Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2015

Sales and Use Tax Annotations

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Annotation 120.3084


120.3084 Custom Computer Software. A taxpayer sells computer software in connection with its sale of computerized branch exchange (CBX) systems. Each CBX is configured to meet the customer's unique requirements. Information on the number of lines, the actual extension number, and the type of devices on each line (console, terminal, plain phone, feature phone, etc.,) must be embedded in the CBX software. The public phone network system trunk, carrier (AT&T, MCI, Sprint), WATS, FX, or TIE lines which are to be connected to the CBX must also be programmed. Further, the CBX has a myriad of optional features which require software applications.

Assuming none of the software is a "basic operational program," if the taxpayer substantially modifies prewritten software consisting of the "skeletal" make-up for all CBX systems in order to provide its customer with a unique CBX system, sales or use tax does not apply to charges for modifying this software when these charges are separately stated on the sales invoice to the customer. When the charges for customizing the software are not separately stated, tax does not apply to sales of the modified software only if the charge for customizing the software is more than 50 percent of the contract price for the CBX software. (Regulation 1502(f)(2).) 8/7/95.