, regardless of the form in which the program is transferred. (Utah State Tax Commission Administrative
RuleR865-19S-92, et seq.)
DECISION AND ORDER
In
the present case, the Petitioner maintains that the two computer software programs
in question constituted custom software and thus were not subject to sales or
use tax.
While
it is true that the software programs in question may have been, in the broad
sense, "custom" software in that they were designed and written
specifically for a particular user, it is not necessarily true that any
purchase of those programs by any user is a sales tax exempt transaction. The exemption from sales tax to the
purchaser of a "custom" computer software program is available only
to the specific purchaser for whom the program was developed. A subsequent purchaser of that software is
purchasing "canned" computer software because that software has not
been prepared at his or her special request to meet his or her particular
needs.
Under
the facts of the present case, the Tax Commission finds that with respect to
the XXXXX software which was developed for and purchased by the eight members
of XXXXX which included the Petitioner, the purchase of such software by the
Petitioner was the purchase of custom software and therefore exempt from sales
or use tax. With respect to the XXXXX
which the Petitioner purchased from XXXXX the Tax Commission finds that because
the software was not developed specifically for and at the specific request of
the Petitioner, such purchase represented the purchase of canned software and
thus was subject to sales tax.
Based
upon the foregoing, the Tax Commission affirms in part, and reverses in part,
the determination of the Auditing Division.
The Auditing Division is ordered to amend its audit in accordance with
this decision. It is so ordered.
DATED
this 24th day of June, 1992.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner