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 120.3380

(c) Custom Programs

120.3380 Multimedia Presentations. A company designs and produces custom interactive computer-based presentations. The customers take possession and title to the products on various storage media such as floppy or compact disks, hard drives, etc. The product combines still artwork with video, animation, narration, and graphics to create a unique interactive computer presentation.

Based on the understanding that the true object of the contract is to produce interactive presentations and that the item sold is a "program" as defined in Regulation 1502(f)(2), the property sold is a computer program notwithstanding the artwork embodied therein. The programs did not exist at the time of the contracts and they were produced to the special order of the customers.

If a portion of one or more prewritten programs are incorporated into the completed programs and if the charge for the modifications are separately stated from the charge for prewritten portions, the charge for modifications is nontaxable while the charge for the prewritten portion is taxable. Otherwise, the entire charge is taxable unless the modification is so significant that the new program qualifies as a "custom" program. Tax also applies to any duplicate copies of the custom software. 9/11/92.