BEFORE THE UTAH STATE TAX COMMISSION
XXXXX : FINDINGS OF FACT,
Petitioner, : CONCLUSIONS OF LAW
: AND FINAL DECISION
AUDITING DIVISION OF THE : Appeal No. 91-1319
UTAH STATE TAX COMMISSION, :
: Account No. XXXXX
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
Joe B. Pacheco S. Blaine Willes