Did inserting each purchaser's name and address into a medical or dental software package make the whole program custom?

Plain-English summary

The seller encoded each purchaser's name and address into medical and dental software and used that information in screens, forms, statements, and reports.

California said this limited adaptation did not turn the underlying package into a custom program. Sales of the basic software remained taxable.

Separately stated charges for tailoring an existing prewritten program with the purchaser's identity were treated as excluded custom modifications under the stated rule.

Citations and references

• The short letter did not cite a statute or regulation by number.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/120-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/120-3115.pdf

Original ruling text

120.3115

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-3723

March 4, 1983
M. L--- D. J--President
D--- S---, Inc.
P. O. Box XXXXX
--- ---, CA XXXXX
Dear M. J---:
This is in response to your letter of February 2, 1983.
We understand that D--- S---, Inc., is a computer software house. You develop medical and dental programs for use on in-office computers. Each of your software packages is tailored to each of your users to the extent that:

1. The name and address of the purchaser is encoded into the system prior to
   purchase.
2. This information is utilized in all programs either as part of a screen
   display or for printing on forms, statements, reports, etc.
   We are of the opinion that sales tax applies to sales of your software packages notwithstanding the fact that the packages are adapted to the specific needs of the user, as specified. Programs of the type in question do not qualify for nontaxability under recently enacted exclusions from the definition of “sale.” However, the term “custom computer program” includes those services represented by separately stated charges for modifications to an existing prewritten program. Thus, charges for tailoring the programs to individual users in the manner specified above are nontaxable if separately stated. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel
GJJ:rdv