Sales Tax State Activity Update -October 2008

Various Software Fees in Utah

A Taxpayer has developed software which aides in the management of automobile dealerships. A request was made to the Utah Tax Commission to rule on the sales taxability of fees it charges its customers.

The Taxpayer’s software offers solutions to manage sales, parts, and financial functions. The software can also be used to communicate with automobile manufacturers with respect to items such as sales, data, parts and inventory. The Taxpayer also provides related software support, forms programming, training, data, and installation.

The Taxpayer offers its services through one of two models: (a) the Application Service Provider (“ASP”) model and (b) the stand-alone model. The ASP model is an Internet access system which the taxpayer maintains and supports. Under the ASP model the software resides on the Taxpayer’s server which is located in Utah. Under the Base model the software resides on the customer’s server and the Taxpayer provides updates and support.

Under the ASP model the Taxpayer charges fees for set-up, data migration, training, forms programming access, support and for customization work requested by the customer.

Customers that have licensed a stand-alone version of the base software for use on their own servers are charged a monthly license fee for access to updated versions of the base software and, if requested, for support.

Based on the facts presented by the taxpayer, the Commission determined the following: Transactions that are subject to Utah sales tax:
1. Set-up fees
2. Application service fees for ASP customers
3. Monthly licensing fees for stand-alone customers

Transactions that are not subject to Utah sales tax:
1. Forms programming fees
2. Custom programming fees
3. Support fee

This Letter Ruling can be viewed at the Utah State Tax Commission web site.
(Utah State Tax Commission, Private Letter Ruling, No. 08-002, 8/4/08)

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