Tax Type
Retail Sales and Use Tax
Description
Lease of modified computer software
Topic
Taxability of Persons and Transactions
Date Issued
12-20-1989
December 20, 1989
Re: Ruling Request/ Sales and Use Tax
Dear****************
This will reply to your letter of August 29, l 989 seeking information on the application of the sales and use tax to the lease by ******************* (the "Taxpayer" ), of computer software. We regret the delay in providing you with this response.
Please find enclosed a copy of a May 31, 1989 ruling of the department which sets forth the application of the sales and use tax to sales and leases of computer software. As indicated in the ruling, only sales of "custom programs" qualify for exemption from the sales and use tax.
Based on the limited information provided, it does not appear that the software licensed to the taxpayer qualifies as "custom". Instead, it is likely that the taxpayer's software vendor licenses essentially the same or similar prewritten software to numerous customers. In addition, the software vendor's modification of prewritten software to meet the needs of a particular customer, such as the taxpayer, does not transform such software into tax exempt "custom" software.
Therefore, assuming that the software in this case is non-custom, either the outright purchase or periodic lease by the taxpayer of the software would be taxable. If its vendor fails to charge the tax on the software so purchased or leased, the taxpayer must remit the use tax on the software directly to the department using Form ST-7, copy enclosed.
I hope that the foregoing and the enclosed materials have responded to your questions, but let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner