Mo Revenue Dep’t: Applicant’s Software Implementation Services Included in Software Sale Is Subject to Sales or Use Tax

The Missouri Department of Revenue (“DOR”) has issued a letter ruling, stating that a company’s (“Applicant”) software implementation services sold with computer software are subject to state sales or use tax.

By way of background, Applicant writes and sells computer software programs for use in automotive dealerships. Applicant’s core product is a standardized software program, delivered in tangible format, which Applicant modifies slightly according to the customer’s needs. Included with each sale of software are mandatory software implementation services designed to install the software and teach the customer how to use the software in its business. According to Applicant, these services are required under the terms of the purchase agreement and are billed together on the invoice the customer receives.

The Missouri DOR explained that Section 144.020.1, RSMo, imposes a tax upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state. The DOR added that Missouri Regulation 12 CSR 10-109.050 explains when the sale of software is treated as a taxable sale of tangible personal property and when the sale is treated as a nontaxable sale of a service.

According to the DOR , 12 CSR 10-109.050(3)(E) provides that program installation, training, and maintenance of software services are taxable if the purchase of the services is mandatory under the terms of an agreement to purchase software.

On the basis of the foregoing, the DOR concluded that Applicant’s software implementation services are mandatory under Applicant’s purchase agreement with the customer. Therefore, under 12 CSR 10-109.050(3)(E), the services are taxable and Applicant should collect and remit sales tax on the sale of the services.

The DOR clarified that its letter ruling is binding upon it with respect to the Applicant for three (3) years from the date of the letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.

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