Software: Why Are There So Many Rules?
By: Lindsay Sisk, Gable Tax Group
Everything around us is changing. Remember when the only way to purchase software was to go to an office supply store and physically purchase the CD-ROM?
Currently, you can still purchase the software from a store but you can also download it electronically. What’s even crazier is you can use the software on the company’s website without downloading anything, and sill use the product.
Over the years, sales tax laws have changed as technology has advanced. Currently, there are different laws for almost every state based on the type of software and how it’s being used (whether purchased as a CD, downloaded from an email attachment, customized, etc.) and the thought of weeding through the different methods can be overwhelming.
For instance, in California canned software (software that you can be physically purchased, like a CD-ROM) is taxable. However, if you get that same software electronically, it is exempt from tax.
What does this mean for seller’s? From a tax perspective, it would be extremely important to know the different tax regulations for each state, and each type of software. Also knowing the implications, may change the way you do business. Meaning, if you know software is exempt from tax when downloaded in California, rather than sending it through a CD or other type of storage device, you send it through email, or if you are on the receiving end, always choose the download option.
As a consumer, not only do you have to pay attention whether it is taxable or not, but you have to know whether tax was charged correctly. Ultimately, if a company does not have nexus, and the software you purchased is taxable, you may be responsible for remitting consumer’s use tax.
Confused? Need advice? Call us for a Free Consultation at 888.872.6579 or email us at Info@Gable.Tax.
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