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The Department's audit found that Taxpayer paid for a software maintenance agreement on which it did not pay sales tax. The audit assessed sales/use tax on maintenance agreement transactions. Taxpayer disagrees on the ground that the agreement provided simply for the provision of services and that no "tangible personal property" was transferred pursuant to the agreement.
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In Taxpayer's case, it is paying its vendor to update
Taxpayer's computer software with "the latest Microsoft service packs and
security patches" along with updates available from Veritas and Symantec.
However, Taxpayer's vendor neither creates nor purchases the "service
packs" and "security patches" but gleans those software updates
from various publicly available sources and then applies them to Taxpayer's own
software. The various Microsoft, Veritas, and Symantec updates are available on
the Internet. As explained by Taxpayer's vendor, "[Taxpayer] hires our
company to access those free updates and patches and install them on the server
of [Taxpayer] as part of our services to make [Taxpayer's] servers perform
appropriately." Taxpayer's vendor further explains that the "updates
and patches are created and provided free of charge by Microsoft, Veritas, and
Symantec and are generally available to the public."
Taxpayer has met its burden of proof of establishing that it
does not pay its vendor for computer updates pursuant to the maintenance
agreement at issue; Taxpayer's vendor performs a service pure and simple, and
the related payments are not subject to sales or use tax.
