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 120.0550

(a) In General

120.0550 Software Maintenance Contracts. Under a licensing agreement, a business provides software and maintenance of that software to a client. The maintenance is for providing updates and future releases of the software. The contract for providing updates and future releases is a contract for the sale of tangible personal property. The charges for such a software maintenance contract are subject to sales tax regardless that the maintenance contract may be optional with the purchaser.

The issue of optional v. mandatory charges on software maintenance contracts arises as to charges for telephone or on-site consultation services. If the purchaser may, at its option, contract for consultation services for a separately stated price, these optional charges are nontaxable. If the purchaser does not have the option to purchase the consultation services in addition to the storage media, the charges are taxable as services that are part of the sale of the storage media. 5/6/93. (Am. 2004–2).

(Note.—Regulation 1502 was amended so that beginning January 1, 2003, 50 percent of the charge for optional software maintenance agreements is subject to tax. Prior to that date, generally 100 percent of the charge was subject to tax.)