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 120.0670

(a) In General

120.0670 Transfer of Software Program. A software firm transferred the right to reproduce and copy a software application program to which a federal copyright attaches for a lump sum payment in order for the purchaser to publish and sell the program. Approximately ten days prior to the closing date of the purchase, the seller began transmitting the software program to the purchaser via electronic transmission to and through the purchaser's computer.

For technical reasons associated with the purchaser's plan to republish the software programs for sale to distributors and end-users, the purchaser would now like to take delivery of tangible media containing the software programs from the seller.

Under the facts provided, the seller's transfer of the program by electronic means was for the purpose of transferring the encoded data to the purchaser in order for the purchaser to copy and sell the program. Furthermore, the receipt of the program by remote telecommunications is not subject to sales or use tax. (Regulation 1502(f)(1)(D).) The seller's transfer of tangible media at a date later than the original transfer is for the purchaser to make a functional use of the media rather than to merely transfer the right to reproduce; the transfer of the right to reproduce had already occurred. Therefore, if the purchaser makes a further payment to the seller, the transfer of the tangible media would be subject to tax measured by the seller's charge for the media.

However, if no further payment is required, tax would not apply to the seller's subsequent transfer of a tangible copy of the program together with the granting of the rights to reproduce or copy the program in order for the program to be published and distributed for a consideration to third parties. The transfer of the storage media would be regarded as incidental to the granting of the right to copy and sell the program. (Regulation 1502(f)(1)(B).) 2/17/95.