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 120.0101.250

(a) In General

120.0101.250 Copyrights and Prewritten Programs. Corporation A sold an entire division to Corporation B. Included in the sale were two canned software programs. Corporation B obtained title along with the copyright interest in the programs. Also, as a part of the agreement, Corporation B granted back to Corporation A a license to copy and sublicense one of the programs for use only in the mechanical segment of the printed circuit board market. In addition, Corporation B licensed back to Corporation A a right to use the same program for Corporation A's internal use only.

Under Regulation 1502(f)(1)(B), the transfer of the copyright interests in these programs in the Asset Purchase Agreement is nontaxable. Corporation A transferred the copyright interest in these programs to Corporation B so that Corporation B could publish and distribute copies of the programs for consideration to third parties, and the transfer of the copyright is not limited to copying the programs for Corporation B's own internal use. In this situation, the amounts Corporation B paid for these copyrighted programs were not for site licensing or other end user fee amounts, which would have been includable in the measure of tax under Regulation 1502(f)(1)(B).

With respect to Corporation A acquiring from Corporation B a license to use the source code for one of the programs for internal use, this is also nontaxable because there was no transfer of tangible personal property from Corporation B to Corporation A. Instead, Corporation A merely retained certain rights to the program when it transferred the program to Corporation B. 4/22/88. (Am. 2002–3).