96-150
Response
October 21, 1996
Request
October
1, 1996
XXXXX
Utah
State Tax Commission
210
North 1950 West
Salt
Lake City, UT 84134
RE:
Sales Tax Advisory Opinion Request
We
purchased an accounting and job costing software system from a software
reseller about a year ago. Included in
the purchase was training and telephone support for the first year. Each year we pay a set amount for software
upgrades and enhancements. These are
all taxable.
After
the telephone support hours which came with the original purchase are used up,
we have the option of purchasing additional support time. For example: We can purchase an additional
10 hours of telephone support for $950.
This is billed separately and is primarily used for the following
purposes:
Training
of our employees.
Getting
answers to questions on how to use the software.
Making
the software fit the needs of our specific company.
Getting
answers on how to correct problems which may occur.
It
is my understanding that this telephone support is a service which is not
taxable. The software reseller is
charging us sales tax. Please tell me
if this is taxable.
Sincerely,
XXXXX
XXXXX
Advisory opinion - sales tax on purchases associated
with software
Dear XXXXX
We
have received your request for tax guidance concerning the application of sales
tax to charges for support services purchased in connection with software. We offer the following guidance:
Under
Utah Administrative Rule R865-19S-92, the purchase of “canned software” is
taxable. “Canned” software is a program or set of programs developed for sale
to a general market rather than a program designed to meet the specifications
of a particular purchaser. Because you
have indicated that your original purchase was taxable, we assume that you
purchased “canned” rather than “custom” software.
With
regard to “canned” software, payments under a license agreement are
taxable. Charges for program
maintenance, consultation in connection with the sale or lease of the
safteware, and enhancements or upgrades are also taxable. Charges for services
to modify or adapt “canned” computer software are not taxable if separately
stated and identified. However, to qualify for exemption, the adaptation or
modification must do more than "personalize" the software. The adaptation must change the functional
operation of the canned program. Adding
the customer name or account title is not enough; nor is bundling several
prewritten components into a set which may be unique to one user.
You
stated that the agreement in question primarily covers phone assistance
and training. If the agreement covers any
taxable item, the entire agreement is taxable.
Please
let us know if you have additional questions.
For
the Commission,
Joe
B. Pacheco,
Commissioner