Sales Tax Requirements on Downloadable Prewritten Software

by | Dec 13, 2019

State Sales Tax Requirements on Downloadable Prewritten Software?

This blog addresses inidividual state sales tax requirements on downloadable prewritten software. Prewritten (or “canned”) computer software refers to software programs prepared, held or existing for general or repeated use or sale. This includes those which are originally intended for a specific user or in-house by a business, then subsequently offered for sale or use to others.

Some states do not require sales tax on prewritten software when delivered electronically (via download) or through the “load and leave” method. Others require sales tax on all computer software, regardless of whether it is delivered electronically or prewritten, downloaded or delivered through tangible media.

 

State-by-state Guide for Sales Tax on Downloadable Prewritten Software

Below you will find state-by-state information regarding the taxability of downloadable prewritten software.  This is a long read with a lot of information. If you are interested in finding information about a specific state, you can just follow the links below to jump close to the information regarding that state. 

 

Jump Ahead to Individual State Requirements for Downloadable Prewritten Software Requirements:

Alabama

Does Alabama require sales tax on Downloadable Prewritten Software?

Alabama does require sales tax on downloadable prewritten software. 

Why does Alabama require sales tax on Downloadable Prewritten Software?

Alabama’s definition of canned or prewritten computer software includes software programs prepared, held or existing for general or repeated use. This includes all non-prewritten software transferred to the purchaser in physical form, via telephone lines or by another alternative form. Based on this definition, downloadable prewritten software would fall within the realm of canned computer software in Alabama, which is considered tangible personal property. Unless specifically indicated otherwise, the licensing of downloadable prewritten software is considered a retail sale and not a rental, and sales tax would apply to the amount received from the sale or rental.

Where can you go to learn more about why Alabama requires sales tax on Downloadable Prewritten Software?

AL 810-6-1-.37(4) defines canned or prewritten computer software as a tangible personal property; Russell County Community Hospital, LLC, d/b/a Jack Hughston Memorial Hospital v. Alabama Department of Revenue, Alabama Supreme Court, No. 1180204, May 17, 2019 is a recent case where the AlabamaSupreme Court ruled all canned software to be subject to sales tax.

 

Arkansas

Does Arkansas require sales tax on Downloadable Prewritten Software?

Arkansas does not require sales tax on downloadable prewritten software.

Why does Arkansas not require sales tax on Downloadable Prewritten Software?

The state defines prewritten software as software not designed by the creator to the specifications of a specific user. Any prewritten software that is delivered through electronic means or via the “load and leave” method is not considered tangible personal property and is tax-exempt. However, it is only tax-exempt if separately stated on the invoice from charges for manuals, disks, CDs or other tangible property, which are taxable. The “load and leave” method of delivery refers to delivery to the purchaser through a tangible storage media that is not physically transferred to the purchaser.

Where can you go to learn more about why Arkansas does not require sales tax on Downloadable Prewritten Software?

AR G.R. 25 defines computer software and taxability; A.C.A. § 26-52-304 states that computer software does not include that which is delivered electronically.

 

Arizona

Does Arizona require sales tax on Downloadable Prewritten Software?

Arizona requires sales tax on downloadable prewritten software.

Why does Arizona require sales tax on Downloadable Prewritten Software?

The state defines all canned or prewritten software as tangible personal property. A lease or rental of prewritten software should be treated as taxable under the personal property rental classification.

Where can you go to learn more about why Arizona requires sales tax on Downloadable Prewritten Software?

AZ R-15-5-154 defines prewritten or “canned” software and its taxability.

 

California

Does California require sales tax on Downloadable Prewritten Software?

California is a state that does not require sales tax on downloadable prewritten software.

Why does California not require sales tax on Downloadable Prewritten Software?

California defines prewritten software programs as that which are created for general or repeated sale or lease. This includes a program developed for in-house use which is subsequently offered for sale or lease as a product. When transferred by remote telecommunications (i.e. the Internet) from the seller’s place of business to or through the purchaser’s computer and the purchaser does not obtain possession of any tangible personal property, it is not taxable. This includes if the software is installed by the seller on the customer’s computer so long as the seller does not transfer possession of any storage media to the customer as part of the transaction.

Where can you go to learn more about why California does not require sales tax on Downloadable Prewritten Software?

CA BTLG Reg. 1502 addresses the sale and lease of computer software and data processing services.

 

Colorado

Does Colorado require sales tax on Downloadable Prewritten Software?

Colorado does not require sales tax on downloadable prewritten software.

Why does Colorado not require sales tax on Downloadable Prewritten Software?

Colorado defines computer software as tangible personal property only if it is prepackaged for repeated sale or license; the use is governed by a tear-open, non-negotiable license agreement; and, is delivered to the customer in a tangible medium. A tangible medium is defined as a disk, tape, compact disk, card or comparable physical medium. Based on this definition of tangible personal property, downloadable prewritten software does not fall within the description and is treated as not subject to sales tax. This includes when the software is delivered via remote telecommunications or transferred using the “load and leave” method.

Where can you go to learn more about why Colorado does not require sales tax on Downloadable Prewritten Software?

C.R.S. 39-26-102 defines computer software that is considered tangible personal property.

