Missouri Explains Taxability of Software

Friday, February 24th, 2012

 
 
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Missouri
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The Missouri Department of Revenue (DOR) recently issued a pair of letter rulings explaining the taxability of software in several different scenarios (Mo. Ltr. Rul. Nos. LR 6991 and LR and 7001 (Dept. of Revenue Jan. 27, 2012)). There are several factors that affect the taxability of software. The two most crucial distinctions are whether the software is canned or custom and whether the purchaser receives the software on a tangible transfer medium that the purchaser retains. Canned software is taxable when it is delivered to the purchaser in a tangible format. In that case, Missouri considers the transfer of the tangible storage medium containing the software to be a taxable sale of tangible personal property. Software that is downloaded directly from the Internet to a purchaser's computer is not taxable because the purchaser never takes possession of any tangible personal property. Creating and selling a custom software program is treated as a service; because Missouri does not specifically list this service as taxable, sales of custom software are not subject to tax, regardless of how the software is transferred to the purchaser.

The DOR also discussed the taxability of services related to software, such as installation, training, support, and maintenance (the DOR issued guidance addressing software maintenance agreements four days earlier in Mo. Ltr. Rul. No. LR 6998 (Dept. of Revenue Jan. 23, 2012)). Missouri taxes such services only when the purchase of the services is required or mandatory with the sale of canned software delivered in a tangible format. Such services are not taxable if the software is not canned software delivered in a tangible format, or if the purchase of the services is optional.


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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

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