Response August 20,
1993
Request
Commissioner Joe B.
Pacheco
Utah State Tax
Commission
160 East 300 South
Salt Lake City, Utah
84134
Request for Advisory
Opinion: Charges for Computer Use
Dear Commissioner
Pacheco:
I hereby request the
Tax Commission's position regarding the sales tax implications of the following
set of facts.
Among other services,
a copy shop offers use of eleven workstations on a personal computer network
for an hourly charge. Customers may
come to the establishment and use the computers. The customer is charged XXXXX per hour of connect time. The workstations are furnished with word
processing, spreadsheet, desktop publishing and other software through
connection to a network file server.
Along with the workstations, printers, scanners, modems and other
peripheral devices are hooked to the network and are made available for the
customers' use at no additional charge.
There is no additional charge for printed or other hard copy
output. For an additional fee of $$$$$
per month customers may rent a five megabyte personal file area on the network
file-server and includes an electronic mailbox. Additional space is available in
one megabyte increments for $$$$$ per megabyte per month.
All equipment on this network was acquired for the
customers' use except for one workstation which is at the cash register and is
used by the store to accumulate billing information. The same is true of all the software with the exception of an
accounting and billing program which is used by the store for the same purpose
as the single workstation dedicated to the store's use.
Customers may also access certain on-line services such as
Compuserve, Lexis/Nexis, the Official Airline Guide and others through the
store's accounts with the various services.
Customers pay additional charges for accessing these services and the
charges amount to approximately 125 percent of the amounts the online services
charge.
Questions
1. Is the $$$$$ hourly use charge subject to
sales tax as a rental of tangible personal property? If not, is it taxable on any other basis?
2. Is the $$$$$ monthly charge for use of disk
space including the space used for electronic mail subject to sales tax? If so, on what basis is it taxable?
3. Are the surcharges for use of the store's
accounts with online data services subject to a sales tax? If so, on what basis is it taxable?
4. If the answer to Question #l indicates a
tax, then are the purchases of the workstations, file server, peripheral
devices, and other network components exempt from sales tax as purchases of
tangible personal property for resale as component parts of a compounded
product? If not why not?
5. Are repair and maintenance costs of the
network components exempt from sales tax?
If not, why not?
6. If the answer to Question #l indicates a
tax, then are purchases of supplies such as toner cartridges, printer ribbons,
paper and transparency film exempt from sales tax as purchases of tangible
personal property for resale? If not,
why not?
7. If the answer to Question #l indicates a
tax, then are purchases of software such as operating system software,
networking software, applications software and other software used by the customer
exempt from sales tax as purchases of tangible personal property for
resale? If not, why not?
8. Is the purchase of accounting software
facilitating the billing for usage time and online data service charges subject
to sales tax?
9. Is the purchase of the workstation dedicated
to the store's use subject to a sales tax?
Thank you for your
response at your earliest convenience to my inquiry. If you have any questions or need additional clarification,
please call me at XXXXX.
Sincerely,
XXXXX
TO: XXXXX, Director
FROM: XXXXX, Secretary
DATE: XXXXX
SUBJECT: Request for Advisory Opinion - No. 93-012DJ
Attached is a request
for an advisory opinion from XXXXX of XXXXX.
Will you please review the request of XXXXX regarding sales tax on
charges for computer use.
Please prepare the
response for signature by the Commission as per the guidelines established by
them.
Thank you.
XXXXX
Re: Advisory Opinion -
Sales Tax Applicability to Charges for the Use of Computers, Software and
Network Equipment
Dear XXXXX:
Your request (copy
attached) for an advisory opinion as to whether sales tax applies to various
charges for use of network computers was referred to the Auditing Division for
their analysis.
The division's staff
recommendations are as follows:
1. The $$$$$ hourly use charge is taxable as a
rental of tangible personal property as described in Administrative Rule
R865-19-32S.
2. The $$$$$ charge for use of an amount of
disk storage capacity constitutes a rental of tangible personal property and is
subject to the tax.
3. Charges and surcharges for use of the
store's accounts with on-line data services are not currently considered
taxable.
4. The purchase of workstations, the file
server, peripheral devices, and other network components are exempt from tax as
purchases for resale to the extent that they are for use of the customer under
the rental charge arrangement. Since
the store also uses the items, such as monitoring use for billing purposes,
cash register, accounting, etc.; the store should self-accrue on such use by
some reasonable basis (unless such use is de minimis).
5. Repair and maintenance cost of rented
components would be exempt from the tax as being for resale and recovered
through the standard rental charges.
6. Similarly, to the extent used or provided to
the customer, purchases of listed supplies would also be exempt.
7. The acquisition of the software for use by
the customer is considered as a purchase for resale or for rental purposes.
8. The purchase of accounting software is for
use of the business and is, therefore, subject to the tax.
9. Similarly, the purchase of the workstation
dedicated to the store's use is subject to the tax.
Based upon the facts
presented in your letter, we are in agreement with the Auditing Division's
recommendations. Obviously, if there
are deviations from these facts, this opinion may be negated.
If you do not agree with
this determination, you may appeal to the Tax Commission for a formal
hearing. The results of that hearing
would constitute a declaratory judgment and be appealable to the Utah State
Supreme Court. A Notice of Appeal
Rights and a copy of the Utah Taxpayer Bill of Rights are attached.
For The Commission,
Alice Shearer
Commissioner