This blog addresses which states require sales tax on downloadable custom software. Custom computer software is typically developed specifically for one user and prepared to the special order of that user.
Many states do not require sales tax on custom software either because it is delivered electronically or is considered a nontaxable service. Some states treat custom software as a taxable service, or require sales tax on all computer software, regardless of whether it is custom, prewritten, downloaded or delivered through tangible media.
State Requirements Regarding Sales Tax on Downloadable Custom Software
Below you will find state-by-state information regarding which states require sales tax on downloadable custom 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 Downloadable Custom Software Requirements:
Alabama
Does Alabama require sales tax on Downloadable Custom Software?
Alabama may require sales tax on downloadable custom software. Special caution is advised.
Why does Alabama not require sales tax on Downloadable Custom Software?
Alabama defines custom software as programs created specifically for one user. This includes original software and canned software that has been modified and prepared based on the special order placed by a customer. According to Alabama’s administrative ruling, custom software, whether delivered electronically or on a tangible medium, is considered tax-exempt in Alabama because it is intended for a single user and not a general, repeated sale. However, in 2019 the Alabama high court found that all software should be considered tangible personal property subject to sales tax, which includes custom software. There is currently a lack of clarity regarding whether custom software should be taxed within Alabama. Special caution is advised.
Where can you go to learn more about how Alabama taxes Downloadable Custom Software?
AL 810-6-1-.37(6) addresses custom software and custom software programming-related services.
This article by EY describes the court case where judges ruled that custom software should be subject to sales tax, regardless of the administrative ruling.
Arkansas
Does Arkansas require sales tax on Downloadable Custom Software?
Arkansas does not require sales tax on downloadable custom software.
Why does Arkansas not require sales tax on Downloadable Custom Software?
The state defines custom software as software designed by the creator to the specifications of a specific user. Any custom software that is delivered through electronic means or via the “load and leave” method is not considered tangible personal property nor subject to sales tax. However, it is only tax-exempt if separately stated on the invoice from charges for manuals, disks, CDs or other tangible property, which is 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 Custom 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 Custom Software?
Arizona does not require sales tax on downloadable custom software.
Why does Arizona not require sales tax on Downloadable Custom Software?
Custom software is considered an original creation of an electronic data processing program for the specific use of an individual customer. It falls under the nontaxable service activity which includes assessing needs, designing specifications, and developing and writing the program for a specific user. Arizona does not differentiate between custom software delivered via download or tangible media.
Where can you go to learn more about why Arizona does not require sales tax on Downloadable Custom Software?
AZ R-15-5-154 defines custom software as originating from a nontaxable service activity.
California
Does California require sales tax on Downloadable Custom Software?
California does not require sales tax on downloadable custom software.
Why does California not require sales tax on Downloadable Custom Software?
California defines custom software as that which is prepared for the special order of the customer. It can incorporate pre-existing routines, utilities or similar components. The state advises that custom software, regardless of the form in which the program is transferred (i.e. electronically or via tangible media), is not taxable.
Where can you go to learn more about why California does not require sales tax on Downloadable Custom 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 Custom Software?
Colorado does not require sales tax on downloadable custom software.
Why does Colorado not require sales tax on Downloadable Custom 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 custom software delivered electronically or via the “load and leave” method does not fall within the description and is considered tax-exempt.
Where can you go to learn more about why Colorado does not require sales tax on Downloadable Custom Software?
C.R.S. 39-26-102 defines computer software that is considered tangible personal property.
Connecticut
Does Connecticut require sales tax on Downloadable Custom Software?
Connecticut requires sales tax on downloadable custom software.
Why does Connecticut require sales tax on Downloadable Custom Software?
Connecticut defines custom software as that which is prepared as a special order of a single customer and considers it a computer and data processing service. The state adds that the design, creation, or development of custom software, or the adaptation or modification of canned software to the particular needs of a single customer, are taxable services.
Where can you go to learn more about why Connecticut requires sales tax on Downloadable Custom 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 Custom Software?
The District of Columbia requires sales tax on downloadable custom software.
Why does the District of Columbia require sales tax on Downloadable Custom 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 Custom 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 Custom Software?
Florida generally does not require sales tax on downloadable custom software.
Why does Florida not require sales tax on Downloadable Custom Software?
Florida requires sales tax on computer software delivered on 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. However, 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 custom 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 Custom Software?
FAC 12-1.032 and TAA 02A-52 address the taxability of downloadable computer software.
Georgia
Does Georgia require sales tax on Downloadable Custom Software?
Georgia does not require sales tax on downloadable custom software.
Why does Georgia not require sales tax on Downloadable Custom Software?
