Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014

Sales and Use Tax Annotations

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Annotation 315.0207


315.0207 Maintenance Contracts. A retailer of computers and software sells maintenance contracts with the following features:

(1) Software updates provided on diskette, including the right to use, i.e., the right to copy software updates into the customer's computer.

(2) Media and manuals on how to install/apply software updates.

(3) Hardware parts replacement, on site support, telephone support and hotline.

The customer has the option of purchasing these feature(s) in the following combinations. Feature 1 (by itself), feature 1 and 2 or feature 1, 2 and 3, or feature

1 and 3 (without feature). If the customer purchases feature 1 it may be used only on one computer. A separate purchase is required to use the software on any other computer. On the other hand only one purchase of feature 2 is required regardless of how many computers are involved. For example, the customer may purchase 100 units of feature 1 and only one unit of feature 2.

If a person enters into a contract which includes features 1, 2 and 3, the charges for features 1 and 2 are subject to tax. Since feature 3 is optional with the customer, a separately stated charge for this feature is not subject to tax. Rather, the use of parts by the repairer fulfilling the contract would be taxable.

The fact that feature 3 cannot be purchased without purchasing feature 1 or feature 1 and 2 does not change its optional nature. The customer may purchase the tangible personal property (features 1 and 2) without purchasing feature 3. 4/18/91.