Were monthly fees for customers to access software on the seller's server through the internet subject to Florida sales tax?

Plain-English summary

The Florida Department of Revenue ruled that the monthly internet-access fees were not subject to sales tax when the software remained on the seller's server and customers accessed it electronically. No tangible personal property passed to the customer as part of that transaction.

The company also sold a preprogrammed software package that was physically delivered and installed on the customer's computer. It treated those sales as taxable canned software. As an alternative, customers could pay monthly to use the same software through the internet while it stayed on the company's server.

Electronic access was not a sale or rental of tangible property

Florida taxed transfers, licenses, leases, and rentals of tangible personal property. The Department stated that electronically accessed software was not tangible personal property when no physical item transferred with the transaction.

The monthly access fee therefore was not taxable as a sale or rental under Chapter 212 on the stated facts.

Physically delivered canned software remained taxable

Rule 12A-1.032 distinguished customized software services from prepackaged programs usable without modification. The seller's physically delivered, preprogrammed software was taxable tangible personal property, and the ruling said the company was correct to collect and remit tax on those sales.

Customer-specific printed results were not taxable information services

Customers could print their own results or ask the seller to print them. The ruling explained that printed reports produced exclusively for one customer were not taxable information services under Rule 12A-1.062(3)(a). By contrast, the rule taxed specified compiled information furnished in printed form when it was not produced exclusively for a single customer.

What this means for you

Software-as-a-service businesses

Under this ruling, server-hosted software accessed only through the internet was outside the tangible-property tax base. Preserve evidence that customers receive no disk, device, preloaded equipment, or other physical property.

Software sellers with multiple delivery methods

Tax treatment can differ by delivery channel. The same software was taxable when physically delivered as a prepackaged program but nontaxable when accessed electronically from the seller's server.

Reporting and information-service providers

If printed output is involved, determine whether it is produced exclusively for one customer or is a general compiled-information product. The ruling treated exclusive customer reports differently.

Common questions

Q: Where did the electronically accessed software reside?
A: On the seller's server.

Q: Did customers receive a physical copy under the monthly plan?
A: No. The ruling conditioned the result on electronic access with no tangible-property transfer.

Q: Was the physically delivered version taxable?
A: Yes. It was prepackaged software installed by the customer.

Q: Were customer-specific printed reports taxable information services?
A: No, according to the rule interpretation stated in the advisement.

Q: Did the Department classify the monthly fee as a professional service?
A: It concluded more broadly that the subject electronic-access fees were not taxable transactions under Chapter 212.

Citations and references

• Fla. Stat. § 212.02(15), (16), and (19) — sale, sales price, and tangible personal property
• Fla. Stat. § 212.05 — tax on sales, use, and rentals of tangible personal property
• Fla. Stat. § 212.08(7)(v)1. — professional and personal service transactions
• Fla. Admin. Code r. 12A-1.032(4) — customized and prepackaged software
• Fla. Admin. Code r. 12A-1.062 — taxable information services and single-customer reports

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05A-026

Original ruling text

SUMMARY

QUESTION: Are monthly fees allowing customers electronic access to taxpayers’ software subject to sales tax as
rental of tangible personal property, subject to sales tax as an information service, or a professional service exempt

from sales tax?

ANSWER - Based on Facts Below: The subject fees do not constitute taxable transactions under Chapter 212,

provided the software is accessed electronically.

June 2, 2005

Re: Technical Assistance Advisement 05A-026
Sales Tax

Internet Accessed Software

Sections 212.02, 212.05, 212.08, F.S.

Rules 12A-1.032 and 12A-1.062, F.A.C.

Dear:

This is a response, styled a Technical Assistance Advisement, to your letter of February 9, 2005. You have asked the
Florida Department of Revenue to provide clarification and guidance on the application of sales tax for the sales and

support service of software accessed via the Internet.

Background

You have stated the following facts in your letter referenced above. "Taxpayer" has developed a software package
that is physically delivered and licensed to its customers. The software is installed on the customer’s computer by the
customer. "Taxpayer" believes that this is a sale of "canned software" and has been charging and remitting sales tax

on the sales of its pre-programmed software in Florida.

As an alternative to purchasing the software, and for a monthly fee, "Taxpayer" will allow customers to access the
software residing on its server. The customers will electronically access the software via the Internet. The customer

may print out the results of its use or may elect to have "Taxpayer" do so.

Requested Advisement

Is the monthly fee charged for electronic use of the software considered rental of tangible personal property subject to

sales tax, an information service subject to sales tax, or a professional service exempt from sales tax?

Applicable Authority and Discussion

Section 212.05, F.S., provides in part:

It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the
business of selling tangible personal property at retail in this state, including the business of making mail order sales,
or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or
consumption in this state any item or article of tangible personal property as defined herein and who leases or rents

such property within the state....

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.

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(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....

(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....

Section 212.08(7)(v)1., F.S., provides:

(v) Professional services.-

1. Also exempted are professional, insurance, or personal service transactions that involve sales as inconsequential

elements for which no separate charges are made.

Rule 12A-1.032, F.A.C., provides in part:

(4) The charge which a computer technician makes for a customized software package which includes such items as
instructional material, pre-punched cards or programmed tapes is construed to be a service charge and exempt. 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 modifications 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. However, where the vendor, at the customer's request, modifies or alters a pre-packaged program to the
customer's specification and charges the customer for a single transaction, the charge is for a customized software

package and is exempt as a service transaction.

Rule 12A-1.032(4), F.A.C., provides that the sales of pre-packaged software programs, where the programs are fully
useable by the customer without modifications, are subject to sales tax. You are correct in collecting and remitting

sales tax on these sales.

The Florida Department of Revenue has long held the position that licenses for the use of software accessed
electronically are not considered sales of tangible personal property as defined in s. 212.02(19), F.S., and therefore,
are not subject to Florida sales tax, so long as no transfer of tangible personal property occurs as a part of the

transaction.

Rule 12A-1.062, F.A.C., provides in pertinent part:

(1) The sale of information services involving the furnishing of printed, mimeographed, multigraphed matter, or matter
duplicating written or printed matter, other than professional services and services of employees, agents, or other
persons acting in a representative or fiduciary capacity, are taxable.

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(3)(a) "Information services" means and includes the services of collecting, compiling or analyzing information of any
kind of nature, or furnishing reports thereof to other persons. The charge for furnishing information services, such as
newsletters, tax guides, research publications, and other written reports of compiled information, which are not

produced for and provided exclusively to a single customer, is taxable.

Charges for printed reports provided to a single customer exclusively are not information services subject to sales tax
pursuant to Rule 12A-1.062(3)(a), F.A.C.

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.

If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at
(850)922-4839.

Sincerely,

Jean Davis
Senior Tax Specialist

Technical Assistance & Dispute Resolution

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Control No: 12872