Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013

Sales and Use Tax Annotations

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Annotation 515.0011.135


515.0011.135 Equipment and Software Furnished with Database Access. A firm enters into a contract with a customer to furnish information obtained from the Department of Motor Vehicle's (DMV) database. It furnishes the necessary hardware and software at the customer's location and also provides software updates and telephone support. Access to the database is through the firm's computers to ensure that DMV's security requirements are met.

The firm charges the client based on:

(1) one time start-up fee

(2) a "per transaction fee"

(3) a "per minute connect fee"

(4) a monthly support fee (training, equipment, support services)

(5) communication software

(6) a monthly equipment maintenance fee

The firm is a lessor of equipment, software, and updates. It is not the consumer of these items in connection with providing a service. The customer wants the ability to perform its own DMV inquiries. The firm fulfills this need by providing the necessary equipment and software. There is a temporary transfer of possession of property to, and use of the property by, another for consideration. This is a "lease" as defined in section 6006.3.

Since the hardware was acquired tax paid and leased in substantially the same form as acquired, tax does not apply to charges related to the lease of the hardware. The software is not leased in substantially the same form as acquired and, thus, the charges related to the lease of the software are subject to tax. The charges for software updates transferred in tangible form also are subject to tax. The telephone support also is taxable unless optional and separately stated. 10/28/96.