Florida: Canned Software Downloaded Electronically Can Escape Sales Tax

In case you didn't know, the sale of canned software is not always taxable for sales tax purposes.

According to Florida Technical Assistance Advisement (TAA) 10A-028, the license to use software that is downloaded electronically by the customer is a service transaction and is not subject to sales tax provided it is not part of the sale of tangible personal property.

FLORIDA STATUTES

Section 212.05, F.S., provides that the sale of tangible personal property is subject to tax. The term “sale” includes a license to use tangible personal property. See Section 212.02(15), F.S. Service only transactions, except those authorized for taxation by Chapter 212, F.S., are generally not subject to tax. When tangible personal property and services are a part of the same sale, the entire sales price is subject to tax. See Section 212.02(16), F.S. Software supplied on a tangible medium is taxable. Charges for services that are part of the sale of such taxable software are part of the sales price and are subject to sales tax.

Rule 12A-1.032, F.A.C., provides that a sale of customized software is a service transaction and is not subject to sales tax provided the customized software is not part of the sale of other tangible personal property. Likewise exempt is a sale that solely involves software, canned or customized, that is provided to the customer in an electronic format, as there is no conveyance of tangible personal property. Keep in mind that electronically accessed software is subject to Florida sales tax when sold as part of the sale of tangible personal property.

Section 212.0506, F.S., indicates that an agreement that covers the cost of maintaining, repairing, or replacing canned or prepackaged software (tangible personal property) is subject to sales tax, while an agreement that covers the cost of maintaining, repairing, or replacing customized software or software that was downloaded electronically is not subject to sales tax.

BOTTOM LINE:

Please know that a Technical Assistance Advisement under section 213.22, F.S. is binding on the Department only under the facts and circumstances described in the request.

Your company's or client's facts will determine whether or not a sale or purchase of software is taxable.

Please contact me at brian.strahle@bakertilly.com for assistance in determining the taxation of your software in Florida or other states.