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AN 94(10.1)

Rulings Relating To Computer And Data Processing
Services Obsolete By Court Decision

This publication has been clarified by AN 94(10.2)

PURPOSE: The purpose of this Announcement is to clarify AN 94(10), Rulings Relating to Computer and Data Processing Services Obsolete by Court Decision, which was issued on August 11, 1994.

BACKGROUND: AN 94(10) identified certain 1989 rulings that were obsolete by Northeast Data com, Inc. v. City of Wallingford, 212 Conn. 639, 563 A.2d 688 (1989), to the extent that those rulings pertained to custom software.

CLARIFICATION: The Announcement did not identify Northeast Data com as a case involving property taxation of canned, custom and customized computer software, or identify currently-in-force rulings in which the Department's position that the sale of canned software is subject to sales and use taxes is enunciated.

Commerce Clearing House, in the October 17, 1994 issue of State Tax Review, its weekly publication, reported that the Department had issued AN 94(10). The State Tax Review article also characterized Northeast Data com as holding "that computer software, both canned and customized, was not subject to tax because it was intangible property, rather than tangible personal property." Similarly to the Announcement, the State Tax Review article did not identify Northeast Data com as a property tax case or identify currently in force rulings that conclude that the sale of canned software is subject to sales and use taxes as the sale of tangible personal property and that the processes of creating custom software or modifying existing software is taxable as a computer and data processing services.

Following publication of the State Tax Review article, many tax practitioners and taxpayers have inquired whether the sale of canned software remains subject to sales and use taxes. The purpose of this Announcement is to indicate, as explained in Ruling Nos. 93-1 and 94-3, that the sale of canned software has been and remains subject to sales and use taxes and the processes of creating, designing and developing custom software or of adapting existing software to the particular needs of a customer are taxable as computer and data processing services. As these rulings also indicate, the fee for a mere license to use software is not taxable, provided that the fee for the license is stated separately from the charge for any taxable services.

EFFECT OF THIS DOCUMENT: An Announcement is a document that alerts taxpayers to important information. Such information may involve new Department administrative policies and procedures.

EFFECT ON OTHER DOCUMENTS: AN 94(10) is clarified.


FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.

Electronic Delivery Options: You can also obtain tax forms and publications 24-hours a day from our Website.

Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.

AN 94(10.1)
Sales and use taxes
Issued: 1/6/95