Are downloaded prewritten software, electronic updates, and monthly cloud subscriptions subject to Georgia sales tax?

Plain-English summary

Sales of prewritten software and vendor-provided enhancements were not taxable because neither was available on tangible media and both had to be downloaded. The seller's invoice, contract, or other documentation needed to state the delivery method; absent that documentation, tangible delivery was presumed unless the taxpayer proved otherwise.

Monthly cloud subscriptions were also nontaxable. Customers accessed vendor software over the internet, no tangible personal property transferred, and cloud subscription access was not one of Georgia's specifically taxable services.

Common questions

Q: Is all prewritten software nontaxable in Georgia?

A: No. The ruling distinguished software delivered electronically from prewritten software sold on tangible media.

Q: Why did delivery documentation matter?

A: Without it, Georgia presumed delivery on tangible media and placed the proof burden on the taxpayer.

Citations and references

• O.C.G.A. § 48-8-2(37) -- prewritten software as tangible personal property
• Ga. Comp. R. & Regs. r. 560-12-2-.111(3), (4)(a)-(b) -- software delivery medium

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2014-01

Original ruling text

State of Georgia
Douglas J. MacGinnitie
Commissioner

Department of Revenue

Frank M. O’Connell
Director

Legal Affairs & Tax Policy
1800 Century Blvd., Suite 15107
Atlanta, Georgia 30345-3205
(404) 417- 6649

February 20, 2014

Georgia Letter Ruling SUT No. 2014-02-20-01 Computers & Software

This letter is in response to your request for guidance on the application of Georgia sales and use
tax to transactions involving software, software enhancements, and cloud subscription services.
Facts
Taxpayer sells consulting services and software to customers in Georgia. Taxpayer is a reseller
of software, software enhancements, and cloud subscription services. Software sales consist of
prepackaged software and prepackaged software enhancements (updates and service packs)
provided from the vendor. Software and enhancements are not available on tangible media and
must be downloaded from the vendor site.
Taxpayer is also a reseller of cloud subscription services that allow customers to access and use
vendor software via the internet.
Issues

1. Are the sales of prepackaged software described above taxable to the end user consumer?
2. Are the sales of prepackaged software enhancements described above taxable to the end user
   consumer?
3. Are the sales of monthly cloud subscription services described above taxable to the end user
   consumer?

An Equal Opportunity Employer

February 20, 2014
Page 2 of 4

Analysis
Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase,
retail sale, storage, use, or consumption of tangible personal property and on certain enumerated
services.1 Every purchaser of tangible personal property at retail in Georgia is liable for a tax on
the purchase at the rate of 4 percent of the sales price of the purchase, plus any applicable local
sales taxes. The dealer making the taxable sale must collect the tax from the purchaser and remit
the tax to the Department.2 Each dealer shall add the amount of the tax imposed under this
article, as far as practicable, to the sale price or charge. Any dealer who neglects, fails, or refuses
to collect the tax provided for in this article upon a retail sale of tangible personal property made
by him, his agent, or his employee when the sale is subject to the tax shall be liable for and shall
pay the tax himself.3
The definition of “dealer” includes a person who “sells at retail, offers for sale at retail, or has in
his possession for sale at retail, or for use, consumption, distribution, or storage for use or
consumption in this state tangible personal property.” 4 “Retail sale” or “sale at retail” means any
sale, lease, or rental for any purpose other than for resale, sublease, or subrent.5 “Retail sale”
includes the sale of certain services. “Sale” means any transfer of title or possession, exchange,
barter, lease, or rental, conditional or otherwise, in any manner, by any means of any kind of
tangible personal property for a consideration.6 “Tangible personal property” means personal
property that can be seen, weighed, measured, felt, or touched or that is in any other manner
perceptible to the senses. “Tangible personal property” includes prewritten computer software. 7
“Computer software” means:
any computer data, program or routine, or any set of one or more programs or
routines, which are used or intended for use to cause one or more computers, pieces
of computer-related peripheral equipment, automatic processing equipment, or any
combination thereof, to perform a task or set of tasks. Without limiting the generality
of the foregoing, the term “computer software” shall include operating programs,
application programs, system programs, and any other subdivisions (such as
assemblers, compilers, generators, and utility programs).8
“Prewritten computer software,” also known as “canned computer software,” means computer
software that is designed, prepared, or held for general distribution or repeated use, or software
programs developed in-house and subsequently held or offered for repeated sale, lease, license,

1

O.C.G.A. §§ 48-8-1 and 48-8-30(a).
O.C.G.A. § 48-8-30(b)(1).
3
O.C.G.A. § 48-8-35.
4
O.C.G.A. § 48-8-2(8)(G).
5
O.C.G.A. § 48-8-2(31).
6
O.C.G.A. § 48-8-2(33).
7
O.C.G.A. § 48-8-2(37).
8
Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(d).
2

February 20, 2014
Page 3 of 4

or use.9 The sale, lease, rental, license, or use of prewritten computer software is subject to sales
and use tax when such software is sold in a tangible medium.10
Computer software delivered electronically is not a sale of tangible personal property and
therefore is not subject to sales and use tax.11 The dealer's invoice, purchase contract, or other
documentation must indicate the method of delivery. If the method of delivery is not indicated on
the dealer's invoice, purchase contract, or other documentation, delivery will be presumed to
have been made through a tangible medium, and the burden will be upon the taxpayer to
establish to the satisfaction of the Department that the computer software was delivered
electronically.12 However, if a dealer delivers computer software electronically and also provides
the same computer software to the purchaser in a tangible medium, the transaction shall be
treated as the taxable sale of tangible personal property unless the software qualifies as custom
software.13 In the present case, the software and software enhancements are both delivered
electronically and both are thus not subject to sales and use tax.
As mentioned above, certain services are subject to sales tax in Georgia (e.g., transportation
services, accommodations, fabrication labor). However, cloud subscription services that allow
customers to access and use vendor software via the internet are not among the enumerated
taxable services. In addition, the cloud subscription services at issue do not include the transfer
of tangible personal property. Because cloud subscription services are not among the enumerated
taxable services and because such services do not include the transfer of tangible personal
property, charges for the services are not subject to Georgia sales and use tax.
Rulings

1. In this case, the software that Taxpayer sells is not available on tangible media.
   Consequently, sales of such software are not subject to Georgia sales and use tax. The
   dealer's invoice, purchase contract, or other documentation must indicate the method of
   delivery.
2. Because the software enhancements that Taxpayer sells are also not available on tangible
   media, sales of the software enhancements are not subject to Georgia sales and use tax. The
   dealer's invoice, purchase contract, or other documentation must indicate the method of
   delivery.
3. Sales of monthly cloud subscription services to the end user consumer are not taxable retail
   sales for purposes of Georgia’s sales and use tax because such transactions do not include the
   transfer of tangible personal property and are not considered taxable services.

9

Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(i).
Ga. Comp. R. & Regs. r. 560-12-2-.111(3).
11
Ga. Comp. R. & Regs. r. 560-12-2-.111(4)(a).
12
Ga. Comp. R. & Regs. r. 560-12-2-.111(4).
13
Ga. Comp. R. & Regs. r. 560-12-2-.111(4)(b).
10

February 20, 2014
Page 4 of 4

The opinions expressed in this ruling are based upon the information contained in your request
and limited to the specific transactions, facts, circumstances and taxpayer in question. Should the
circumstances regarding the transactions change, or differ materially from those represented,
then this ruling may become invalid. In addition, please be 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 tax treatment than that
expressed in this response.