Sales, Use and International Tax Activity Update - May 2010

Florida — Software Taxable If It’s in the “Can”

Installation and configuration of canned or prepackaged software delivered via tangible form is subject to Florida sales and use tax. A rule requires that a software package be modified or altered before it rises to the level of an exempt service. The software generally sold by the taxpayer is canned or prepackaged software that is fully useable by the customer without modifications. This includes installation and configuration only, which is not mandatory.

The sale of canned or prepackaged software delivered via tangible form is subject to sales and use tax. However, when a taxpayer modifies software as part of the sale of a license, and does not sell other tangible personal property, that transaction is not subject to sales and use tax. Such a taxpayer bears the burden of documenting that modification or alteration if the software occurs under any given transaction. In addition: (1) canned or prepackaged software delivered in tangible form (i.e., disks or load and leave method) is tangible personal property and the sale of a license to use this type of software is taxable; (2) software delivered electronically is not tangible personal property and is not subject to sales tax, by itself; and (3) the sale of canned or prepackaged software delivered via CD ROM, DVD, or computer diskettes is subject to sales and use tax.

Lastly, annual license renewals typically provided via the Internet and required to continue use of licensed programs are considered renewals of the initial transaction. As such, if the initial transaction was subject to sales tax (e.g., the sale of canned or prepackaged software delivered via tangible form), then the subsequent renewal of that transaction is subject to sales tax. If the initial transaction was not subject to sales tax (e.g., the sale of modified or altered software or electronically downloaded software), then the subsequent renewal of that transaction is not subject to sales tax.

View the complete technical assistance advisement on the Florida Department of Revenue Web site.

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