SALT Report 1400 – The Kansas Department of Revenue issued an opinion letter regarding the application of sales tax to charges imposed by an application service provider (ASP)on the price of their hosted software products.
The software is located on servers outside Kansas and accessed by customers through the Internet. There is no software downloaded or delivered to the customer; neither title nor possession of the software pass to the customer. Optional training services are provided to the customer and there is a separate charge for those services.
The Department refers to Information Guide EDU-71R
, Taxing Charges for Computer Products and Services and Internet Related Sales and Services which states,
Charges for using software on a remote computer.
A lease does not include obtaining remote access to someone else’s computer software and equipment via the Internet or other electronic means when the customer does not have control over or have possessory rights to the software or equipment. This includes charges billed by an application service provider (ASP).
Remote servers located in Kansas.
When an in-state or out-of-state business leases or leases space on a remote server located in Kansas and buys pre-written software that is installed on the server, the software purchase is subject to Kansas sales or use tax. The charge to the in-state or out-of-state business for leasing or leasing space on the Kansas server is also subject to Kansas tax. Charges by an ASP for its services are not subject to sales tax.
The Department noted that any charges for hosted software services are not considered taxable sales of “pre-written computer software” under K.S.A. 79-3603(s) because the software that is installed on a remote server isn’t delivered to the subscriber or installed on their computer. Therefore, any software that is delivered to a service subscriber that allows the subscriber access to the provider’s remote application software is considered a non-taxable service.
For Further Information:
Kansas Department of Revenue – Opinion Letter No. O-2012-001