New Jersey ~Sales and Use Tax: Bulletin on Taxability of Computer Software Updated to Include Sourcing

The New Jersey Division of Taxation has updated a technical bulletin discussing the application of sales and use tax to computer software to include sourcing provisions, as discussed below.

Receipts from sales of prewritten computer software: Sourcing of receipts from sales of prewritten computer software is governed by the following principles:

(1) if prewritten computer software is received by the purchaser at a business location of the seller, the retail sale is sourced to that business location;

(2) if prewritten computer software is not received by the purchaser at a business location of the seller, the retail sale is sourced to the location(s) where receipt by the purchaser occurs. Receipt may occur at multiple locations if the seller delivers the software to multiple locations. The transaction is sourced to those locations if the seller receives delivery information from the purchaser by the time of the invoice;

(3) if (1) and (2) above do not apply, the retail sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of business when use of this address does not constitute bad faith;

(4) if (1), (2), and (3) above do not apply, the retail sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the retail sale, including the address of a purchaser’s payment instrument if no other address is available when this address does not constitute bad faith; and

(5) if (1), (2), (3), or (4) do not apply, including circumstances in which the seller is without sufficient information to apply them, then the retail sale is sourced to the jurisdiction for the address of the location from which the prewritten computer software was shipped or, if delivered electronically, was first available for transmission by the seller. “First available for transmission” means the location from which the software originated.

Receipts from sales of services to prewritten software: A retail sale of a computer-related service is sourced to where the purchaser makes first use of the service. The purchaser may make first use of a service in more than one location.

A retail sale of a post-sale support agreement, sold by the seller of software at the same time as the sale of the software itself, is sourced to the same address(es) as the retail sale of the underlying software.

Payments made in connection with a software term license or subscription:Initial payments are sourced in the same manner as the sale of the software. If the initial payment is sourced based on the location where receipt by the purchaser (or the purchaser’s donee, designated as such by the purchaser) occurs, including the location indicated by instructions for delivery known to the seller, one of the following applies:

(1) if the seller receives information from the purchaser indicating that the location of the underlying software has changed, a subsequent payment made in connection with a software term license or renewal of a software subscription is sourced to such new location; or

(2) if the seller has not received information from the purchaser indicating a change in the location of the underlying software, sourcing a subsequent license payment made in connection with a software term license or the renewal of a software subscription to the same location where the initial payment was sourced will not constitute bad faith.

Technical Bulletin TB-51R, New Jersey Division of Taxation, July 5, 2011

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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