Is a foreign company that sells and leases canned software to customers in Missouri required to collect and remit Missouri sales tax?
Missouri law (12 CSR 10-109.050) delves into the taxation of software with gusto. Chapter 109 looks at how tax applies to the sale of property versus the sale of service. For example, while the sale of canned software “is taxable as the sale of tangible personal property,” the sale of customized software, “where the true object or essence of the transaction is the provision of technical professional service, is treated as the sale of a nontaxable service”.
Software maintenance agreements are taxable in certain situations and exempt in others. According to the law:
- “[S]oftware maintenance agreements that are mandatory for canned software provided on a tangible medium are subject to tax, whether or not these charges are separately stated.” But
- “Charges for custom software maintenance agreements that provide for software updates, upgrades, or enhancements delivered on a tangible medium are not subject to tax.
The law often triggers questions, as conscientious business owners want to get tax right. When questions arise, the Missouri Department of Revenue fields them.
In a recent letter ruling, for example, the department concludes that when the canned software is “provided to the customer via electronic download through the internet”—and not in a tangible medium—it is not subject to sales tax.
The department adds that Missouri sales tax does not apply to canned software updates sold with optional service contracts. As explained in the letter ruling, the seller will offer canned software “sold with optional maintenance contracts available only via electronic download through the internet and not via tangible medium. As the canned software updates will not be available via tangible media, the optional maintenance contracts are not subject to sales tax.”
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photo credit: Missouri Bicycle & Pedestrian Day at the Capitol 2013 via photopin (license)
