Missouri Declares Electronic Software Download Not Taxable
- Feb 10, 2012 | Susan McLain
In a recent Missouri Department of Revenue letter ruling (LR 6991), the state of Missouri determined that “…purchases of canned software downloaded electronically over the internet are not subject to sales or use tax.” However, if that canned software is “…delivered in a tangible medium which are transferred to and retained by the purchaser,” it is taxable. Examples of mediums that would cause taxability include: “…coding sheets, cards, magnetic tape, CD-ROM or other tangible electronic distribution media on which or into which canned programs have been coded, punched or otherwise recorded.”
If the software is downloaded directly from the internet at the time of installation, and the “…applicant never takes possession of any tangible personal property,” then the purchase is not subject to sales or use tax. But repeatedly in the letter ruling, the Missouri Code of State Regulations 12 CSR 10-109.050(1) is quoted, “In general, the sale of canned computer software programs is taxable as the sale of tangible personal property.” If the transaction includes “…the provision of technical professional service,” it is treated “..as the sale of a nontaxable service.” However, if there are programming changes that can be interpreted as a “…fabrication or production labor,” it is part of the sale and taxable.
In a nutshell: “Purchases of canned software delivered electronically, licenses to use canned software when the initial software was delivered electronically, and mandatory and optional maintenance and support delivered electronically when the initial software was delivered electronically are not subject to sales or use tax when the vendor separately states each product on a single invoice.... However, any portion of these items delivered in a tangible format will be subject to sales or use tax.”
NOTE: Letter rulings are for individual situations and usually only applicable for a certain amount of time. This letter is applicable to the applicant for three years from the date of the letter. But as always, a letter ruling or determination like this is not law, but an interpretation of law for a specific situation or condition. As such, if a change occurred, the “…taxpayer who relies up on an outdated interpretation may be subject to additional taxes, interest and penalties,” so it is important as a taxpayer to be aware of the taxability of your products in each given state where you have liability to collect and remit tax.