SALT Report 1462 – The South Carolina Department of Revenue issued a revenue ruling regarding the taxability of software delivered electronically. The Department determined that software delivered through the Internet or a wireless network is not taxable as established by Revenue Ruling #03-5 which states that software delivered electronically is not considered tangible personal property.
To be exempt the transfer must be made through a connection between the seller’s computer and the buyer’s computer and no part of the software, back-up tapes, disks, or flash drives, can be delivered by tangible means. In addition, if a programmer brings a laptop to the customer’s location, establishes a connection between the laptop and the customer’s computer, and does not download software but, instead, makes changes to the source code of the customer’s software, the transaction is not taxable. The programmer has performed a service, not the sale of software delivered by tangible or electronic means.
However, the Department advises that any charges by an application service provider (ASP) to a customer for access to software on the ASP’s website are taxable.
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