 

Connecticut

Does Connecticut require sales tax on Downloadable Prewritten Software?

Connecticut requires sales tax on downloadable prewritten software.

Why does Connecticut require sales tax on Downloadable Prewritten Software?

Connecticut defines tangible personal property to include any canned or prewritten software including that which is electronically accessed or transferred. The rate of taxation depends on the intent of use (personal versus business). Although sales of prewritten software for business use are taxed at a reduced rate set for computer and data processing services, if the sale includes a box, plastic container or CD, the total amount of the sale is then taxed at a higher tax rate.

Where can you go to learn more about why Connecticut requires sales tax on Downloadable Prewritten Software?

CT P.S. 2006(8) is a policy statement on the taxation of computer software and services; CT Special Notice 2019(8) addresses the taxation of digital products and software.

 

District of Columbia

Does the District of Columbia require sales tax on Downloadable Prewritten Software?

The District of Columbia requires sales tax on downloadable prewritten software.

Why does the District of Columbia require sales tax on Downloadable Prewritten Software?

D.C. passed emergency legislation indicating that all electronically or digitally delivered, streamed or accessed digital products are subject to sales and use tax effective Jan. 1, 2019.

Where can you go to learn more about why the District of Columbia requires sales tax on Downloadable Prewritten Software?

D.C. Title 9 Sec. 474.4 discusses the taxation of data processing services. D.C. Act 22-556 is the emergency legislation passed regarding the taxability of digital products.

 

Florida

Does Florida require sales tax on Downloadable Prewritten Software?

Florida generally does not require sales tax on downloadable prewritten software.

Why does Florida not require sales tax on Downloadable Prewritten Software?

Florida charges sales tax on computer software delivered via tangible personal property. Technical Assistance Advisement 02A-52 states that electronically transmitted software is not subject to sales tax because it does not involve the exchange of tangible personal property. In these instances, the downloadable software is considered a service. Additionally, any service warranties offered on electronically transmitted software are also exempt from sales tax. However, should any tangible personal property be included in the sale, the full sale is considered subject to sales tax. 

It should be noted that a Technical Assistance Advisement by Florida is similar to a Private Letter Ruling and only applicable to the specific situation addressed by the advisement. If you sell downloadable prewritten software in Florida, we recommend a Technical Assistance Advisement to address your specific situation.

Where can you go to learn more about why Florida does not require sales tax on Downloadable Prewritten Software?

FAC 12-1.032 and TAA 02A-52 address the taxability of downloadable computer software.

 

Georgia

Does Georgia require sales tax on Downloadable Prewritten Software?

Georgia generally does not require sales tax on downloadable prewritten software.

Why does Georgia not require sales tax on Downloadable Prewritten Software?

Georgia defines prewritten or “canned” software as computer software that is designed, prepared, or held for general distribution or repeated use, or software programs developed in-house and subsequently held or offered for repeated sale, lease, license, or use. Rule 560-12-2-.111(4) states that computer software delivered electronically is not considered tangible personal property and not subject to sales tax. In order for downloadable prewritten software to be considered tax-exempt, however, it must be clearly indicated on the invoice, purchase contract or other documentation the method of delivery. Otherwise, it is treated as a sale of tangible personal property and subject to sales tax. Also, if a copy of the computer software is delivered to the purchaser on a tangible medium in addition to delivered electronically, the sale is considered taxable. 

Where can you go to learn more about why Georgia does not require sales tax on Downloadable Prewritten Software?

Rule 560-12-2-.111(4) addresses software sold in an intangible form.

 

Hawaii

Does Hawaii require sales tax on Downloadable Prewritten Software?

Hawaii does not have a sales tax but does have a general excise tax. The state requires the general excise tax for downloadable prewritten software.

Why does Hawaii not require sales tax but requires general excise tax on Downloadable Prewritten Software?

Hawaii requires a general excise tax on certain transactions and activities. The state does not differentiate between software delivered electronically or on tangible media, nor do they differentiate between the taxability of prewritten or custom computer software. The state requires tax on all software used by a consumer.

Where can you go to learn more about why Hawaii does not require sales tax but  requires general excise tax on Downloadable Prewritten Software?

Hawaii Sec. 237-13-23.5 identifies non-exempt transactions subject to general excise tax. You can also learn more about Hawaii’s General Excise Tax on this blog

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Iowa

Does Iowa require sales tax on Downloadable Prewritten Software?

Iowa generally requires sales tax on downloadable prewritten software.

Why does Iowa require sales tax on Downloadable Prewritten Software?

Iowa recently passed Senate File 2417, which amended tax law to identify all computer software as a digital product subject to sales tax, including that which is electronically transferred and downloaded. The exception to this rule is Subsection 103(a), prewritten computer software furnished to a commercial enterprise for use exclusively by the commercial enterprise.

Where can you go to learn more about why Iowa requires sales tax on Downloadable Prewritten Software?

Iowa Code 423.1(38) defines prewritten computer software as software that is or is not designed to the specifications of a specific purchaser and sold to a person other than the purchaser. Electronically transferred is defined as being obtained or accessed by the purchaser by means other than tangible storage media, including but not limited to a specified digital product purchased through a computer software application or through any other means. Iowa SF2417 recently overruled previous law and identifies prewritten computer software as tangible personal property subject to sales tax.

