Utah Clarifies Taxability of Prewritten Software: Prewritten ASP Software is Taxable

Monday, March 5th, 2012


The Utah State Tax Commission recently released a private letter ruling explaining that several web-based services are subject to tax as sales of tangible personal property. Utah Priv. Ltr. Rul. No. 10-011 (St. Tax Commn. Feb. 24, 2012). This ruling interpreted last July's change to the statutory definition of tangible personal property regarding prewritten software. Effectively, this ruling clarified that ASP software that is also considered prewritten software is taxable.

Prior to the July 2011 changes, the term "tangible personal property" included prewritten computer software. As of July 1, 2011, that provision was expanded so that the term included prewritten software "regardless of the manner in which the prewritten computer software is transferred." In the ruling, the Commission emphasized that its previous private letter rulings that treated electronically transferred prewritten computer software as non-taxable no longer apply because of this statutory change.

The ruling addressed four different web-based services. The party requesting the ruling had taken the position that these web-based services were non-taxable services. The Commission disagreed. The Commission determined that the web service provider's services actually amounted to selling access to its proprietary software, and the Commission determined that the software in question was prewritten software. Thus, the Commission reasoned that the web service provider was essentially granting its users the right to use its software under a lease or contract. The Commission explained that this transfer of the web services for a fee meets Utah's broad definition of sale found in Utah Code Ann. sec. 59-12-102(99) because it was analogous to a lease of tangible personal property. Based on this reasoning, ASP software that is also considered prewritten software is clearly taxable.

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