Georgia defines custom computer software as computer software, including custom updates, which is designed and developed by the author to the specifications of a specific purchaser. Rule 560-12-2-.111(3) states that custom computer software is considered a professional service transaction and not subject to sales and use tax. This holds true even if a tangible copy of the software is given to the purchaser. Also, Rule 560-12-2-.111(4) states that any computer software delivered electronically is not considered tangible personal property and not subject to sales tax.
Where can you go to learn more about why Georgia does not require sales tax on Downloadable Custom Software?
Rule 560-12-2-.111 addresses the sale of custom software.
Hawaii
Does Hawaii require sales tax on Downloadable Custom Software?
Hawaii does not have a sales tax but does have a general excise tax, which is required for downloadable custom software.
Why does Hawaii not require sales tax but requires general excise tax on Downloadable Custom 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 canned versus custom 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 Custom 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.
Iowa
Does Iowa require sales tax on Downloadable Custom Software?
Iowa generally requires sales tax on downloadable custom software however an exemption may apply if sold to commercial enterprises with a valid exemption certificate.
Why does Iowa require sales tax on Downloadable Custom 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), computer software furnished to a commercial enterprise for use exclusively by the commercial enterprise. Iowa offers an exemption for the purchase of SaaS and specified digital products used exclusively by commercial enterprises. To take advantage of this commercial enterprise exemption, businesses must provide their vendor with Iowa’s Sales/Use/Excise Tax Exemption Certificate (Form 31-014A).
Where can you go to learn more about why Iowa requires sales tax on Downloadable Custom Software?
Iowa Code 423.1(11) defines computer software as a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task. 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 computer software as tangible personal property subject to sales tax.
For more information on Iowa’s exemption of sales of software and specified digital products to commercial enterprises, click here.
Idaho
Does Idaho require sales tax on Downloadable Custom Software?
Idaho does not require sales tax on downloadable custom software.
Why does Idaho not require sales tax on Downloadable Custom Software?
Idaho Statute 63-3616(b) specifically lists custom computer programs as not considered tangible personal property. This statute also defines custom computer programs as those which are written or prepared exclusively for a customer and includes those services represented by separately stated charges for the modification of existing prewritten programs when completed exclusively for a specific customer. IDAPA 35.01.02.27.11 also states that custom software, regardless of the form or means by which the program is transferred, is not subject to sales tax. The tax does not apply to the transfer of the custom software or programming services performed. However, if the services or custom software are not separately stated from the charges for computer equipment, they are considered part of the taxable sale.
Where can you go to learn more about why Idaho does not require sales tax on Downloadable Custom Software?
Idaho Statute 63-3616(b) states that custom computer programs are not considered tangible personal property. IDAPA 35.01.02.27.01(f) defines custom software as that designed and written by a vendor at the specific request of a client to meet a particular need.
Illinois
Does Illinois require sales tax on Downloadable Custom Software?
Illinois does not require sales tax on downloadable custom software.
Why does Illinois not require sales tax on Downloadable Custom Software?
Illinois considers all custom computer programs to be tax-exempt so long as the following elements are present: (1) preparation or selection of the program for the customer’s use requires an analysis of the customer’s requirements by the vendor; and (2) the program requires adaptation by the vendor to be used in a specific work environment. The custom program does not include canned or prewritten programs held for general or repeated sale or lease. A modification of prewritten software to the specific needs of a customer is considered custom software.
Where can you go to learn more about why Illinois does not require sales tax on Downloadable Custom Software?
86 Ill. Adm. Code 130-1935(c) defines custom computer programs as those prepared to the special order of the customer.
Indiana
Does Indiana require sales tax on Downloadable Custom Software?
Indiana does not require sales tax on downloadable custom software.
Why does Indiana not require sales tax on Downloadable Custom Software?
Indiana Information Bulletin #8 states that, as a general rule, transactions involving computer software in the form of a custom program specifically designed for the purchaser are not subject to Indiana sales and use tax, regardless of how the software is delivered.
Where can you go to learn more about why Indiana does not require sales tax on Downloadable Custom Software?
Indiana Information Bulletin #8 addresses the application of sales tax to computer hardware, software, and digital goods. This bulletin also defines custom computer software.
Kansas
Does Kansas require sales tax on Downloadable Custom Software?
Kansas does not require sales tax on downloadable custom software.
Why does Kansas not require sales tax on Downloadable Custom Software?
Kansas states that if the software is designed, written and sold to a specific customer for the customer’s exclusive use, the sale is not subject to tax. Kansas does not differentiate between custom software delivered electronically or on a physical storage media.
