Taxation of Optional Software Maintenance Agreements in Missouri

Thursday, February 16, 2012

The Missouri Department of Revenue (DOR) recently issued a letter ruling discussing the taxability of optional software support and maintenance agreements relating to pre-written (canned) software that is customized for specific customers' needs (Mo. Ltr. Rul. No. LR 6998 (Dept. of Revenue Jan. 23, 2012)). The services covered under those agreements included 24 hour customer service by phone, access to FAQs and other online support materials, service calls by trained technicians, and canned software program upgrades. The DOR explained that these agreements are subject to tax in two situations. First, if the original sale of the software was taxable (e.g., the sale of canned software delivered in a tangible format), then a maintenance agreement that includes canned software upgrades to that software is also taxable. This is presumably true even if the canned software upgrades are delivered electronically. Second, if the optional maintenance agreement includes canned software upgrades that are delivered in a tangible format, then it will be subject to tax. This is presumably true even if the original canned software was not subject to tax (e.g., the sale of canned software delivered electronically). In either event, if the amount attributable to the canned software upgrades is separately stated, then tax applies only to that amount and not to the amount attributable to services. If the amounts attributable to canned software upgrades and services are not separately stated, then tax is due on the entire lump-sum charge for the agreement.

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