Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
120.0000 AUTOMATIC DATA PROCESSING SERVICES AND EQUIPMENT—Regulation 1502
(a) IN GENERAL
120.0310 On-Line Service and Sale of CD-ROMs. A company is contemplating the transfer of CD-ROMs to its customers in connection with an on-line electronic data service provided over the Internet. Under plan 1, the company will charge the customer for both the CD and the monthly connection over the Internet. Under plan 2, the company will give away the CDs free of charge and only charge for the monthly connection on the Internet.
Under plan 1, the transfer of the CD-ROM constitutes a sale of tangible personal property. Therefore, the amount of the total charge attributable to the sale of the CD-ROM is subject to sales tax.
Under plan 2, the transfer does not constitute a sale of tangible personal property assuming there is no obligation on the part of the customer to purchase any tangible personal property or any service from the company. Under these circumstances, the transfer of the CD-ROM is not subject to sales tax. However, the company is the consumer of the CD-ROM and the sale of the CD-ROM to the company is the taxable retail transaction. 1/17/96.