Are consulting and training services taxable when a Florida vendor sells them together with a taxable software license?

Plain-English summary

Florida treated the consulting and training services sold with this company's accounting software as part of the taxable price of the software, not as a separate nontaxable service. Prewritten software is tangible personal property in Florida, and the "sales price" that is taxed includes any services that are part of the sale.

The vendor licensed its Costpoint project-accounting software and asked how to tax the related consulting and training under three scenarios:

1. Services itemized and included in a taxable software license contract.
2. Services under a separate contract signed at the same time as the license.
3. Services under a separate contract invoiced later.

The Department's answer

In all three situations, the services were taxable as part of the sales price of the software.

• Itemized within the license (Issue 1): Clearly taxable. Section 212.02(16), F.S., defines sales price to include services that are part of the sale, so the vendor correctly collected tax.
• Separate but contemporaneous contract (Issue 2): The agreements reviewed showed the consulting services were actually included in the contract for the taxable software, so they were taxable for the same reason as Issue 1.
• Separate contract invoiced later (Issue 3): Although the vendor called these services "optional," the contracts showed they were an integral part of the deal. The Department pointed to features such as: the vendor required its own certified trainers and barred clients from hiring them for years, the vendor set training prices and controlled the process, the customer had to sign off at each phase, and the master agreement (Article 25) said work orders could not create a separate agreement.

The Department relied on American Telephone and Telegraph Co. v. Department of Revenue, 25 Fla. L. Weekly D1216 (Fla. 1st DCA 2000), which held that services separately stated and separately billed were still "part of the sale," and on the single-sale rule in Rule 12A-15.004(3)(b), F.A.C. It concluded the training was essential to implementing the software, not incidental, so the whole package was one taxable sale.

What this means for you

Labeling a service "optional" or putting it on a separate invoice does not make it nontaxable in Florida if it is functionally part of selling taxable software. When the software vendor controls the training, requires its own personnel, and treats implementation as essential to the product working, tax authorities can fold those service charges into the taxable sales price of the software. To keep services nontaxable, they generally must be genuinely separate and optional — for example, work the customer could obtain elsewhere on independent terms.

Common questions

Q: Is prewritten (canned) software taxable in Florida?
A: Yes. Under Rule 12A-1.032(4), F.A.C., retail sales of prewritten programs are taxed as sales of tangible personal property.

Q: Do separately stated, separately billed services escape tax?
A: Not automatically. Following the AT&T decision, services that are part of the sale are taxable even when separately stated and billed.

Q: When is the tax due on training whose amount is not fixed up front?
A: Under section 212.06(1)(a), F.S., the vendor accrues the tax when it has the right to payment for the training charges under the agreement.

Q: How could such services be nontaxable?
A: They would need to be genuinely optional and separate — not controlled by and essential to the software vendor's own implementation, as they were here.

Citations and references

• Fla. Stat. § 212.05(1)(a)1.a. — 6% tax on retail sales of tangible personal property
• Fla. Stat. § 212.02(15) — definition of "sale"
• Fla. Stat. § 212.02(16) — "sales price" includes services that are part of the sale
• Fla. Stat. § 212.02(19) — "tangible personal property"
• Fla. Stat. § 212.06(1)(a) — tax due on the sales price at the moment of sale
• Fla. Admin. Code r. 12A-1.032(4) — prewritten software taxed as tangible personal property
• Fla. Admin. Code r. 12A-15.004(3)(b) — single sale of items sold as a set or unit
• American Telephone and Telegraph Co. v. Department of Revenue, 25 Fla. L. Weekly D1216 (Fla. 1st DCA 2000) — separately stated services still "part of the sale"

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04A-069

Original ruling text

SUMMARY
QUESTION: When sold with a software license, are the consulting services included in the total sale price subject to
tax?
ANSWER - Based on Facts Below: Yes. The taxpayer has provided contracts which show that the consulting
services are included in the licensing agreement for the software. The total sales price subject to tax includes
consulting services.

December 21, 2004

Re: Technical Assistance Advisement 04A-069
Sales and Use Tax - Software License Renewals
Sections 212.05 (1)(a)1.a, 212.02(15)(a),(16),(19), F.S.
Rule 12A-1.032(4), F.A.C.
XXX (Vendor)
FEI #: XX
Dear:
This is in response to the letter from XXX, dated August 2, 2004, and other correspondence provided requesting a
technical assistance advisement (TAA) regarding the above referenced party and matter. Your letter has been
carefully examined and the Department finds it to be in compliance with the requisite criteria set forth in Chapter 1211, F.A.C. This response to your request constitutes a TAA and is issued to you under the authority of section 213.22,
F.S.
FACTS
You state in your letter referenced above that your client is Vendor. In your letter you provide the following information:
[Vendor] is a registered dealer for Florida sales and use tax, [Vendor] collects sales tax on the following sales:

• Software license agreements that include consulting services as part of the contract;
• Consulting/support services that are contracted for separately from the software licenses but contemporaneously;
  and
• Consulting/support services that are contracted for separately from the software license and at a later date.

You have provided three License and Service Agreements labeled Exhibit 1, Exhibit 1A and Exhibit 3.
ISSUES

1. Is [Vendor] required to charge Florida sales tax on consulting services when the services are itemized and included
   with a taxable software license agreement?
2. Is [Vendor] required to charge Florida sales tax on consulting services that are contracted for and invoiced
   separately when the services are contracted for contemporaneously with a separate contract for a taxable software
   license?
3. Is [Vendor] required to charge Florida sales tax on consulting services that are contracted for and invoiced
   separately when the services are contracted for and invoiced separately at a time subsequent to the sale of the
   taxable software license agreement?
   You also state that the consulting services for Issues 2 and 3 are entirely optional.
   In viewing Vendor's website, we find that all persons providing training are certified by Vendor. Vendor does not permit
   clients to hire trainers until trainers have left Vendor for over 3 years (See Exhibit 1, Schedule E, Article 11). [Vendor]
   thereby creates little option for clients to learn about [Vendor]'s own software that it creates. [Vendor]'s website shows
   extensive training classes to which clients may send personnel, or Vendor may come to client's site. Clients have no
   real option to go outside, as Vendor claims, unless Vendor can demonstrate otherwise that clients are actually using
   this option.
   The first page of the License Agreement-Exhibit 3 (Agreement) provides the following:
   Pursuant to the terms and conditions herein, Licensee hereby agrees to be bound by these terms and conditions, and
   agrees to purchase from [Vendor], and [Vendor] hereby agrees to provide to Licensee, a license to use the project
   cost accounting software commonly know as the [Vendor] Costpoint® Project Accounting Software Series (client
   server, multi-user version) [Software] and all software modules and the third party software listed in, together with the
   documentation and services described in the following schedules and addenda, each of which is incorporated fully
   into and is made a part of this Agreement by this reference: (Emphasis Supplied)
   SCHEDULE A - COST OF LICENSE AND SERVICES

Article 6 of Schedule A, provides:
6. Training and Services
(a) Training, consulting and other services will be provided at [Vendor]'s standard hourly rates in effect at the time
such services are rendered.

(b) Licensee agrees to reimburse [Vendor] for out-of-pocket travel expenses incurred in connection with services
performed at Licensee's site. Licensor’s current per diem rate and local travel allowance are $38 per day and 36 cents
per mile, respectively. [Vendor] reserves the right to increase its per diem and travel allowance.

SCHEDULE B - TERMS AND CONDITIONS

Article 3(b) provides in part,
... Licensee only shall install the server portion of the Software on Licensee's Equipment at the locations specified in
Schedule A....
Article 4 provides in part:
(a) [Vendor] shall provide general and/or technical training/consulting services to assist Licensee in the installation,
implementation and successful utilization of the Software in accordance with the terms of this Article 4 and Schedule
A of this contract. All consulting services shall be performed in a good and workmanlike manner by Consultants
having a level of skill commensurate with the requirements of the services rendered. The parties acknowledge that
[Vendor] has made no guarantees as to the total cost of the system implementation. The parties acknowledge
that [Vendor] has made no guarantees as to the completion date of the implementation. The parties
acknowledge that the ultimate responsibility for the success of implementation rests with the Licensee, and
that it is the role of [Vendor] to assist Licensee in that endeavor. [Vendor]'s involvement in the implementation is
a limited component of the total resources requisite for a timely implementation. Licensee acknowledges that
[Vendor] has informed them that factors that may contribute to the ultimate success of the Software
implementation include but are not limited to the number of personnel Licensee dedicates to the
implementation project, the time these individuals commit to the implementation, the level of skill and
experience these individuals possess, the amount of training key personnel receive, continuity of personnel
at Licensee's work site and level of enthusiasm and commitment demonstrated by Licensee's implementation
team. Regular and substantive interaction between Licensee's implementation team and [Vendor]'s
consultants is also an important factor. Licensee acknowledges that [Vendor] has informed them of the importance
of a "Kick-Off" session wherein each member of Licensee staff that shall be affected by the implementation is briefed
as to what is expected of them and the benefits that the Software can produce. Licensee is aware that [Vendor]
reserves the privilege of requiring Licensee to execute sign-off at the completion of each major phase of the
implementation process. (E.S.)
(b) [Vendor] shall use best efforts to assign a Managing Consultant to assist with the management of the
implementation of the Software. If Licensee determines that any Consultant is not appropriate for the work based on
such Consultant's skills or background and experience, [Vendor] shall make a commercially reasonable effort to
assign another qualified Consultant.... (E.S.)
(c) In the event the Licensee wishes to document in detail the specific work to be performed, the Licensee agrees to

provide such written documentation as an attachment to a work order prior to the delivery of the services....
(d) Licensee may, at its sole option, terminate any work order, or the portion thereof, upon three (3) working days'
advance written notice. ...[Vendor] reserves the right to charge Licensee a cancellation charge....
(e) [Vendor] will try to accommodate work schedule requests of Licensee to the extent possible [Vendor] reserves the
right to change such schedule....

(g) The minimum charge for labor any singe day is eight (8) hours at [Vendor]'s then current standard hourly rate....
Any travel time incurred by Consultant ... will be invoiced as billable time. Licensee will be invoiced for all out-of-pocket
travel expenses....

(j) ... Furthermore, Licensee shall return all equipment, documentation and software on the specified date set forth in
[Vendor]'s engagement letter.
Article 5 provides in part:
(f) [Vendor] will provide to Licensee, at [Vendor]'s option, either in hard copy or by electronic media updated
Documentation for any upgrades, modifications, improvements, enhancements, extensions, and other changes to
Software.

Article 7 provides in part:
(a) All title and rights of ownership in the Software and Documentation remain with [Vendor] and/or its suppliers or
licensors and are protected....
Article 1(d) provides:
The term "Documentation" shall mean the user and systems manuals for the Software, including all replacements,
updates, additions and changes to such written materials from time to time made by [Vendor] and delivered to
Licensee pursuant to this Agreement.
Article 8(e) provides in part:
The warranties set forth herein are void if Licensee or any third party modifies or change the Software in any way
beyond the scope of the customization options contained in the Software. In order to receive and maintain this
warranty, Licensee must (i) use the Software in accordance with the Documentation; (ii) use the Software on the
hardware and with the operating system for which it was designed; and (iii) use only qualified personnel to operate the
Software....
Article 11 provides:

(a) This Agreement shall commence on the Effective Date of the Execution of this Agreement and shall continue in
effect thereafter until terminated in accordance with this section. (E.S.)
(b) Licensee may terminate this Agreement upon ten (10) days written notice to [Vendor]. [Vendor] may terminate this
Agreement upon thirty (30) days' written notice to Licensee, if Licensee fails to comply with any of the material
terms and conditions hereof and if such failure to comply is not corrected within said (30) day period. (E.S.)
Article 12 provides in part:
(a) Upon termination of this Agreement, use of the Software shall be discontinued. ... Licensee must return all and any
copies of the Software to [Vendor]....
Article 25 provides in part:
This Agreement, its Schedules and any Addenda represent the entire agreement between [Vendor] and Licensee with
respect to the Software, and [Vendor] and Licensee agree that all other agreements, purchase orders, proposals,
order forms, representations and other understandings, whether written or oral, concerning any Software, are
superseded in their entirety by this Agreement. No alteration, modifications, attachment, supplement or exhibit to this
Agreement shall be valid unless made in writing and signed by Licensee and [Vendor]....
TAXPAYER POSITION
You provide in your correspondence three conclusions regarding these issues. For Issue 1 you state that tax should
be collected on the consulting services. However, for Issues 2 and 3, you state that Vendor is not responsible for
collecting Florida sales tax if the services are contracted for separately from the sale of taxable tangible personal
property.
REQUESTED ADVISEMENT
You would like to know whether or not the consulting services addressed in Issues 1-3 are subject to Florida sales tax.
APPLICABLE STATUTES AND RULES
Section 212.05 (1), F.S., levies a tax upon the sale of tangible personal property as follows:
(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at
retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and
including each and every retail sale.
Section 212.02, F.S., provides in pertinent parts:
(15) "Sale" means and includes:

(a) Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in
any manner or by any means whatsoever, of tangible personal property for a consideration.

(16) "Sales price" means the total amount paid for tangible personal property, including any services that are a part of
the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to
the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of
materials used, labor or service cost, interest charged, losses, or any other expense whatsoever. "Sales price" also
includes the consideration for a transaction which requires both labor and material to alter, remodel, maintain, adjust,
or repair tangible personal property....

(19) "Tangible personal property" means and includes personal property which may be seen, weighed, measured, or
touched or is in any manner perceptible to the senses.... (E.S.)
Rule 12A-1.032(4), F.A.C., states in part:
...Retail sales of pre-packaged programs for use with audio/visual equipment or other computer equipment, where the
programs are fully useable by the customer without modification and the vendor does not perform a detailed analysis
of the customer's requirements in selecting or preparing the programs, are taxable as sales of tangible personal
property....
Rule 12A-15.004(3)(b), F.A.C., provides:
(b) ITEMS NORMALLY SOLD IN BULK OR ITEMS THAT COMPRISE WORKING UNIT. A single sale must be a sale
of items of tangible personal property that meets at least one of the following conditions:....

2. The items are normally sold as a set or a unit and the utility of each for its intended purposes is dependent on the
   set being complete;
3. The items are normally sold in a single sale by the seller to the purchaser for use in the normal business practice of
   the purchaser as an integrated unit; or
4. The items are component parts that have no utility unless assembled with each other to form a working unit or part
   of a working unit.
   RESPONSE
   Section 212.06(1)(a), F.S., provides that the tax is due on the retail sales price as of the moment of sale. Here, the
   agreement provides that Vendor cannot guarantee the total cost of the system implementation. Therefore, the tax is
   due when Vendor has accrued rights to payment under the Agreement for training charges. The sale of the software,
   which includes the consulting services, is subject to sales tax. Since the services sold are part of the same transaction
   as the sale of tangible personal property, and are not incidental to the sale, they are part of the sales price. Each issue
   will be addressed separately.

1. Is [Vendor] required to charge Florida sales tax on consulting services when the services are itemized and included
with a taxable software license agreement?
Section 212.02(16), F.S., defines the term "sales price" as "[t]he total amount paid for tangible personal property,
including any services that are part of the sale, [and as] the consideration for a transaction which requires both labor
and material to alter, remodel, maintain, adjust, or repair tangible personal property." You are correct in collecting tax
on software license agreements that include consulting services as part of the contract.

2. Is [Vendor] required to charge Florida sales tax on consulting services that are contracted for and invoiced
   separately when the services are contracted for contemporaneously with a separate contract for a taxable software
   license?
   A review of license agreements, Exhibit 1 and 3 provided for Vendor, show that the consulting services are included in
   the contract for taxable software. Therefore, they are taxable for the same reasons as for Issue 1.
3. Is [Vendor] required to charge Florida sales tax on consulting services that are contracted for and invoiced
   separately when the services are contracted for and invoiced separately at a time subsequent to the sale of the
   taxable software license agreement?
   You state the consulting services are optional; however, it appears from the contracts supplied that consulting
   services are an integral part of the Agreement. A review of the Agreement shows that the consulting services are not
   contracted for under a separate contract. The appeals court found in American Telephone and Telegraph Company v.
   Department of Revenue, 25 F.L.W. D1216 (Fla. 1DCA 2000) that services were not separate or discrete transactions
   but were "a part of the sale" even when the sales prices of the services and of the tangible personal property were
   separately stated and separately billed.
   Pursuant to Rule 12A-15.004(3)(b), F.A.C., a single sale involves multiple transfers of tangible personal property
   where the items are sold as a set or a unit, or the utility of each part is dependent on the set being complete. In
   addition, a single sale includes multiple transfers of which the items sold are an integrated unit in the purchaser's
   business or a working unit. The Vendor's sales satisfy the conditions in Rule 12A-15.004(3)(b)2.,3., and 4., F.A.C., as
   provided by the Agreement, which provides that the Vendor is required to furnish all items plus services for the system
   implementation. See the first page of the Agreement and Article 4(a) of Schedule B of the Agreement.
   Section 212.06(1)(a), F.S., provides that the tax is due on the retail sales price as of the moment of sale. Here, the
   Agreement provides that the Vendor cannot guarantee the total cost of the system implementation. Therefore, the tax
   is due when the Vendor has accrued rights to payment under the agreement for training charges.
   The agreements and documentation provided demonstrate that Vendor agreed that the full system implementation
   includes unknowns such as total cost, which includes the amount of training charges and the date of completion. The
   Agreement does provide for prices and the types of training available. The Vendor's website posts prices and provides
   that all instructors are Vendor certified. The Agreement provides that the client may not hire Vendor's consultants.

The Agreement provides that the ultimate responsibility for success of implementation rests with Vendor's customers
and that it is the role of the Vendor to assist the client. The agreement provides that the client acknowledges that the
Vendor informed the client of the factors that contribute to the ultimate success, which includes the amount of training
key personnel receive and the interaction of the trainees with the Vendor's consultant. In fact, the Agreement provides
that the Vendor requires its customers to sign off at the completion of each major phase. Clearly, based on these
provisions, the Vendor and client have mutually assented that the project is ongoing as to training and part of the
overall sale of the system. Furthermore, as in AT&T, the services provided are an essential portion to overall success
of the system implementation. Therefore, it cannot be said that training is incidental and not essential to the
Agreement. As such, the services, part of the Agreement, are essentially intertwined with sale of the software. Here,
the Vendor is required to provide training essential to overall system implementation, by someone certified by Vendor.
Here, the Vendor and clients had a meeting of the minds that the exact amount of training required would be
determined at the option of the client. This mutual assent is consistent with a single contract because the essential
terms were accounted for and understood by both parties in a separate provision intended to be binding on them and
by virtue of the language provided for by Article 4 of Schedule B and Article 11, which provides that the Agreement
shall continue until terminated. Furthermore, Article 4(d) contemplates the use of work orders and includes the use of
them in the agreement. The Agreement clearly is definite regarding the incorporation or work orders and training,
since both parties agree on the essential terms and seriously understand and intend the agreement as to work orders
to be binding on them by the terms of the agreement, not some separate future sale of services. See Robbie v. Miami
, 469 So.2nd 1384 (Fla. 1985); Blackhawk Heating & Plumbing Co. v. Data Lease Financial Corp., 302 So.2nd 404
(Fla. 1974); see 11 Fla. Jur. Contracts s. 42. Furthermore, the amount of training is left to the client's option to
determine Vendor's precise obligation and future charges. Where such an option is available, it cannot be said the
Agreement is not complete as to the work orders, as is done here. See Edgewater Beach Corp. v. Sugarman, 15
So.2d 260 (Fla. 1943). Furthermore, by virtue of Article 25, the work order or later training cannot create a separate
agreement.
When an agreement is evidenced by two or more writings, here the work order and Agreement, the writings must be
construed together in the case of documents that are part of a contemporaneous transaction. See Popwell v. Abel,
226 So.2d 418 (Fla 1st DCA 1969); Holcomb v. Bardill, 214 So.2d 522 (Fla. 4th DCA 1968). See 11 Fla. Jur Contracts
s. 162. A document must be considered incorporated by reference where the incorporating document specifically
provides that it is subject to the incorporated, as is done in this instance. Hurwitz v. C.G.J. Corp., 168 So.2d 84 (Fla. 3
rd DCA 1964).
Where a contract expressly provides that it is subject to the terms and conditions of other, clearly designated
instruments, such as the work orders, then the instruments must be considered in determining the intent of the parties
to the transaction. See Hurley v. Slingerland, 461 So.2d 282, (Fla. 4th DCA 1985), Edelblut Const. Co. v. Free, 149
So.2d 360 (Fla. 2nd DCA 1963). Also see 11 Fla. Jur. Contracts s.163.
When a written contract expressly refers to, and sufficiently describes, another document, such as the work order in
this instance, then the other document is to be regarded as a part of the contract Druhill Const., Inc. v. RSH
Constructors, Inc., 518 So.2d 951, (Fla. 1st DCA 1988). OBS Co., Inc. v. Pace Const. Corp., 558 So.2d 404 (Fla.
1990). Tutko v. Banks, 167 So.2d 110 (Fla. 3rd DCA 1964). See also 11 Fla. Jur. Contracts s. 163.

Two or more documents, executed by the same parties at or near the same time and in the course of the same
transaction concerning the same subject matter, will be read and construed together. It is not necessary that the
instruments (the agreement and work orders) be executed at the same time or by the same parties for the same
purpose. See Clayton v. Howard Johnson Franchise Systems, Inc., 954 F.2d 645 (11th Cir. 1992). International Ship
Repair & Marine Services, Inc. v. General Portland, Inc., 469 So.2d 817 (Fla. 2nd DCA 1985). OBS Co., Inc. v. Pace
Const. Corp., 558 So.2d 404 (Fla. 1990); CH2M Hill Southeast, Inc., v. Pinellas County, 598 So.2d 85 (Fla. 2nd DCA
1992), appeal after remand, 638 So.2d 68 (Fla. 2nd DCA 1994). See 11 Fla. Jur Contracts s. 162.
Here, there is no real option for the client, since the Agreement requires that the Vendor's employees provide the
training and consulting. See Article 4(a) of Schedule B. Furthermore, the Vendor controls the training certification and
the Vendor is entitled to require the return of the software for breach by the client and does not permit modifications of
the Agreement. On the basis of these findings, the total sales price subject to tax includes consulting services.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22,
F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this
advise is based, may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public records under
Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to protect confidentiality, we request you provide the
undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material and this
response, deleting names, addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 15 days of the date of this letter.
Sincerely,
Valerie Koenitzer, CPA
Senior Tax Specialist
Technical Assistance and Dispute Resolution
(850) 922-9412
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