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Sales Tax State Activity Update - July 2006

A Tale of Two Software Regulations

Georgia

The Georgia Department of Revenue has issued Regulation 560-12-2-.111 which relates to the taxability of software and computer-related services. The effective date of this regulation is July 2, 2006.The regulation provides a number of definitions and refers to the Streamlined Sales Tax Project.

Here are some of the taxability highlights from the new regulation:

• Prewritten software as defined in the regulation is taxable if delivered on a tangible medium and left with the customer. Prewritten software is exempt if delivered electronically or by load and leave.
• Custom software is exempt regardless of the delivery method.
• Separately stated charges for installing, modifying, or enhancing prewritten software is exempt.
• Software maintenance agreement charges that are bundled with the sales price of prewritten software and delivered on a tangible medium are subject to sales and use tax.
• Charges for a software maintenance agreement which are separately stated but provide support services, enhancements, updates, and upgrades via a tangible medium are deemed taxable at 50%. A dealer may use an alternate percentage based upon reasonable accounting methods but will have to establish to the satisfaction of the Department that it is reasonable.
• The regulation states that the Department will defer to the Streamline Sales Tax Agreement if it establishes a different taxable percentage and meets with the approval of the department.
• Maintenance agreement charges separately stated that provide enhancements, updates and upgrades on a tangible medium but does not include support services are fully taxable. "Support only" maintenance agreements are exempt if the price is separately stated.
• The charges for computer-related software services only are exempt if separately stated.
• The licensing fees and renewals of prewritten and modified software which remains prewritten, as defined in the regulation, are taxable if originally delivered on a tangible medium.

To explore the regulation in detail visit the Georgia Department of Revenue website.

(Georgia Department of Revenue, Regulation 560-12-2-.111, 07/02/2006)

Missouri

A letter ruling was requested by a Taxpayer that provides software and computer services to the financial industry.

The software in question is not hosted in Missouri, nor is it delivered to the customer. Customers transmit financial data to the Taxpayer's servers where it is stored and processed.

Generally, charges to the Taxpayer's customers are based on the volume of services provided or based on the customers' asset size. Separately stated charges for workstation access may also be invoiced. The Taxpayer charges for data processing, printing statements, mailing, voice response and related port maintenance, information matching such as credit checks, customer support, and a one time set up fee. The Taxpayer may charge a mark-up for the telecommunications charges.

Data processing service is the processing of individual records, clearing checks, and processing data to prepare bank statements and storage. Data processing charges include basic fees, item processing/capture, item imaging, online storage, and imaging of statements.

The Director of Revenue responded to the taxability of the issues as follows:

Non-Taxable Charges

• Data processing service
• Information matching service
• Customer support service
• Facility setup service

Taxable Charges

• Printing of statements
• Telecommunications service
• Voice response services were ruled not to be exempt interactive communications services

The full ruling can be viewed on the Missouri Department of Revenue website.

(Missouri Department of Revenue, Letter Ruling No. LR2903, 03/16/2006)

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