 

Idaho

Does Idaho require sales tax on Downloadable Prewritten Software?

Idaho does not require sales tax on downloadable prewritten software.

Why does Idaho not require sales tax on Downloadable Prewritten Software?

Idaho Statute 63-3616(b) specifically lists computer software delivered electronically or via load and leave as not considered tangible personal property. IDAPA 35.01.02.27.03 also states that when canned or prewritten software is sold and delivered electronically or by load and leave, it is not tangible personal property and the sale is not taxable. This also includes when the purchaser receives in a physical package a product key code to download the software.  In this instance, the sale is not taxable because the software is still being downloaded.

Where can you go to learn more about why Idaho does not require sales tax on Downloadable Prewritten Software?

Idaho Statute 63-3616(b) addresses computer software delivered electronically or delivered by the load and leave method. IDAPA 35.01.02.27.01(a) defines canned software as prewritten computer software offered for sale, lease, or use to customers on an off-the-shelf basis or is electronically transferred by whatever means with little or no modification to the program.

 

Illinois

Does Illinois require sales tax on Downloadable Prewritten Software?

Illinois requires sales tax on downloadable prewritten software.

Why does Illinois require sales tax on Downloadable Prewritten Software?

Illinois advises that canned software is considered tangible personal property regardless of the form in which it is transferred or transmitted and is taxable. This includes transfer using tape, disc, card, electronic means or other media. Illinois also charges tax on updates to canned software but treats charges for training, telephone assistance, installation, and consultation associated with canned software as tax-exempt so long as it is separately stated from the sale price of the software. Also, all software used to operate exempt manufacturing machinery and equipment is exempt.

Where can you go to learn more about why Illinois requires sales tax on on Downloadable Prewritten Software?

86 Ill. Adm. Code 130-1935 defines computer software as all types of software including operational, applicational, utilities, compilers, templates, shells and all other forms. The code defines canned software as software that is intended for general or repeated use.

 

Indiana

Does Indiana require sales tax on Downloadable Prewritten Software?

Indiana requires sales tax on downloadable prewritten software.

Why does Indiana require sales tax on Downloadable Prewritten Software?

Indiana defines prewritten computer software as that which is not designed and developed by the author or other creator to the specifications of a specific purchaser. Information Bulletin #8 specifically addresses the taxability of prewritten software, stating that prewritten computer software downloaded by Indiana customers, whether sold, rented, leased or licensed, is subject to sales and use tax. Indiana adds that this is because the intellectual property contained in the prewritten program is no different from the intellectual property on a disc or in a textbook. 

Where can you go to learn more about why Indiana requires sales tax on Downloadable Prewritten Software?

Indiana Information Bulletin #8 addresses the application of sales tax to computer hardware, software, and digital goods. The bulletin also advises that tangible personal property is defined as a property that can be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses.

 

Kansas

Does Kansas require sales tax on Downloadable Prewritten Software?

Kansas is a state that requires sales tax on downloadable prewritten software.

Why does Kansas require sales tax on Downloadable Prewritten Software?

Kansas states that prewritten software is subject to tax regardless of the method of delivery, which may be made via a tangible storage media, electronically or by “load and leave.”

Where can you go to learn more about why Kansas requires sales tax on Downloadable Prewritten Software?

Kansas Information Guide EDU-71R addresses the taxability of computer software. It states that the terms “prewritten computer software”, “prewritten software” and “canned software” are synonymous. This software is defined as computer software not designed and developed to the specifications of a specific purchaser.

 

Kentucky

Does Kentucky require sales tax on Downloadable Prewritten Software?

Kentucky requires sales tax on downloadable prewritten software.

Why does Kentucky require sales tax on Downloadable Prewritten Software?

Kentucky states that prewritten software is considered tangible personal property and is subject to sales tax. The method of delivery, including via electronic transfer, download, or load and leave method, is irrelevant and does not impact the taxability of the software.

Where can you go to learn more about why Kentucky requires sales tax on Downloadable Prewritten Software?

KY G.S. 139-010 defines prewritten software as computer software not designed and developed to the specifications of a specific purchaser. KY Sales Tax Facts (pub. Sept. 2007) addresses the taxation of prewritten computer software and associated license fees.

 

Louisiana

Does Louisiana require sales tax on Downloadable Prewritten Software?

Louisiana generally requires sales tax on downloadable prewritten software.

Why does Louisiana require sales tax on Downloadable Prewritten Software?

Louisiana Revenue Information Bulletin No. 11-005 specifically states that canned computer software is subject to sales tax in Louisiana. State law does not currently address the method of delivery for the software in its tax rules. However, custom software is specifically identified as tax-exempt. Because downloadable prewritten software is not identified as tax-exempt, it is treated as generally taxable regardless of how it is transferred or delivered to the purchaser.

Where can you go to learn more about why Louisiana requires sales tax on Downloadable Prewritten Software?

LA Revenue Information Bulletin No. 11-005 advises that canned computer software is generally taxable. LA Sales Tax Statutes and Regulations 47:301(16)(a) defines tangible personal property as any personal property that can be seen, weighed, measured, felt or touched, or is in any other manner perceptible to the senses.

