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 120.0535

(a) In General

120.0535 Software Libraries. A taxpayer is in the business of developing, licensing, and manufacturing hardware and software products and technology for distributed communications and control which allow systems to operate on an interactive basis. The taxpayer has a set of software libraries for the programming language. Portions of the libraries are used by customers who create application programs to incorporate into their programs. The libraries are delivered on a set of disks which contain an inexecutable object code and do not function as an application program by themselves.

A software developer enters into a written license agreement with the company governing the developer's rights relative to the libraries and has no right to resell the libraries as received. A developer only has the right to resell an application program which has incorporated portions of the libraries.

The transfer of the libraries are nontaxable when the licensee acquires the software for incorporation into applications which are published and distributed for a charge. Any storage media used to transmit the programs to the licensee are incidental to the nontaxable transfer.

When the company licenses a library to a licensee to create an application program for the licensee's own functional use, the charge is subject to tax.

A statement incorporated into or attached to the signed license between the company and the developer indicating that the library is being licensed for publication and distribution or whether it is being licensed for use would be evidence of the type or purpose of the transfer. However, if the licensee were to make a use of the program which renders the original transfer by the company subject to tax, the company would be liable for the payment of such tax. 9/11/92.