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
120.0669 Transfer of Software Documentation. Taxpayer is in the business of developing and selling software. All sales of its product includes documentation. Customers will receive their documentation in one of three formats: paper copy, CD ROM, or via remote telecommunications. When the documentation is delivered either via CD ROM or electronically, it contains a search engine. The search engine enables a key word search of the documentation only and does not work on the software itself and is in no way an enabler of any of the actual software capabilities.
Regulation 1502(f)(1)(D) provides that the seller of a prewritten computer program transferred electronically is the consumer of property used to produce written documentation or manuals designated to facilitate the use of the program where the documentation or manuals are transferred with no additional charge. If a separate charge is made, then tax applies to the separate charges. Also, tax does not apply when the documentation or manual is transferred electronically to the customer since the customer will not receive any tangible personal property. The taxpayer is the consumer of the documentation and/or manual.
When a customer receives a CD ROM, it contains both documentation and a search engine. The search engine consists of prewritten software designed to provide access to the information contained on the CD ROM. Accordingly, the taxpayer is selling tangible personal property containing prewritten software in the form of a search engine. Its charge for that software is subject to the tax and is measured by either the taxpayer's separate charge for the search engine (provided it is not artificially low in order to avoid tax), or on the portion of the taxpayer's overall charge allocable to the sale of the prewritten software (i.e., the search engine) transferred in tangible form. 5/29/97.