Still More Information on State Sales Tax Requirements on Downloadable Prewritten Software

You still hanging in there?  We aren’t done yet!  There is still more information on state sales tax requirements on Downloadable Prewritten Software. Remember, you can just follow the links at the top of the post to jump close to the information regarding any states.  

 

Maine

Does Maine require sales tax on Downloadable Prewritten Software?

Maine generally requires sales tax on downloadable prewritten software.

Why does Maine require sales tax on Downloadable Prewritten Software?

ME Title 36 Chapter 213 states that if a product is transferred electronically to a purchaser located in the state, it is subject to sales tax. ME Title 36, Sec. 1752(17) states that tangible personal property includes any computer software that is not a custom computer software program, including any product transferred electronically.

Where can you go to learn more about why Maine requires sales tax on Downloadable Prewritten Software?

ME Title 36, Part 3, Chapter 213 identifies the taxability of products transferred electronically.  ME Title 36, Sec. 1752(17) defines tangible personal property, including prewritten computer software.

 

Maryland

Does Maryland require sales tax on Downloadable Prewritten Software?

Maryland does not require sales tax on downloadable prewritten software. However, “digital products” are taxable in Maryland effective July 1, 2020. 

Why does Maryland not require sales tax on Downloadable Prewritten Software?

While Maryland does require sales tax on prewritten or canned computer software, downloadable software is not considered a form of tangible personal property as defined in MD Sec. 11-101. Also, the state recently published a list of tangible personal property and services that are subject to sales and use tax in November 2019, which specifically states that canned computer software accessed electronically through digital download is not subject to sales tax. 

That being said, effective July 1, 2020 Maryland does tax “digital products” which includes

  • Prerecorded music, book readings, and speeches
  • Audio/video greeting cards sent by email
  • Ring tones
  • Movies, music videos, news and entertainment programs, live events, and video/electronic games
  • E-books
  • Newspapers, magazines, chat room discussions, and weblogs
  • Digital codes that are exchanged for digital products

Where can you go to learn more about why Maryland does not require sales tax on Downloadable Prewritten Software?

MD Sec. 11-101 identifies tangible personal property subject to sales and use tax. MD List of TPP and Services was recently published defining what falls under tangible personal property and taxable services. Maryland House Bill 932 defines what is considered a taxable digital product. 

 

Massachusetts

Does Massachusetts require sales tax on Downloadable Prewritten Software?

Massachusetts requires sales tax on downloadable prewritten software.

Why does Massachusetts require sales tax on Downloadable Prewritten Software?

Prewritten (or “canned”) computer software is not designed or developed by the author or creator to the specifications of a specific purchaser. This includes software designed and developed for a specific purchaser but then sold to someone other than the intended purchaser. TR 05-15 states that the transfer of standardized computer software including but not limited to electronic, telephonic, or similar transfer, shall be considered a transfer of tangible personal property. All transfers of prewritten software on or after April 1, 2006, including via download from the Internet or transfers by “load and leave” are subject to sales or use tax.

Where can you go to learn more about why Massachusetts requires sales tax on Downloadable Prewritten Software?

TIR 05-15 addresses the taxability of prewritten or canned computer software when downloaded or transferred via other electronic means. 830 CMR 64H.1.3 defines prewritten and canned software.

 

Michigan

Does Michigan require sales tax on Downloadable Prewritten Software?

Michigan requires sales tax on downloadable prewritten software.

Why does Michigan require sales tax on Downloadable Prewritten Software?

Michigan’s Revenue Administrative Bulletin 1999-5 specifically addresses the taxation of prewritten or “canned” computer software. It defines canned software as that which is offered for sale to the general public. Per the Department of Treasury, canned computer software is subject to sales tax regardless of the method of delivery, including via the Internet, through a network, or any other electronic method. Treasury Update Vol. 1, Issue 2 also states that computer software electronically downloaded in its entirety is taxable.

Where can you go to learn more about why Michigan requires sales tax on Downloadable Prewritten Software?

MI RAB 1999-5 discusses the taxability of computer software. MI Treasury Update Vol. 1, Issue 2 reiterates the tax of prewritten computer software that is downloaded.

 

Minnesota

Does Minnesota require sales tax on Downloadable Prewritten Software?

Minnesota requires sales tax on downloadable prewritten software.

Why does Minnesota require sales tax on Downloadable Prewritten Software?

MN Stat. 297A.61(16c) defines computer software as a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task. Subd. 17 defines prewritten computer software as one not designed and developed to the specifications of a specific purchaser. Subd. 3 of MN Stat. 297A.61 includes a list of tangible personal property and services subject to tax in the state. It states “a sale and a purchase includes the transfer for a consideration of prewritten computer software whether delivered electronically, by load and leave, or otherwise.” Based on this description, downloadable prewritten or “canned” computer software is subject to sales tax in Minnesota. However, if any modification or enhancement is made for a specific purchaser and is clearly and separately stated as such on the invoice, the enhancement or modification does not constitute prewritten computer software and is not subject to sales tax. Maintenance furnished for a canned computer program is taxable, though.

Where can you go to learn more about why Minnesota requires sales tax on Downloadable Prewritten Software?

