Indiana ~ Sales and Use Tax: Third-Party Software Interfaces Were Nontaxable Services

CCH Tax Day Report

Fees paid to vendors for software interface development were not subject to Indiana sales tax because the interfaces were services provided by the vendors. Charges for accessing a vendor’s or a third party’s prewritten computer software on the cloud are not taxable if 1) the customer is not transferred the software, 2) does not have an ownership interest in the software, and 3) does not control or possess the software or the server. A diagnostic medical testing company hired a third party to create interfaces so that its software product and the software systems of its customers could communicate and share information. The interface software was not transferred to the company or its customers. Neither the company nor the customers have the right to access, control, or use the interface software, nor do they ever hold title in the interface software. Further, the vendors do not appear to transfer any prewritten computer software as a part of the creation and use of the interfaces. The developed interfaces performed translating functions that allowed communication. Further, the service is not a telecommunication service because telecommunications services do not include data processing and information services that allow data to be generated, acquired, stored, processed, or retrieved and delivered by an electronic transmission to a purchaser whose primary purpose for the underlying transaction is the processed data or information, which is what the vedndors’ interface services perform.

Revenue Ruling No. 2015-07ST, Indiana Department of Revenue, March 7, 2017, ¶402-603

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