Minnesota – Tax Court Ruling Nontaxable Result for SAP Implementation Services (Installation and Fabrication)

SALT Report 3195 – Tax Court rules certain consulting and implementation services nontaxable.  The taxpayer in the case, SAP Retail “produces and licenses enterprise resource planning software and provides related services…and the dispute in this matter is whether services performed by [taxpayer], to assist in the configuration of its proprietary software for use in the operations of intervenor Best Buy, Inc., are subject to Minnesota sales tax.”

The court ruled in favor of taxpayer, since the “two agreements between SAP Retail and Best Buy separately itemized [the license fees and professional service fees]…had SAP’s software and consulting services been purchased as a package, SAP’s consulting services would be rendered taxable…if sold for one non-itemized price.”

Notable Quotes Below:

RESALE CERTIFICATE:

“61. SAP Retail did not bill Best Buy for Minnesota sales tax for the software licenses because it had received a resale certificate (Jt. Ex. 15) from Best Buy Purchasing, LLC, another Best Buy affiliate. Stip. ¶ 23.

62. The Commissioner of Revenue later determined that the resale certificate given by Best Buy Purchasing did not apply to the software licenses because the licenses were not issued to Best Buy Purchasing. Stip. ¶ 24. Best Buy paid sales taxes to the Department of Revenue of $521,240.46 for sales or use tax on the two software licenses. Stip. ¶ 25.”

CONCLUSIONS OF LAW:

“1. The consulting services performed by SAP Retail for Best Buy are not among those services specifically subject to sales or use tax under Minn. Stat. § 297A.61 (2012).

2. SAP Retail’s consulting services are not subject to sales tax as fabrication labor. 16

3. The payments received by SAP Retail for consulting services performed for Best Buy, and as reimbursement for travel expenses incurred by SAP consultants, are not part of the sales price of the license for SAP’s enterprise resource planning software.

4. SAP’s consulting services were not necessary to complete the agreement between SAP Retail and Best Buy for the license of SAP’s software.

5. SAP’s consulting services do not constitute “installation charges.”

For Further Information:              

SAP Retail Inc vs Commissioner of Revenue 2013 Docket No. 8345-R