Missouri – Taxability of Canned Computer Software

SALT Report 1423 – The Missouri Department of Revenue has issued letter rulings regarding the taxability of canned software, custom software, software licenses, mandatory and optional maintenance agreements, non-downloadable software kept by a vendor, and load-and-leave services.
Canned Computer Software
Missouri Code 12 CSR 10-109.050(3)(A) states that, “Tax applies to the sale of canned programs delivered in a tangible medium which are transferred to, and retained by, the purchaser. Examples include coding sheets, cards, magnetic tape, CD-ROM or other tangible electronic distribution media on which or into which canned programs have been coded, punched or otherwise recorded.
However, section 144.020, RSMo states that if a purchaser does not receive a tangible copy of the original canned software then, “There is no sale of tangible personal property.” Accordingly, when the software is downloaded directly from the internet at the time of installation and the customer never takes possession of any tangible personal property then the purchase of the canned software is not subject to sales or use tax.
Customized Software Programs
When purchases of canned software are adapted for a customer’s specific needs they are not considered “custom software” and are subject to sales and use tax under Missouri Code 12 CSR 10-109.050(3)(C) which states, “Changes to a canned program to adapt it to a customer’s equipment or business processes, including translating a program to a language compatible with a customer’s equipment, are in the nature of fabrication or production labor that are a part of the sale and are taxable.”
Software Maintenance and Support
If the original purchase of the software was subject to sales or use tax, then any subsequent training, program installations, or maintenance services are taxable even if these services are mandatory under the terms of the purchase agreement.
Optional Software Maintenance and Support
Purchases of optional software maintenance or support services that are delivered through the internet are not subject to sales or use tax if the delivery of the initial software purchase occurred electronically through the internet.
Non-Downloadable Software
Purchases of access to non-downloadable software housed on servers located outside of Missouri are not subject to Missouri sales or use tax if the purchaser does not receive a tangible form of the software program.
Programs Installed by Vendors
Purchases of software programs are not subject to sales or use tax if the programs are installed by the vendor using tangible storage media and the tangible media is taken by the vendor after installation. Since the purchaser does not take possession of any tangible media and the software is merely downloaded by the vendor, the software programs are not subject to tax.
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