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 120.0290

(a) In General

120.0290 On-Line Entertainment Service. A taxpayer operates an on-line interactive entertainment service which enables subscribers at different geographic locations to use personal computers to communicate with each other. Each subscriber uses a personal computer, a modem and taxpayer supplies software to operate the service. Subscribers pay a subscription fee. Upon payment of a shipping and handling charge, new subscribers receive on floppy disks a software which enables them to access the taxpayer's entertainment services. There is no separate charge for the software. The software is upgraded periodically and subscribers are sent software enhancements on disks at no extra charge.

Tax does not apply to the subscription charge. If the "handling" portion of the "shipping and handling" fee represents 50 percent or more of the taxpayer's purchase price of the software, the transaction is a retail sale of the software subject to sales tax. (Regulation 1670.) If it is less than 50 percent, the taxpayer is regarded as the consumer of the software. (Regulation 1670.) 7/11/94.