SALT Report 2722 – In the latest issue of Taxing Issues, the Wyoming Department of Revenue discusses the taxability of mandatory gratuities, digital code, and computer hardware, software, and services.
Effective July 1, 2013 gratuities are not taxable. This applies whether the gratuity is offered voluntarily by the purchaser, or invoiced by the seller. Previously, mandatory gratuities were taxable as part of the sales price.
Taxability of Digital Code
Digital code is a specified digital product and is taxed in the same manner as the specified digital product it will be used with. For example, an Xbox Live 1600 Points Online Game Code Card is considered digital code. These cards provide the purchaser with a code that allows them to purchase TV shows and movies and to download or update games, music, information, and workouts. Because the purchaser has permanent use of the specified digital product, the card is subject to sales tax.
This type of card is taxable at the time it is purchased, and not when the purchaser first uses it. This is because the seller would have no way of knowing the location where the card is to be used and therefore, would be unable to assess sales tax at the proper rate.
Computer Hardware, Software, and Services
Computer hardware and prewritten computer software are considered tangible personal property and subject to sales tax. Prewritten computer software is considered tangible personal property whether it is purchased on a disc, on a load-and-leave basis, through an Internet download, or by other means. This is because in each type of sale the customer receives the code; only the method of delivery is different.
If a service provider is hired to install prewritten computer software the service is taxable. This is because the service involves a repair, alteration, or improvement to tangible personal property. The service provider would be required to invoice the customer for any materials used as well as for any installation labor charges. In addition, installing updates, upgrades, and patches, either manually or auto-executed, is considered a repair or alteration to the existing code and is subject to sales tax.
The following computer services are also subject to sales tax:
- Setting up an operating system or software program,
- Adding or removing mailboxes and software programs,
- Configuration and setting changes,
- Rearranging files,
- Adding print and scan capabilities,
- Updating network connections,
- Adding or removing drivers and programs,
- Virus and malware removal services
These services are taxable whether performed in person or by remotely accessing the customer’s computer. Sales tax should be imposed based on the location where the customer receives the service. For example, if a customer brings a computer to a service provider’s shop for repair, tax would be collected at the rate in effect in the county where the shop is located. If a repair service is provided by remotely accessing the customer’s computer, tax should be imposed based on the rate in effect in the county where the customer’s computer is located.
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