MN Stat. 297A.61 specifically addresses prewritten computer software as a taxable product.

 

Mississippi

Does Mississippi require sales tax on Downloadable Prewritten Software?

Mississippi requires sales tax on downloadable prewritten software.

Why does Mississippi require sales tax on Downloadable Prewritten Software?

Software, whether it is custom or canned, delivered electronically or on tangible media, is taxable in Mississippi. A computer program is defined by Mississippi as” a series of instructions that are coded for acceptance or use by a computer system which are designed to permit the computer system to process data and provide results and information.” Mississippi defines computer software as “a collection of computer programs which work in cooperation with one another to perform automated tasks.”

Where can you go to learn more about why Mississippi requires sales tax on Downloadable Prewritten Software?

Miss. Rule 35.IV.5.06 (see page 55) defines computer software and programs.

 

Missouri

Does Missouri require sales tax on Downloadable Prewritten Software?

Missouri does not require sales tax on downloadable prewritten software.

Why does Missouri not require sales tax on Downloadable Prewritten Software?

Missouri defines prewritten or “canned” computer software as software purchased “off the shelf” or for sale to and use by many different customers with little or no modification. Tax only applies to prewritten software if it is delivered in a tangible medium, including coding sheets, cards, magnetic tape, CD-ROM or other tangible electronic distribution media on which or into which software has been coded, punched, or otherwise recorded. The state also advises that if the software is originally downloaded but a copy is provided on a disk, the entire sale is subject to tax. However, if the software is downloaded and an instruction manual is mailed to the customer, the sale remains tax-exempt.

Where can you go to learn more about why Missouri does not require sales tax on Downloadable Prewritten Software?

MO 12 CSR 10-109 discusses the taxation of software, including prewritten software and related maintenance, services, and tangible personal property.

Nebraska

Does Nebraska require sales tax on Downloadable Prewritten Software?

Nebraska requires sales tax on downloadable prewritten software.

Why does Nebraska require sales tax on Downloadable Prewritten Software?

Nebraska states that “gross receipts from furnishing software regardless of the manner in which it is conveyed are taxable.” Interestingly, customer training, implementation fees, and consultant fees (related to software implementation) are also taxable if provided by the retailer of the software. Charges for consultants who only provide generalized advice and who do not provide any software or modifications to software are exempt. Nebraska defines computer software as “a sequence of instructions which directs the computer to process data”.

Where can you go to learn more about why Nebraska requires sales tax on Downloadable Prewritten Software?

Reg-1-088 specifies that computer software is subject to sales tax.

 

New Jersey

Does New Jersey require sales tax on Downloadable Prewritten Software?

New Jersey generally requires sales tax on downloadable prewritten software. However, an exemption may apply if used exclusively in the conduct of the purchaser’s business, trade or occupation.

Why does New Jersey require sales tax on Downloadable Prewritten Software?

New Jersey taxes anything that is considered “tangible personal property.” New Jersey’s definition of tangible personal property includes computer software, therefore computer software is taxable. New Jersey defines computer software as “a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task”. There is one exception to this rule and that is if the software is used “… exclusively in the conduct of the purchaser’s business, trade or occupation.” New Jersey further clarifies that if the software is delivered on tangible media, or loaded onto servers (“load and leave”) by a service representative, then the exemption would not apply.

Where can you go to learn more about why New Jersey requires sales tax on Downloadable Prewritten Software?

New Jersey provided guidance that downloadable software is taxable in Technical Bulletin 51, and defines what downloadable software is exempt in Section 54:32B-8.56.

 

New Mexico

Does New Mexico require sales tax on Downloadable Prewritten Software?

New Mexico is a state that requires sales tax on downloadable prewritten software.

Why does New Mexico require sales tax on Downloadable Prewritten Software?

New Mexico considers packaged software tangible personal property (and therefore taxable) when (1) no extraordinary services are performed in order to furnish the packaged software, (2) the buyer pays a fixed amount for the packaged software and the license to use the software and (3) the buyer is allowed to resell the license to use the software with the packaged software itself. You should pay special attention to point 3 above, because if the purchaser is not able to resell the license then the software could be considered a sale of a license which is subject to both gross receipts tax and property tax in New Mexico. 

Where can you go to learn more about why New Mexico requires sales tax on Downloadable Prewritten Software?

N.M. Admin. Code tit. 3, §3.2.1.15 section J defines packaged software and clarifies that it is subject to gross receipts tax. 

 

New York

Does New York require sales tax on Downloadable Prewritten Software?
New York requires sales tax on downloadable prewritten software.

Why does New York require sales tax on Downloadable Prewritten Software?
New York states that prewritten computer software “which is not software designed and developed by the author or other creator to the specifications of a specific purchaser” is subject to sales tax. Prewritten software is subject to tax whether sold as part of a package or separately. Software created by combining two or more prewritten programs or portions of prewritten programs is still prewritten software subject to tax and not considered custom (nontaxable) software. The medium by which the software is transferred to the purchaser has no effect on the software’s taxability. Thus, prewritten software is taxable whether sold, for example, on a disk, tape or by electronic transmission over telephone lines.

