Software Consulting and Implementation Services Not Subject to Minnesota Sales Tax

Monday, September 30th, 2013


The Minnesota Tax Court recently ruled that a taxpayer's consulting and implementation services were not taxable either by themselves or as part of the sale of the taxpayer's software program.

A company sold software in Minnesota and provided consulting and implementation services along with the sale. The company charged separately for these services. The services included preparing the project, consulting with the customer, preparing a "blueprint" of the proposed software configuration, setting up the configuration, testing the configuration, and training the users. The taxpayer was not the only entity that provided such consulting and implementation services for its software.

Minnesota only taxes sales of services if they are (1) specifically identified as taxable or (2) necessary to complete a sale of tangible personal property. Services specifically identified as taxable include fabricating services when the customer provides the materials used in fabrication. Consulting and implementation services are not specifically identified as taxable.

The Minnesota Tax Court ruled that the taxpayer's consulting and implementation services were not subject to tax. Consulting and implementation services were not, by themselves, specifically identified as taxable. These services also did not constitute a taxable fabrication service because the customer did not provide the materials to create the configured software.

The consulting and implementation services were also not taxable as services necessary to complete a sale of tangible personal property. Nor were the charges for the services part of the sales price of the taxable sale of software. The Tax Court ruled that the services were not necessary to complete the sale of the software because other entities provided the same services. A customer could buy the software from the taxpayer and get the consulting and implementation services from someone else. They were not part of the sales price of the software because they were separately stated on the invoice. The taxpayer's charges for these services were therefore not subject to tax.

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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.

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