Where can you go to learn more about why Kansas does not require sales tax on Downloadable Custom Software?
Kansas Information Guide EDU-71R addresses the taxability of computer software. Custom software is defined as software solely designed for one customer.
Kentucky
Does Kentucky require sales tax on Downloadable Custom Software?
Kentucky does not require sales tax on downloadable custom software.
Why does Kentucky not require sales tax on Downloadable Custom Software?
Kentucky identifies charges for custom software as not subject to tax in its Sales Tax Facts publication. KY G.S. 139-010 does not specifically define or address custom software, but only identifies prewritten software as tangible personal property subject to sales tax. Custom software is excluded from this definition.
Where can you go to learn more about why Kentucky does not require sales tax on Downloadable Custom Software?
KY Sales Tax Facts (pub. Sept. 2007) addresses the taxation of computer software. This publication defines custom software as software tailored solely to the needs of an individual customer.
Louisiana
Does Louisiana require sales tax on Downloadable Custom Software?
Louisiana does not require sales tax on downloadable custom software
Why does Louisiana not require sales tax on Downloadable Custom Software?
Tangible personal property is defined as any personal property that can be seen, weighed, measured, felt or touched, or is in any other manner perceptible to the senses. Custom software is defined by the state as software prepared, created, adapted, or modified to the special order of a particular purchaser. Under Louisiana law, custom software is not subject to sales tax regardless of the method of delivery.
Where can you go to learn more about why Louisiana does not require sales tax on Downloadable Custom Software?
LA Revenue Information Bulletin No. 11-005 advises that custom computer software is not subject to sales tax. 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. LA Revenue Information Bulletin No. 02-008 also states that custom computer software is excluded from the definition of tangible personal property.
Still More Information on Which States Require Sales Tax on Downloadable Custom Software
You still hanging in there? We aren’t done yet! There is still more information on which states require sales tax on Downloadable Custom 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 Custom Software?
Maine does not require sales tax on downloadable custom software.
Why does Maine not require sales tax on Downloadable Custom Software?
Maine defines custom computer software as that which is written or prepared exclusively for a particular customer. It does not include canned or prewritten software that is held or exists for general or repeated sale. Sec. 1752(17) specifically excludes custom computer software from the definition of tangible personal property subject to tax.
Where can you go to learn more about why Maine does not require sales tax on Downloadable Custom Software?
Maine Title 36, Sec. 1752(1-E) defines custom computer software programs.
Maryland
Does Maryland require sales tax on Downloadable Custom Software?
Maryland does not require sales tax on downloadable custom software.
Why does Maryland not require sales tax on Downloadable Custom Software?
Maryland states that sales and use tax does not apply to a sale of custom computer software services relating to procedures and programs that would otherwise be taxable, are intended for a specific person, are created for that person, and do not constitute a program that is mass-produced and sold to the general public.
Where can you go to learn more about why Maryland does not require sales tax on Downloadable Custom Software?
MD Sec. 11-219(b) identifies the exemption for custom computer software programs.
Massachusetts
Does Massachusetts require sales tax on Downloadable Custom Software?
Massachusetts does not require sales tax on downloadable custom software.
Why does Massachusetts not require sales tax on Downloadable Custom Software?
Custom software is defined as a software program prepared to the special order of a customer that is not prewritten software. 830 CMR 64H.1.3(6)(a) states that sales of custom software are generally exempt from sales tax as a professional service transaction regardless of the method of delivery. It defines professional service transactions for custom software as one in which the principal object of the purchaser is the professional and personal service of a programmer, systems analyst or other person who imprints or has imprinted the result of the services on magnetic media, the cost of which is an inconsequential element of the cost of the entire transaction.
Where can you go to learn more about why Massachusetts does not require sales tax on Downloadable Custom Software?
830 CMR 64H.1.3 defines custom software and addresses the taxability of all custom software regardless of method of delivery.
Michigan
Does Michigan require sales tax on Downloadable Custom Software?
Michigan does not require sales tax on downloadable custom software.
Why does Michigan not require sales tax on Downloadable Custom Software?
Michigan defines computer software as a “set of statements or instructions that when incorporated in a machine usable medium is capable of causing a machine or device having information processing capabilities to indicate, perform, or achieve a particular function, tax or result.” RAB 1999-5 states, “computer software originally designed for the exclusive use and special needs of the purchaser” is not considered tangible personal property and therefore is not subject to tax. Custom software falls within this definition and is therefore tax-exempt in Michigan.
Where can you go to learn more about why Michigan does not require sales tax on Downloadable Custom Software?
Michigan RAB 1999-5 discusses the taxability of computer software.
