Prewritten computer software is considered tangible personal property subject to sales tax. However, if software is custom written (or modified) for a customer, then the software (or portion thereof) customized for that customer is not considered "prewritten computer software" and the services related to customization are not subject to sales and use tax if the customization charges are separately listed.
Taxpayer provided a copy of the invoices related to the transaction between Taxpayer and the vendor. The invoices indicate that Taxpayer purchased customization of software and services related to the customization of the software. Thus, Taxpayer has established that the purchase was not the purchase of tangible personal property–either "equipment" or prewritten computer software–and thus Taxpayer's protest is sustained on this issue.
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Taxpayer also protests the imposition of use tax on computer software purchased from a third-party vendor. … Taxpayer described its software purchases as a purchase of three different types of licenses. According to Taxpayer, Type One is a license for data storage software. Type Two is a license for training software. Type Three is a license for information retrieval and organization software. According to Taxpayer, all the software is located on servers outside Indiana. Further, according to Taxpayer, the Type One and Type Two licenses are not used by Taxpayer but rather are used by corporate affiliates of Taxpayer. Of the Type Three licenses, Taxpayer purchased 100 licenses according to the invoice submitted by Taxpayer.
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In this case, Taxpayer has provided sufficient information to conclude that the Type One licenses and Type Two licenses referenced by Taxpayer were not used in Indiana. Therefore, Taxpayer is sustained with regard to items one through six listed on the third party vendor's invoice.
With regard to item seven, Taxpayer asserts that only seven of the 100 licenses were charged to Taxpayer. Taxpayer has provided documentation related to the software. In particular, Taxpayer has provided internal documentation demonstrating that its parent charged seven licenses to Taxpayer. Based on this information, Taxpayer has provided sufficient documentation to substantiate its argument. Thus, Taxpayer is subject to use tax on the cost of seven Type Three licenses, or $8,133.30.
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