Where can you go to learn more about why New York requires sales tax on Downloadable Prewritten Software?

Sec. 1101(b)(14), Tax Law defines what is and isn’t considered prewritten (taxable) computer software in New York. This technical bulletin published by New York further clarifies what is and isn’t considered taxable software in New York.

 

Nevada

Does Nevada require sales tax on Downloadable Prewritten Software?
Nevada does not require sales tax on downloadable prewritten software.

Why does Nevada not require sales tax on Downloadable Prewritten Software?

Nevada specifies that “unless it is delivered electronically or by load and leave, prewritten computer software is tangible personal property.” Therefore, prewritten software delivered electronically is not considered tangible personal property and not subject to sales tax.

Where can you go to learn more about why Nevada does not require sales tax on Downloadable Prewritten Software?

Nev. Admin. Code §372.880 defines prewritten software as taxable unless it is delivered electronically.

 

North Carolina

Does North Carolina require sales tax on Downloadable Prewritten Software?

North Carolina requires sales tax on downloadable prewritten software.

Why does North Carolina require sales tax on Downloadable Prewritten Software?

Prewritten computer software is subject to sales tax in North Carolina. Note that an exemption applies for software designed to run on an enterprise server operating system, if it is sold to a person who operates a data center, or is sold to a person who provides cable service, telecommunications service, or video programming.

Where can you go to learn more about why North Carolina requires sales tax on Downloadable Prewritten Software?

Prewritten computer software is defined in G.S. 105-164.3(29a) see page 9.

 

North Dakota

Does North Dakota require sales tax on Downloadable Prewritten Software?

North Dakota requires sales tax on downloadable prewritten software.

Why does North Dakota require sales tax on Downloadable Prewritten Software?

North Dakota taxes prewritten computer software, whether it is delivered electronically or not. North Dakota defines prewritten software as, “Computer software, including prewritten upgrades, that is not designed and developed by the author or another creator to the specifications of a specific purchaser. The term includes software designed and developed by the author or another creator to the specifications of a specific purchaser when it is sold to a person other than the specific purchaser.” 

Where can you go to learn more about why North Dakota requires sales tax on Downloadable Prewritten Software?

NDCC 57-39.2-02.1(1)(g) defines computer software (see page 6).

 

Ohio

Does Ohio require sales tax on Downloadable Prewritten Software?
Ohio requires sales tax on downloadable prewritten software.

Why does Ohio require sales tax on Downloadable Prewritten Software?

Prewritten computer software is considered tangible personal property and is subject to sales tax in Ohio. Ohio defines prewritten computer software as “computer software, including prewritten upgrades, that is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the purchaser.”

Where can you go to learn more about why Ohio requires sales tax on Downloadable Prewritten Software?

Ohio Rev. Code Ann. §5739.01(YY) defines tangible personal property which includes prewritten computer software. Section (DDD) defines prewritten computer software.

 

Oklahoma

Does Oklahoma require sales tax on Downloadable Prewritten Software?

Oklahoma does not require sales tax on downloadable prewritten software.

Why does Oklahoma not require sales tax on Downloadable Prewritten Software?

Oklahoma does not require sales tax on computer software when it is delivered electronically to an end-user. Oklahoma specifies that “delivered electronically” means delivered to the purchaser by means other than tangible storage media.

Where can you go to learn more about why Oklahoma does not require sales tax on Downloadable Prewritten Software?
Okla. Stat. tit. 68, §1357 paragraph 32 defines computer software which is included in its list of general exemptions. 

 

Pennsylvania

Does Pennsylvania require sales tax on Downloadable Prewritten Software?

Pennsylvania requires sales tax on downloadable prewritten software.

Why does Pennsylvania require sales tax on Downloadable Prewritten Software?

Pennsylvania requires sales tax on prewritten computer software because it is included in its definition of taxable tangible personal property. Pennsylvania goes into more detail saying that prewritten software is taxable regardless of “whether electronically or digitally delivered, streamed or accessed and whether purchased singly, by subscription or in any other manner, including maintenance[,] and updates [and support].” Pennsylvania does clarify that help desk or customer service charges that are separately stated on an invoice are not subject to sales tax if the charge occurred after Oct. 30, 2017.

Where can you go to learn more about why Pennsylvania requires sales tax on Downloadable Prewritten Software?

2017 Act 43 7201(m)(2)(ix)  specifies that canned software is considered tangible personal property.

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Rhode Island

Does Rhode Island require sales tax on Downloadable Prewritten Software?

Rhode Island requires sales tax on downloadable prewritten software.

Why does Rhode Island require sales tax on Downloadable Prewritten Software?

Rhode Island requires sales tax on prewritten computer software and defines prewritten computer software as “computer software, including prewritten upgrades, that is not designed and developed by the author or other creator to the specifications of a specific purchaser.” If custom-written software is sold to anyone besides the original purchaser, then it is considered prewritten software and therefore subject to sales tax.

Where can you go to learn more about why Rhode Island requires sales tax on Downloadable Prewritten Software?

R.I. Gen. Laws §44-18-7 states that prewritten computer software is subject to sales tax, and § 44-18-7.1(g)(vii) defines prewritten computer software. Code Sections 12-36-910(B)(3) and 12-36-1310(B)(3) define communication services.

