Sales Tax Articles
Sales Tax State Activity Update - June 2006
Utah Fusion: Software and Services
Background
A software Developer corrected the facts to a previous Letter Ruling Request dealing with a separately negotiated Consulting Agreement. Customers would license canned software from the Developer and after the initial year would also pay an annual fee for maintenance.
In the corrected facts, two and half months after the original software license was executed, an additional agreement was entered into. The additional Consultation Agreement bundled certain services and granted the customer advance releases of software which the customer may have been entitled to under the original licensing agreement.
Some of the services offered included:
- Dedicated business development coordinator that was assigned to the taxpayer
- 20 days of on-site professional services by developer's employees which included implementation and installation
- On-site product strategy session
- Two on-site business planning sessions
- Use of the developer's software for evaluating live environment functionality
- Access to the developer's professional services staff for unique integration projects
Tax Commission Determinations
The Tax Commission had to determine if the services included within the scope of the Consultation Agreement are taxable, and whether the sale of the Consultation Agreement is connected to the sale of the original software license.
Ruling
The Tax Commission found the Consulting Agreement is connected to the sale of the original software license and that it includes taxable activities.
The Consultation Agreement allows the purchaser to receive advance releases of Developer's software to which it may be entitled under the Licensing Agreement. This links the Consultation Agreement to the original purchase of the software. The 20 days of professional services, which included installation and implementation appeared to be taxable to the Tax Commission. Some of the services would be exempt if separately stated on an invoice.
View the full text on the Utah State Tax Commission Website.
(Utah State Tax Commission, Opinion No. 04-008, Follow Up Decision To Original Ruling, 04/28/2006)
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