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 120.1180

(b) Processing Customer-Furnished Information

120.1180 Design of Image for Software. A taxpayer contracts to design an opening screen for a software product that its customer will market to the public. The taxpayer will give the customer the file electronically and the customer will program it to be interactive.

For another customer, an Internet service provider, the taxpayer contracts to design a "Home Page". The customer will be provided with an electronic file for it to manipulate and make interactive.

When a taxpayer sells a design to a software retailer who will use the image as an opening screen for software it sells, the taxpayer's sale is not a sale for resale. When a taxpayer sells a design to the software retailer, the software retailer does not sell that design to another person; rather, the retailer uses the design by recreating the image on its software. The taxpayer's sale of the design to the retailer for that purpose is a taxable retail sale. Similarly, the taxpayer's sale of a design to the Internet service provider to use as a home page is a retail sale subject to sales tax.

However, if the design is transferred to the customer electronically by fax or modem and the taxpayer does not transfer any tangible personal property such as storage media to the customer, such a transfer is considered to be an electronic transfer of information and not a sale of tangible personal property. Sales tax would not apply to the charge in such cases. 5/12/95.