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Sales & Use Tax Tips for August 2009
SALES TAX - COMPUTER HARDWARE & SOFTWARE MAINTENANCE CONTRACTS
Are the Services Maintenance, Repairs or Support? Are the Contracts Taxable? Are they Mandatory or Optional? Are the Parts Used Taxable?
Whether you are a purchaser or a seller of computer hardware or software maintenance contracts, these are some of the hot issues in determining taxability as states catch up to technology and reach farther for tax dollars.
Five key areas in determining taxability are:
- Mandatory Computer Hardware/Software Maintenance Contracts
- Optional Computer Hardware/Software Maintenance Contracts
- Parts Purchased for Use in Performing Service Under Mandatory Maintenance Contracts
- Parts Purchased for Use in Performing Service Under Optional Maintenance Contracts
- Software Updates and Delivery Method
The facts surrounding each contract should be analyzed before determining whether a contract should be deemed taxable and whether any tangible personal property used in connection with such a contract is also taxable (i.e. software updates and parts).
While software and hardware repairs, maintenance and maintenance contracts are taxable in some states, mandatory contracts are almost always taxable. Parts purchased under a mandatory contract like a manufacturer's warranty are usually deemed exempt while parts under an optional contract are more commonly considered taxable. Many times it is dependent on whether the underlying maintenance contract itself is taxable. Other factors such as a contract that calls for software upgrades may also play a role in the underlying contract's taxability. This is further complicated by the method used to transfer such updates (i.e. electronically, load and leave or via disc).
Other areas to evaluate when determining taxability of contracts include support services, consulting, hardware issues, licensing, software development, subcontracting, traveling sales or service representatives, warranties, web design and web hosted applications.
These various activities may or may not be taxable or trigger taxability depending on the state(s) in question and upon such factors as contract inclusions, invoice itemization, invoice separation (separate invoices for the hardware or software and the maintenance contract) and Nexus issues. For sellers, the frequency of visits and employee or contractor locations can impact nexus determination and thus may trigger a requirement to collect Sales Tax for other states.
For more on how our professionals can help you understand and work through the sales and use tax issues impacting you and your customers please see the Services or Who We Serve section of our website.
If you are concerned about how your company's sales and use tax issues have been handled in the past, we suggest performing a Diagnostic Review to identify, quantify and fix problems going forward. Exposure Resolution options can be explored to resolve past hidden liabilities.
Click here for more Sales Tax Tips or visit our website www.oatax.com. For additional insight on common sales tax concerns, please see the Did You Know? section of our website.
Contact us today or call 1-888-466-2829 to speak with an Olivier &
Associates Sales and Use Tax professional for a no-obligation consultation about your Sales & Use Tax issues.
* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.
