Laws, Regulations and Annotations


Business Taxes Law Guide—Revision 2024

Sales and Use Tax Annotations

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120.0000 Automatic Data Processing Services and Equipment—Regulation 1502

Annotation 120.0100.500

(a) In General

120.0100.500 Consulting Services. A taxpayer is engaged in the business of providing consulting services in connection with computers and computer applications. These services include after the sale consulting with the purchasers of the equipment and are related to business needs and applications of the purchased computers and software, training the client's staff, troubleshooting the equipment and system for the first 90 days. The agreement for the initial 90-day period also involves bringing the client's business entity on-line into a fully computerized working system. The taxpayer states that it did not, and would not, provide hardware and software to any client to whom it extends a proposal unless the client also agreed to that portion of the proposal requiring the client to enter into a simultaneous support agreement. Two separate written agreements are issued (1) for the sale of computer software and hardware, and (2) for consulting, maintenance, training and installation services. The company believes that bifurcation of the client's acceptance of a unitary bid into two separate written agreements avoids inclusion of gross receipts under the support services agreement in the measure of tax even when both agreements are included on the same invoice.

A contract must be viewed in its entirety including the offer, any acceptance(s), and consideration passing between the parties. The Agreement for Purchase of Equipment and the Agreement for Purchase of Support Services memorialize mutually contingent contractual terms that are the subject of one proposal. The taxpayer's admission that it would never provide hardware and software unless its client also agreed to accept the support services offered in the bid demonstrates that the bid is a nonseverable offer which is capable of acceptance only by agreeing to all terms. The taxpayer's statement that the offer or proposal was not severable made acceptance of the resulting contract all-or-nothing. Whether reduced to one writing or two, the company offered a nonseverable contract to provide services in connection with the sale of tangible personal property. Therefore, only that portion of the support services contract attributable to installation labor in connection with the sale of tangible personal property is excludable from gross receipts. 2/28/90.