REQUEST LETTER
NAME
ADDRESS
We are a STATE company in the process of signing up our first customer in Utah so I wanted to get a determination on our sales tax status. I contacted TP REP via your website and she instructed me to send this letter to you.
Following is a description of our company and what we do:
Company Name: COMPANY.
Description of Services: COMPANY monitors our customers' networks for three things:
· Intrusion attempts and actual penetrations by hackers
· Service patches and updates to network software
· Updates to virus scan patterns
If we detect a problem in any of the above areas, we alert the customer to that fact, and in some cases, point them to the appropriate websites where they can download updates.
The process we use to accomplish this monitoring is as follows:
·The client's devices send our servers in Texas information in the form of log files (via a direct, secure connection that their devices initiate)
·Our servers analyze those log files for penetration attempts by comparing them to protocol anomalies, signatures, event thresholds, and regular expressions.
·When we find such things, we contact the client so that they can respond appropriately
·We check the log files to determine what versions of software that the client is running (be it Microsoft, Novell, etc.), comparing them against the most recent versions available.
·When we find that there is a more current version, we notify the client of that fact
·Finally we check the log files to determine what versions of virus protection software that the client is running (be it Norton, McAfee, etc.) comparing them against the most recent versions available; we also check when the program was last run.
·When we find that there is a more current version, we notify the client of that fact and when we find that the virus protection program has not run recently, we notify the client of that fact.
·All notifications are by telephone, pager, and/or email.
Clients can use our secure website to log into the system at any time to see the status of their network devices. They also receive a daily email summarizing the traffic on their networks.
Contact: NAME, PHONE, EMAIL
Please let this letter serve as a request for a formal determination letter on this issue. Also, please feel free to contact me with any questions or clarifications. I look forward to your response.
Sincerely,
RESPONSE LETTER
January 14, 2003
NAME
ADDRESS
RE: Private Letter Ruling – Taxation of Computer Network Services
Dear NAME,
You have the requested that the Commission determine if services provided by COMPANY are subject to Utah sales and use tax. From your description of the services, it appears that COMPANY monitors its clients’ computer networks and alerts the clients when and where to purchase updates or current editions of their computer software.
Services to monitor network systems and alert clients of the need to purchase software are not taxable services. However, any sale of “canned computer software,” as defined in Utah Admin. Rule R865-19S-92 (“Rule 92”) (copy enclosed), is taxable. You do not indicate that COMPANY will provide its clients any computer software while performing the services described. Under these circumstances, COMPANY has no sales or use tax liability on the services described in the letter.
To reiterate, however, as a precaution, any sale or lease of canned computer software by COMPANY to its Utah clients is subject to sales and use tax. This would include canned computer software that the client might install on its computer system to enable COMPANY to monitor its network, should such software be necessary. Also, please be aware that other charges associated with the sale of canned computer software, such as charges for maintenance and consultation, are also taxable under and training, are also taxable under Rule 92.
If COMPANY provides canned computer software “free-of-charge” when a client purchases the monitoring services, more information is needed before the Commission can determine COMPANY Utah tax liability. In this case, either COMPANY will be deemed to have “sold” the software, in which case sales tax is due, or the software will be deemed incidental to the sale of nontaxable services, in which case COMPANY would be subject to a use tax on the software.
Please contact us if you have any additional questions.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/KC
02-024