Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2016
Sales and Use Tax Annotations
120.0000 AUTOMATIC DATA PROCESSING SERVICES AND EQUIPMENT—Regulation 1502
(a) IN GENERAL
120.0544 Software Maintenance Agreement—Updates Electronically Delivered. Taxpayer licenses software and software maintenance agreements to its customers. Maintenance agreements are optional and are usually sold in 12-month terms that renew annually unless terminated by either party. Currently, the software updates provided in the maintenance agreements are delivered in tangible form. New customers or renewals may request updates be delivered electronically.
The current agreement provides software updates be provided in tangible form and, thus, are subject to tax. If new customers or renewals contract for updates to be delivered in tangible form, tax applies to charges for the entire 12 months of those contracts. However, if new customers or renewals request the transmission of software updates solely by remote telecommunication, those new or renewal maintenance agreements will not be subject to tax provided the taxpayer delivers its software updates solely by remote telecommunications (e.g., via e-mail or internet transmission), and its customers do not receive any tangible personal property (such as storage media) as part of its update transaction. 5/29/97. (Am. 2004–2).
(Note: Regulation 1502 was amended so that beginning January 1, 2003, 50 percent of the charge for optional software maintenance agreements is subject to tax. Prior to that date, generally 100 percent of the charge was subject to tax.)