Sales Tax State Activity Update - July 2005

Computer Services in Florida Escape Exemption

In a Technical Assistance Advisement the Florida Department of Revenue ruled that consulting and support services that were separately contracted for at a later date but were purchased as a result of the original software licensing agreement were part of the software purchase price and taxable.

Facts

Each customer makes an independent decision if they want to purchase consulting services at the time the original agreement is signed or at a later date. The services that are purchased by a customer are checked-off on the first page of the signed Agreement and listed/priced in Schedule A.

The agreement contained the following: Pursuant to the terms and conditions of the agreement, the Licensee hereby agrees to purchase from taxpayer (vendor), and the taxpayer hereby agrees to provide to Licensee a license to use the taxpayer's and third party software, and related documentation listed, together with the quarterly support, consulting and training services, and the following schedules, each of which is incorporated into and made a part of this agreement by this reference.

Article 3 of Schedule A
3. Consulting and Training ServicesUpon request, the taxpayer agrees to provide consulting and
training services in accordance with this Agreement.

The agreement contained consulting and support services that are contracted for separately from the software licenses but are contemporaneous; and consulting and support services that are contracted for separately from the software license and at a later date.

The Taxpayer's Web Site stated that all persons providing training are certified by Taxpayer. The Taxpayer does not permit clients to hire trainers until trainers have left the taxpayer for over 3 years. The Taxpayer's Web Site shows extensive training classes to which clients may send personnel, or Taxpayer may come to clients. In the opinion of the Department of Revenue the taxpayer creates little option for clients to learn about the software that it creates.

Taxpayer's Position

Consulting services are optional for each customer and therefore exempt.

Department Response

Generally, the sale of software, which includes consulting services, is subject to sales tax. In this case, the consulting services are sold subsequent to the sale of tangible personal property.

Based on the facts and a review of page one of the Agreement, it appears the services in Schedules A â€" E are part of one sale, not separate sales.

Section 212.02(16), F.S., defines "sales price," in part, to mean the total amount paid for tangible personal property, including any services that are a part of the sale. Here, services are sold in conjunction with tangible personal property. Services may be a part of the sale even when the sales price of the services and of the tangible personal property were separately stated and separately billed. American Telephone and Telegraph Company v. Department of Revenue, 25 F. L. W. D1216 ( Fla. 1DCA 2000).

In this case, you argue that the Taxpayer's software sales are not contracted for with consulting services. The consulting services are sold subsequent to the software, months later, and contracted for separately from the original contract. The use of more than one contract is not dispositive. Characterizing the transactions as separate, based upon the execution of two contracts over time, is also, not necessarily dispositive. The minor alteration of the contract language does not appear to exempt the described services pursuant to Section 212.08(7) (v) 1. F.S.

The full text can be accessed here.

(Florida Department of Revenue, Technical Assistance Advisement No.05A-022, April 20, 2005)

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