006.05.06 Ark. Code R. 005-GR-25

Current through Register Vol. 49, No. 10, October, 2024

Rule 006.05.06-005-GR-25 - PERSONS REQUIRED TO COLLECT AND REMIT TAX - SPECIFIC BUSINESS - SELLERS OF COMPUTER HARDWARE AND COMPUTER SOFTWARE

A. Sales tax is levied on the gross receipts or gross proceeds received from sales of computer hardware, computer software, and the service of repairing or maintaining computer equipment or hardware in any form. Software that is delivered electronically or by load and leave is not taxable.

B. DEFINITIONS.

1. "Computer" means an electronic device that accepts information in digital or similar form and manipulates it for a result based on a sequence of instructions.

2. "Computer software" means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task. Computer software does not include software that is delivered electronically or by load and leave.

3. "Delivered electronically" means delivered to the purchaser by means other than tangible storage media.

4. "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

5. "Load and leave" means delivery to the purchaser by use of a tangible storage media in which the tangible storage media is not physically transferred to the purchaser.

C. PREWRITTEN COMPUTER SOFTWARE. The combining of two (2) or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. Prewritten computer software includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the specific purchaser. Prewritten computer software or a prewritten portion thereof that is modified or enhanced to any degree, where such modification or enhancement is designed and developed to the specifications of a specific purchaser, remains prewritten computer software. However, where there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for such modification or enhancement, such modification or enhancement shall not constitute prewritten computer software. If a person modifies or enhances computer software of which the person is not the author or creator, then the person shall be deemed to be the author or creator only of such person's modifications or enhancements.

D. Computers are electrical devices and any services performed on computers, including initial installation of the computer or any of its hardware, are taxable services. Exceptions are the parts and labor provided under a warranty contract if the warranty is included in the purchase price of the computer and no additional charge is made for warranty parts or labor. Rentals and leases of computer hardware and software are considered to be a sale for tax purposes.

E. The sale of a service contract covering taxable repair services to computers is subject to state and local tax.

F. Gross receipts derived from the sale or licensing of both prewritten and custom software in Arkansas are subject to tax whether the software sale or license is for a single use or for multiple use, provided that the software is delivered through a tangible medium. The licensing of software downloaded through a modem or by other electronic means is not subject to tax if charges for the licensing are separately stated on the invoice or billing statement from charges for any manuals, disks, CDs, or other tangible property.

G. EXAMPLES.

1. Hardware. Examples of hardware referred to above are the computer itself, memory banks, and sending and receiving terminals.

2. Software. Examples of software referred to above are tapes, disks, cards, or other devices or materials which contain a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.

H. NONTAXABLE SERVICES.

1. Separately stated charges for technical support for software are not subject to tax.

2. Software programming services and the development of custom software for a particular customer are not taxable services. The software programming services or custom software development services remain nontaxable even though the customer may receive a de minimis amount of tangible personal property containing the results of programming, such as a backup disk or manual. The true object of the transaction was the provision of programming services and not the purchase of software on a tangible medium. See GR-93(D)(1) and (D)(2) for guidance concerning the true object exclusion and de minimis exclusion for bundled transactions.

3. If a nontaxable service is sold in conjunction with tangible personal property for a non-itemized price (i.e. software programming services and a 1,000 copies of the software delivered on a tangible medium), then the entire transaction is subject to sales tax unless the true object or de minimis exclusion applies. (See GR-93(D)(1) and (D)(2).)

4. The use of prewritten computer software in providing software programming services does not cause the programming services to become taxable unless tangible personal property is provided to the customer. If tangible personal property is provided, then the taxability of the transaction will be determined by the true object exclusion or de minimis exclusion for bundled transactions. If the sale of software programming services is the true object of the transaction, or the tangible personal property is de minimis, then the software programming services remain nontaxable even though the programmer utilizes or incorporates prewritten computer software in the performance of the programming services.

006.05.06 Ark. Code R. 005-GR-25

Ark. Code Ann. §§ 26-52-301; 26-52-304