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 120.0551

(a) In General

120.0551 Software Licensing. A company develops and publishes video games that are currently manufactured and distributed on floppy disks. The company may issue nonexclusive licensing agreements for their product to persons who could be granted the right to convert and modify the video games to be compatible with computer/interactive entertainment formats. The company would supply to the licensees object code masters for the licensed games and mechanical art or film for all components necessary to complete the licensed products. The licensee pays the company (licensor) royalties equal to a percentage of net sales for the sale and distribution of the licensed products.

Royalties paid for the right to reproduce or copy a program to which a federal copyright attaches are not subject to tax provided the purpose is to publish and distribute the program to third parties for consideration.

Charges for transfers of mechanical art and film in connection with such licensing agreements are subject to tax.

Charges for transferring the data from floppy disc to CD ROM are subject to tax.

Rentals of video games to consumers are subject to tax pursuant to section 6006(g)(7) and section 6010(e)(7). 9/2/92.