Minnesota
Does Minnesota require sales tax on Downloadable Custom Software?
Minnesota does not require sales tax on downloadable custom software.
Why does Minnesota not require sales tax on Downloadable Custom Software?
Minn. R. 8130.9910(2) states that sales tax is not due on the sale, lease or license of a custom computer program regardless of method of delivery. The sale of a custom computer program is a service transaction and any transfer of tangible personal property is incidental to the service being performed. The state considers it a service because the purpose of the transaction is to obtain “personalized service and the expert knowledge of the program creator.” Maintenance furnished for custom software is also not taxable.
Where can you go to learn more about why Minnesota does not require sales tax on Downloadable Custom Software?
Minn. R. 8130.9910(2) identifies custom software as tax-exempt.
Mississippi
Does Mississippi require sales tax on Downloadable Custom Software?
Mississippi requires sales tax on downloadable custom software.
Why does Mississippi require sales tax on Downloadable Custom 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 Custom Software?
Miss. Rule 35.IV.5.06 (see page 55) defines computer software and programs and specifies that it is taxable regardless of how it is delivered to the customer.
Missouri
Does Missouri require sales tax on Downloadable Custom Software?
Missouri does not require sales tax on downloadable custom software.
Why does Missouri not require sales tax on Downloadable Custom Software?
Missouri defines customized software as that which is developed to the special order of a customer. Missouri states, “the true object sought by a purchaser of customized software is the service of the seller and not the property produced by the service.” The state also advises that tax does not apply to the amount charged to the customer for custom software, but the purchase of any tangible personal property or taxable services used to provide the nontaxable service is subject to sales tax.
Where can you go to learn more about why Missouri does not require sales tax on Downloadable Custom Software?
Missouri 12 CSR 10-109 discusses the taxation of software, including custom software and related maintenance, services, and tangible personal property.
Nebraska
Does Nebraska require sales tax on Downloadable Custom Software?
Nebraska requires sales tax on downloadable custom software.
Why does Nebraska require sales tax on Downloadable Custom 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 Custom Software?
Reg-1-088 specifies that gross receipts from furnishing software are taxable.
Nevada
Does Nevada require sales tax on Downloadable Custom Software?
Nevada does not require sales tax on downloadable custom software.
Why does Nevada not require sales tax on Downloadable Custom Software?
Nevada considers custom software a professional service and therefore it is not subject to sales tax. Nevada specifies that the tax does not apply to “the sale, lease, rental or licensing for use of custom computer software, regardless of the form in which the custom computer software is transferred.” Nevada also specifies that updates, upgrades, or service charges related to the custom software are not subject to sales tax. Please note that Nevada requires that charges for custom software (and any charges for updates, upgrades, or service fees) be separately stated on the invoice and not bundled with other taxable transactions. If non-taxable custom software is bundled with taxable transactions on the invoice, then it will be subject to sales tax.
Where can you go to learn more about why Nevada does not require sales tax on Downloadable Custom Software?
Nev. Admin. Code §372.875(2) specifies that custom computer software is defined as a professional service and therefore not subject to sales tax.
New Jersey
Does New Jersey require sales tax on Downloadable Custom Software?
New Jersey does not require sales tax on downloadable custom software.
Why does New Jersey not require sales tax on Downloadable Custom Software?
New Jersey does not require sales tax on custom software and states, “In those exceptional circumstances when software is created, written, and designed for the exclusive use of a specific customer, it is not considered pre-written computer software when sold to the specific customer for whom it was designed.” You should also note that New Jersey later uses the words “entirely custom” which indicates that modifications to prewritten software would not necessarily make the software fall under the definition of “custom software”. Instead, custom computer software would be treated as non-taxable professional services.
Where can you go to learn more about why New Jersey does not require sales tax on Downloadable Custom Software?
New Jersey’s Technical Bulletin – 51 provides insight on what software is and is not subject to sales tax.
New Mexico
Does New Mexico require sales tax on Downloadable Custom Software?
New Mexico requires sales tax on downloadable custom software.
Why does New Mexico require sales tax on Downloadable Custom Software?
Custom software in New Mexico is generally taxable as a taxable professional service under New Mexico’s gross receipts tax. New Mexico further clarifies certain software is considered property in New Mexico and consumers may be subject to property tax. Crazy, right? Custom software that is customized for the company only and is subject to an exclusive license and greatly modified, is exempt from property taxation.
Where can you go to learn more about why New Mexico requires sales tax on Downloadable Custom Software?
N.M. Admin. Code tit. 3, §3.2.1.18 section DD specifies that custom software is taxable in New Mexico. This page published by the New Mexico Department of Revenue summarizes which software is considered property for property tax considerations.
