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Sales Tax State Activity Update - July 2008

Missouri Bytes into the Taxability of Out-of-State Server Software

The fees charged for using training software that resides on a server located in another state, which the taxpayer's customers have access through the Internet are exempt.

Background

The taxpayer is an out of state business that specializes in providing customized training software for businesses.

Software modifications and updates are performed by an affiliated company owned by the taxpayer. The training software resides on a server located in another state, which the taxpayer's customers have access through the Internet.

The taxpayer inquired as to whether the customized training software or various fees charged to its customers are subject to sales or use tax. The various fees and reimbursement charged to taxpayer's customers are listed as follows:

1. Registration fee is charged to a customer to set up a user with a username and password;
   
   
2. Monthly license fee is charged to a customer for the use of the software residing on its server that includes user access. The fee also includes 24/7 customer support services;
   
   
3. User license fee is charged per user of the software. This is an additional charge added to the monthly licensing fee;
   
   
4. Hosting fee is charged for hosting the software on the server for the company;
   
   
5. Customer service fee is billed for time and materials used out of state;
   
   
6. Reimbursement of travel expenses;
   
   
7. Module development and build fee for the customization of software to meet the customer's specific needs and requests. This is done by an affiliated company out of state;
   
   
8. Proof of concept fee for consulting with employees and staff, showing how the software can be utilized, and gathering information and specifications on the customers needs; and
   
   
9. Pilot program testing fee for testing the software on employees as a demonstration of effectiveness.

Ruling

Missouri sales and use tax is imposed on the sale of tangible personal property(TPP) pursuant to Section 144.020.1, RSMo, and Section 144.610, RSMo. There is no sale of TPP in Missouri and therefore the above fees and reimbursement are exempt.

The full ruling can be accessed on the Missouri Department of Revenue Web site.

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