New Jersey Rules That Software as a Service Is Not Taxable

Tuesday, July 3rd, 2012

 
 
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New Jersey
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The New Jersey Department of Treasury's Division of Taxation recently ruled that software as a service (often referred to by the acronym "SaaS") is not subject to sales tax. N.J. Ltr. Rul. LR: 2012-4-SUT (Div. of Taxn. June 22, 2012).

The taxpayer that requested the ruling charges its customers a monthly fee in exchange for use of a web application hosted on the Taxpayer's computer systems. This web application was developed for many users and not to the specifications of a single client. The Division stated that it understood the following basic facts about the typical software as a service scenario:

  • The seller fully owns and operates the software applications.
  • The seller owns, operates, and maintains the server that hosts the software.
  • Customers access the software via the Internet.
  • The software is not transferred to the customer, and the customer does not have the right to download, copy, or modify the software.

The Division explained that web-hosted services in which software is only accessed by the user, but not delivered or transferred to the user, are not subject to New Jersey's sales and use tax. Accordingly, the Division ruled that the taxpayer's charges for software as a service are not taxable provided that the software is only accessed by the user and there is no transfer or delivery of the software to the user.


About TTR

Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

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.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

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