 

South Carolina

Does South Carolina require sales tax on Downloadable Prewritten Software?

South Carolina does not require sales tax on downloadable prewritten software.

Why does South Carolina not require sales tax on Downloadable Prewritten Software?

South Carolina does not require sales tax on prewritten software if it is delivered via electronic means because it is not considered tangible personal property. You must pay special attention to whether or not your software falls under South Carolina’s category of “communications” which may be subject to sales tax. Examples of taxable communication services include “Database Access Transmission Services or On-Line Information Services, including, but not limited to, legal research services, credit reporting/research services, and charges to access an individual website (including Application Service Providers)”.

Where can you go to learn more about why South Carolina does not require sales tax on Downloadable Prewritten Software?

South Carolina Revenue Ruling 03-5 clarifies what is and is not considered taxable software with references to state statutes. Code Section 12-36-60 defines tangible personal property (which includes tangible personal property and communications).

 

South Dakota

Does South Dakota require sales tax on Downloadable Prewritten Software?

South Dakota requires sales tax on downloadable prewritten software.

Why does South Dakota require sales tax on Downloadable Prewritten Software?

South Dakota includes prewritten software in their definition of tangible personal property and therefore it is subject to sales tax (referred to as gross receipts tax). South Dakota further specifies that anything delivered electronically is considered tangible personal property.

Where can you go to learn more about why South Dakota requires sales tax on Downloadable Prewritten Software?

Sec. 10-45-1(14), SDCL specifies that “any product delivered electronically” is subject to gross receipts (sales) tax. 64:06:02:79. Defines prewritten computer software.

 

Tennessee

Does Tennessee require sales tax on Downloadable Prewritten Software?

Tennessee requires sales tax on downloadable prewritten software.

Why does Tennessee require sales tax on Downloadable Prewritten Software?
Tennessee charges sales tax on computer software, regardless of if it is delivered electronically, on tangible storage media (like a CD-Rom), loaded or programmed into a computer, or created on the premises of the consumer. Sales tax would also be due on any repairs, upgrades, or updates if there is an additional charge. 

Where can you go to learn more about why Tennessee requires sales tax on Downloadable Prewritten Software?
Sec. 67-6-231(a) specifies that downloadable software is subject to sales tax in Tennessee. 67-6-102 (H) (ii) (k) specifies that an exemption might apply in Tennessee for certain manufacturing-related software.

 

Texas

Does Texas require sales tax on Downloadable Prewritten Software?

Texas requires sales tax on downloadable prewritten software.

Why does Texas require sales tax on Downloadable Prewritten Software?

Texas includes “computer programs” in its definition of tangible personal property, therefore sales tax is due on downloadable software in Texas. Texas defines computer programs as “a series of instructions that are coded for acceptance or use by a computer system and that are designed to permit the computer system to process data and provide results and information.” Sales tax is due in Texas any time the computer program, or a license to use the computer program is transferred for consideration, stored, used, or consumed in Texas regardless of if it is in electronic form or tangible physical media. Any other charges made in connection with the sale of the program (such as installation, modification, repair, maintenance or restoration) would also be subject to sales tax. An exemption might apply for software that is related to manufacturing. In isolated instances, a resale exemption could also apply. 

Where can you go to learn more about why Texas requires sales tax on Downloadable Prewritten Software?
Section 151.009 specifies that a “computer program” is part of the definition of taxable tangible personal property. Texas’s definition of a computer program can be found in Rule §3.308 (1). Rule §3.300 outlines the exemption criteria for software related to manufacturing.

 

Utah

Does Utah require sales tax on Downloadable Prewritten Software?

Utah requires sales tax on downloadable prewritten software.

Why does Utah require sales tax on Downloadable Prewritten Software?

Utah requires sales tax on the sale of prewritten computer software. Prewritten software is created for general sales and not for the special needs of a single customer. Prewritten software is tangible personal property and therefore taxable. Sales, rentals, leases, and charges for using prewritten software in Utah are taxable regardless of delivery method (boxed, hosted, downloaded, etc.). Charges to upgrade prewritten software are also taxable. Utah defines computer software as “a set of coded instructions designed to cause: a computer to perform a task; or automatic data processing equipment to perform a task.” 

Where can you go to learn more about why Utah requires sales tax on Downloadable Prewritten Software?
Utah defines prewritten software in 59-12-102(82)(b) (see page 20). Utah defines “computer software” on page 7 of 59-12-102(27). Utah released Pub 64 Sales Tax Information for Computer Service Providers to provide more details on how sales tax applies to computer software. 

 

Virginia

Does Virginia require sales tax on Downloadable Prewritten Software?

Virginia does not require sales tax on downloadable prewritten software.

Why does Virginia not require sales tax on Downloadable Prewritten Software?
Virginia does not require sales tax on software if it is downloaded electronically. It is important to note that Virginia assumes that software was delivered via tangible personal property (such as a CD-Rom) and therefore taxable unless the business can prove that it was delivered electronically. More specifically, Virginia states that “It is the Department’s long-standing policy that the sale of prewritten software delivered electronically to customers does not constitute the sale of tangible personal property and is, therefore, generally not subject to sales and use taxation. This policy is conditioned on the fact that no disc, tape or other tangible medium is subsequently provided to the customer (by mail or other means) before or after the electronic download of the software. This same general policy applies to electronic software updates furnished to customers”. 

Where can you go to learn more about why Virginia does not require sales tax on Downloadable Prewritten Software?

Virginia has created a broad exemption for services not involving the exchange of tangible personal property in Va. Code § 58.1-609.5. Virginia goes into further detail on its policies surrounding prewritten software in P.D. 05-44, P.D. 14-178 and P.D. 08-134.

 

Vermont

Does Vermont require sales tax on Downloadable Prewritten Software?
Vermont requires sales tax on downloadable prewritten software.

Why does Vermont require sales tax on Downloadable Prewritten Software?

Vermont requires sales tax on prewritten computer software because it is listed within Vermont’s definition of tangible personal property. Vermont defines prewritten computer software as “software, including prewritten upgrades, which is not designed and developed by the author or other creator to the specifications of a specific purchaser.” Vermont does not provide an exemption for the taxation of prewritten software based on the delivery method (i.e. via download).

Where can you go to learn more about why Vermont requires sales tax on Downloadable Prewritten Software?
Vermont specifies that prewritten computer software is taxable in 32 V.S.A. Sec. 9701(7). Vermont defines computer software in VT Regulations 1.9701(7)-2 (see page 7). This presentation written by a member of Vermont’s legislative counsel provides ample background regarding the state’s position on prewritten software. 

 

Washington

Does Washington require sales tax on Downloadable Prewritten Software?
Washington requires sales tax on downloadable prewritten software.

Why does Washington require sales tax on Downloadable Prewritten Software?

Washington requires sales tax on prewritten computer software since it is included in the definition of taxable tangible personal property. Washington defines prewritten computer software as “computer software, including prewritten upgrades, patches, fixes, etc., that is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more prewritten computer software programs or prewritten portions thereof does not result in custom software. Configuration of prewritten computer software to work with other computer software does constitute customization of prewritten computer software. Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than such purchaser.” You should note that prewritten computer software is also subject to Washington’s Business & Occupation (B&O) tax. 

Where can you go to learn more about why Washington requires sales tax on Downloadable Prewritten Software?
Washington specifies that “prewritten” falls under the definition of taxable tangible personal property in Wash. Rev. Code §82.04.050(6). Washington defines prewritten computer software in RCW 82.04.215. Washington specifies that prewritten computer software is subject to B&O tax in WAC 458-20-15502

 

Wisconsin

Does Wisconsin require sales tax on Downloadable Prewritten Software?

Wisconsin requires sales tax on downloadable prewritten software.

Why does Wisconsin require sales tax on Downloadable Prewritten Software?

Wisconsin requires sales tax on prewritten computer software, regardless of how it is delivered to consumers. This is because Wisconsin has included prewritten computer software in its definition of taxable tangible personal property. Wisconsin defines computer software as computer software, including prewritten upgrades, that is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of 2 or more “prewritten computer software” programs or prewritten portions of computer software does not cause the combination to be other than “prewritten computer software.” “Prewritten computer software” includes software designed and developed by the author or other creator to the specifications of a specific purchaser if it is sold to a person other than the specific purchaser.

Where can you go to learn more about why Wisconsin requires sales tax on Downloadable Prewritten Software?

Wisconsin defines tangible personal property (which includes prewritten software) in Wis. Stat. §77.51(20). Wisconsin defines prewritten computer software on this page

 

West Virginia

Does West Virginia require sales tax on Downloadable Prewritten Software?
West Virginia requires sales tax on downloadable prewritten software.

Why does West Virginia require sales tax on Downloadable Prewritten Software?
West Virginia requires sales tax on prewritten software regardless of how it is downloaded. West Virginia also requires sales tax on custom software, and Software-as-a-Service (SaaS). There is a very limited sales tax exemption provided by WV State Code § 11-15-9n  if computer software is installed into a “qualified, new or expanded warehouse or distribution facility,” which meet very particular requirements.

Where can you go to learn more about why West Virginia requires sales tax on Downloadable Prewritten Software?
West Virginia defines computer software in WV State Code § 11-15B-2(b)(11). West Virginia indicated that sales tax is due on prewritten software in their Streamlined Taxability Matrix.

 

Wyoming

Does Wyoming require sales tax on Downloadable Prewritten Software?
Wyoming requires sales tax on downloadable prewritten software.

Why does Wyoming require sales tax on Downloadable Prewritten Software?
Wyoming requires sales tax on prewritten computer software whether it is downloaded electronically or on tangible media. Wyoming defines prewritten computer software as “…computer software including any prewritten upgrade, which is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two (2) or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the specific purchaser.”

Where can you go to learn more about why Wyoming requires sales tax on Downloadable Prewritten Software?
Wyoming states that prewritten software is taxable in Wyo. BOE Rule Ch. 2, §13 (iv)(d)(i) (see Chapter 2).

Disclaimer: Our attorney wanted you to know that no financial, tax, legal advice or opinion is given through this post. All information provided is general in nature and may not apply to your specific situation and is intended for informational and educational purposes only. Information is provided “as is” and without warranty.

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