A taxpayer was liable for Washington use tax on its purchase of information technology and software support services. The sale was taxable because it qualified as a bundled transaction.
Under an agreement with the vendor, the taxpayer purchased, for one itemized price, both:
- taxable products, such as software installation and updates and computer hardware maintenance; and
- nontaxable services, such as help desk and network monitoring.
A “bundled transaction” means a retail of two or more products that are
- distinct and identifiable and
- are sold for one nonitemized price.
The taxpayer claimed that its purchase was not a bundled transaction because the price of the taxable products was de minimis. A price is de minimis if it is was 10% or less of the total contract price. However, in its ruling, the Department of Revenue could not determine from the taxpayer’s agreement whether the price of the taxable products was 10% or less of the total contract price.
In addition, the taxpayer claimed that bundled transaction rule did not apply because the true object of the sale was the non-retailing service. The true object exclusion for non-retailing services requires that
- the retailing activity is essential to a non-retailing service,
- the retailing activity is supplied exclusively in connection with the non-retailing service, and
- the true object of the sale is the non-retailing service.
In this case, the exclusion does not apply because the installation of software updates is not essential to the receipt of help desk services. Furthermore, the repair of computer hardware is not necessary to receive network system monitoring.
Determination No. 15-0328R, Washington Department of Revenue, November 30, 2017, ¶204-318