New York
Does New York require sales tax on Downloadable Custom Software?
New York does not require sales tax on downloadable custom software.
Why does New York not require sales tax on Downloadable Custom Software?
New York requires sales tax on prewritten software; however, sales tax does not apply if the software was custom-built for the customer. Software that was originally designed and developed to the specifications of a specific purchaser (custom software) loses its identity as such and becomes prewritten software subject to tax when it is sold to someone other than the person for whom it was originally designed. When prewritten software is modified or enhanced, it remains prewritten software. However, reasonable and separately stated charges for the modifications and enhancements are exempt.
Where can you go to learn more about why New York does not require sales tax on Downloadable Custom 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.
North Carolina
Does North Carolina require sales tax on Downloadable Custom Software?
North Carolina does not require sales tax on downloadable custom software.
Why does North Carolina not require sales tax on Downloadable Custom Software?
North Carolina 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”. North Carolina has included custom computer software in its list of products that are exempt from sales tax.
Where can you go to learn more about why North Carolina does not require sales tax on Downloadable Custom Software?
N.C. G.S. 105-164.13(43) defines custom computer software and lists it as exempt from sales tax.
North Dakota
Does North Dakota require sales tax on Downloadable Custom Software?
North Dakota does not require sales tax on downloadable custom software.
Why does North Dakota not require sales tax on Downloadable Custom Software?
North Dakota does not require sales tax on custom software. North Dakota has provided official guidance through their Streamlined Sales Tax taxability matrix that custom software is exempt from sales tax. North Dakota taxes prewritten software, and as long as your custom software does not fall under the definition of prewritten software, then it is not taxable. Prewritten software is defined by North Dakota as “… computer software, including prewritten upgrades, which is not designed and developed by the author or other creator to the specifications of a specific purchase”.
Where can you go to learn more about why North Dakota does not require sales tax on Downloadable Custom Software?
NDCC 57-39.2-02.1(1)(g) specifies what constitutes taxable prewritten software (see page 6). North Dakota’s Streamlined Sales Tax Taxability Matrix clarifies that custom software is not subject to sales tax.
Ohio
Does Ohio require sales tax on Downloadable Custom Software?
Ohio requires sales tax on downloadable custom software intended for business use, but not on custom software created for non-business use.
Why does Ohio require sales tax on Downloadable Custom Software for business use and not for personal use?
Ohio requires sales tax on “computer services” that are for use in business. Many activities fall under Ohio’s definition of “computer services”, however, Ohio defines computer programming as a computer service which is “the service of writing, changing, debugging, or installing systems software” and defines systems software as “… all programming that controls the basic operations of the computer, such as arithmetic, logic, compilation or similar functions, whether it is an integral part of the computer hardware or is contained on magnetic disks or other storage media”. For this reason, custom software (a computer programming service) that is used for business is subject to sales tax. If you perform any other computer services for use by businesses, you need to pay special attention to if it is taxable in Ohio.
Where can you go to learn more about why Ohio requires sales tax on Downloadable Custom Software for business use and not for personal use?
Ohio AC5703-9-46 defines computer services, computer programming, and what is considered a business function. Ohio RC5739.01 defines what is considered a computer service and automatic data processing.
Oklahoma
Does Oklahoma require sales tax on Downloadable Custom Software?
Oklahoma does not require sales tax on downloadable custom software.
Why does Oklahoma not require sales tax on Downloadable Custom Software?
Oklahoma states that custom computer software “means a program prepared to the special order of a customer. The sale of a custom computer program is a service transaction, and therefore, is not subject to tax. In addition, charges for maintenance are not taxable.” So if you sell custom computer software in Oklahoma, you’re good to go!
Where can you go to learn more about why Oklahoma does not require sales tax on Downloadable Custom Software?
Chapter 65. Sales and Use Tax (see page 168) defines custom computer software.
Pennsylvania
Does Pennsylvania require sales tax on Downloadable Custom Software?
Pennsylvania does not require sales tax on downloadable custom software.
Why does Pennsylvania not require sales tax on Downloadable Custom Software?
Pennsylvania does not require sales tax on “custom software” and defines custom software as “computer software designed, created and developed for and to the specifications of an original purchaser.” Pay special attention to the word “original purchaser” which Pennsylvania further defines as “the first person for whom the custom software was designed, created and developed, and to whom it was transferred in a sale at retail”.
Where can you go to learn more about why Pennsylvania does not require sales tax on Downloadable Custom Software?
Penn. Code § 60.19. Computer software, hardware, and related transactions defines custom computer software and specifies that it is not subject to sales and use tax.
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