Tax Type
Retail Sales and Use Tax
Description
Software subscription updates; Deposit charges
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
08-12-1991
August 12, 1991
Re: Request for Ruling: Sales and Use Tax
Dear***************
This will reply to your letter of August 13, 1990 in which you request a ruling on the applicability of the sales and use tax to auto parts updates provided by*************(the "Taxpayer").
FACTS
The Taxpayer is in the process of building a computer database in order to provide auto parts updates for its customers. It intends to offer two subscriptions - one to update parts numbers and the other to update prices. The updates will be customized and tailored to the needs of each of its customers. Customer files will be updated monthly in one of two ways: (1) by mailing a magnetic tape which the customer will load into their own system and return the tape to the Taxpayer, or (2) by telephone modem to transmit the data from the Taxpayer's computer to the customer's computer.
For each service, the customer will be billed for two charges: one for the update service and one, as a deposit, for the tape. A credit for the deposit will be issued when the tape is returned.
You seek a ruling on the applicability of the sales tax to the above transactions.
RULING
I will address each of the questions raised by the Taxpayer below:
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- Charge for the tape: The deposit charge made for the use of a returnable tape is taxable. However, if the tape is returned, the Taxpayer is required to refund or credit to the customer the amount of tax collected on the deposit.
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- Update using a tape: The taxability of this transaction depends on whether the update is customized to a particular customer's specifications. If it is customized, the charge for such would be exempt from the tax as the true object sought by the Taxpayer's customer is the services of the Taxpayer. However, if the update is standard, the charges for such would be taxable as no special services of the Taxpayer are involved. I have enclosed a copy of a prior ruling of the Tax Commissioner, PD 88-20 (1/4/88), which addresses this issue.
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- Update using the telephone: Charges for updates provided to customers via the telephone are exempt, regardless of whether the update is customized or standard, since the true object of the transaction, as with customized updates transmitted via tape, is the information services of the Taxpayer.
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- Time of purchase of service: The fact that the service can be purchased with the system or at a later date has no bearing on its taxability.
Please be advised that the department is currently reviewing its policy with respect to the issues addressed in this letter. We will notify you of any resulting policy changes.
Sincerely,
W. H. Forst
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner