Were optional consulting and training services taxable when purchased and invoiced months after a taxable software license under a separate agreement?

Plain-English summary

The Florida Department of Revenue ruled that the later consulting and training charges were taxable. Although customers could elect the services later and receive a separate agreement and invoice, the original software contract made those services part of the overall taxable license transaction.

The vendor collected tax on software license agreements that included consulting, on contemporaneously contracted support, and on consulting purchased later. It asked whether the last category could be treated as an exempt optional service.

The original agreement integrated software and services

The first page of the License and Services Agreement said the customer bought a software license together with support, consulting, and training described in incorporated schedules. Schedule A provided that the vendor would supply consulting and training on request under that agreement.

The later agreement checked only the consulting-and-training schedule, but the Department viewed Schedules A through E as components of one sale.

Separate timing and documents did not control

Section 212.02(16) included in the taxable sales price services that were part of a tangible-personal-property sale. The Department said a service could remain part of the sale even when separately priced and billed.

Executing a second contract months later was not decisive. The Department found that minor contract-language changes did not separate the services from the original software transaction or qualify them for the professional-service exemption.

The ruling also noted facts supporting the vendor's continuing role in training users, including vendor-certified trainers, extensive vendor courses, and contractual restrictions on hiring former trainers for three years.

What this means for you

Software vendors

If the master license incorporates future consulting, training, or support schedules, later service purchases can remain taxable as part of the software sale even when optional and separately invoiced.

Contract drafters

Substance matters more than the number or date of agreements. Review incorporation clauses, scope provisions, schedules, customer options, and restrictions together.

Accounting teams

Do not classify a later invoice as exempt solely because it posts months after the license sale. Trace it back to the master agreement and determine whether the service was included in the original bargain.

Common questions

Q: Were the consulting services optional?
A: The vendor said customers could choose them at signing or later, but that did not overcome the integrated contract language.

Q: Did the customer sign a separate later agreement?
A: Yes. The Department still found one combined sale because the original agreement incorporated the service schedules.

Q: Does separate billing automatically make a service exempt?
A: No. The ruling said services can be part of a taxable sale even when separately stated and billed.

Q: What was included in the later services?
A: Consulting and training under Schedule E and the related provisions of the license-and-services agreement.

Q: What was the result?
A: The vendor had to charge Florida sales tax on the consulting services described.

Citations and references

• Fla. Stat. § 212.05(1)(a)1.a. — tax on retail tangible personal property
• Fla. Stat. § 212.02(15)(a), (16), and (19) — sale, sales price including related services, and tangible personal property
• Fla. Stat. § 212.08(7)(v)1. — professional-service exemption the Department found inapplicable
• American Telephone & Telegraph Co. v. Department of Revenue, 25 Fla. L. Weekly D1216 (Fla. 1st DCA 2000) — services may remain part of a sale despite separate pricing and billing

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-022

Original ruling text

SUMMARY
QUESTION: Are the consulting services taxable when they are sold months after the software license?
ANSWER - Based on Facts Below: Yes. The taxpayer has provided a contract which shows that the consulting
services are included in the licensing agreement for the software. The consulting services are taxable.

April 20, 2005

Re: Technical Assistance Advisement 05A-022
Sales and Use Tax - Software License Renewals
Section, 212.05(1)(a)1.a, 212.02(15)(a),(16),(19), 212.08(7)(v)1., F.S.
Dear:
This is in response to your letter dated December 22, 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
This letter referenced above provides additional information to be used in conjunction with a letter dated August 2,
2004. You previously provided 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 provide in your letter referenced above the following information:
...[Vendor] has revised Schedule A, Software and Service, regarding the purchase of consulting services. ...If the
customer elects to purchase consulting and training services, then the terms and conditions listed in Schedule E are
applicable.

... Each customer makes an independent decision, at the time the original Agreement is signed, or at a later date, if
they want to purchase consulting services. The services that are purchased by a customer are checked-off on the first
page of the signed Agreement and listed/priced in Schedule A.
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 Schedule E, Article 13). 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 and Services Agreement (Agreement) provides the following:
Pursuant to the terms and conditions herein, Licensee hereby agrees to purchase from [Vendor], and [Vendor]
hereby agrees to provide to Licensee a license to use the [Vendor] and third party software and related
documentation listed in, together with the quarterly support, consulting and training services described in, the following
schedules, each of which is incorporated into and made a part of this Agreement by this reference. (Emphasis
Supplied)
Applicable Schedules:
SCHEDULE A - SOFTWARE AND SERVICES (Rev. 6/03)
SCHEDULE B: GENERAL TERMS AND CONDITIONS (Rev. 11/03)
SCHEDULE C: LICENSE TERMS AND CONDITIONS (Rev. 11/03)
SCHEDULE D: QUARTERLY SUPPORT TERMS AND CONDITIONS (Rev. 11/03)
X

SCHEDULE E: CONSULTING AND TRAINING SERVICE TERMS AND CONDITIONS (Rev. 11/03)

Article 3 of Schedule A, provides:

3. Consulting and Training Services
   (a) Upon request, [Vendor] agree to provide consulting and training services in accordance with this Agreement.
   In a phone conversation on February 28, 2005, you asked the following:
   Is [Vendor] required to charge Florida Sales tax on consulting services that are contracted for and invoiced separately
   at a time subsequent to the sale of the taxable software license agreement?
   You also stated that the consulting services are entirely optional. You have provided a license and services

Agreement in which the applicable schedule that is checked is only Schedule E. This shows that the consulting
services were contracted for at a later date, in a separate Agreement from Scheduled A: Software and Services.
TAXPAYER POSITION
You believe that this new Agreement clearly shows that Vendor's consulting services are optional for each customer
and therefore exempt.
REQUESTED ADVISEMENT
Is Vendor required to charge Florida Sales tax on consulting services that are contracted for and invoiced separately
at a time subsequent to the sale of the taxable software license agreement?
APPLICABLE STATUTES AND RULES
Section 212.05 (1), F.S., levies a tax upon the sale of tangible personal property, stating that tax is due and payable
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....
Section 212.08(7)(v)1., F.S., states an exemption from tax for certain services as follows:
Also exempted are professional, insurance, or personal service transactions that involve sales as inconsequential
elements for which no separate charges are made.
RESPONSE

Generally, the sale of software, which includes consulting services, is subject to sales tax. In this case, the consulting
services are sold subsequent to the sale of tangible personal property.
Based on the facts and a review of page one of the Agreement, it appears the services in Schedules A - E are part of
one sale, not separate sales.
Section 212.02(16), F.S., defines "sales price," in part, to mean the total amount paid for tangible personal property,
including any services that are a part of the sale. Here, services are sold in conjunction with tangible personal
property. Services may be a part of the sale even when the sales price of the services and of the tangible personal
property were separately stated and separately billed. American Telephone and Telegraph Company v. Department of
Revenue, 25 F. L. W. D1216 (Fla. 1DCA 2000).
In this case, you argue that Vendor's software sales are not contracted for with consulting services. The consulting
services are sold subsequent to the software, months later, and contracted for separately from the original contract.
The use of more than one contract is not dispositive. Characterizing the transactions as separate, based upon the
execution of two contracts over time, is also, not necessarily dispositive. The minor alteration of the contract language
does not appear to exempt the described services pursuant to Section 212.08(7)(v)1., F.S.
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
advice 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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