Laws, Regulations and Annotations


Business Taxes Law Guide – Revision 2023

Sales and Use Tax Annotations

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120.0000 Automatic Data Processing Services and Equipment—Regulation 1502

Annotation 120.0667

(a) In General

120.0667 Transfer of Program into Escrow. Corporation A sold all of its assets, including software, to Corporation B. The programs were transferred by network wire. The programs were designed to be used by banks and were written for the purpose of selling to banks and other financial institutions. For unknown reasons, the software was not marketed. The original master disks were retained by Corporation A, but were required under the contract to be stored in escrow. They were to be available to Corporation B for a period of five years to verify the accuracy of the wire transfer. Corporation A was barred from using, making copies of, or permitting other persons access to the disks. At the end of the five-year period, Corporation A was required to erase the disks.

The transaction is regarded as including the sale of the master disks since Corporation B obtained all of the rights of ownership except custody. The transfer of the disks was, however, not taxable because Corporation B purchased the software to obtain the right to reproduce or copy a program to which a federal copyright attaches in order to publish and distribute it for consideration to third parties. That is, subdivision 1502(f)(1)(B) is not limited to leases for copy and sale, but also to transfers of title for such purposes. It is immaterial that Corporation B may have later decided not to market the program. 10/29/87; 2/18/92. (Am. M99–1).