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 120.0560

(a) In General

120.0560 Software Maintenance Policies. A retailer of laser printers and related prewritten or "canned" software also offers a maintenance policy for the software. The maintenance policy has two features, telephone consultation and updates or program enhancements. The updates are transferred on magnetic tape and are also "canned." The customers who purchase software are not required to purchase a maintenance policy but those that do must purchase the entire package, the telephone consultation and the updates. The charge is billed lump sum and no allocation is made between the telephone consultation and the updates. The company views the updates and program enhancements as incidental to the telephone consultation service.

Generally, telephone consultation is a service that does not by itself result in a tax liability. However, since the purchasers of the maintenance policies had to purchase the entire package, any person desiring the program updates had to pay for the telephone consultation as well. It follows that the telephone consultation was a "service that was part of the sale" of the program updates, and that the entire charge to the customer for the software maintenance policy is subject to tax. 7/16/91. (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.)