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I am confused about the taxability on software maintenance agreements? Is this taxable in part or in full?

Full Question: I am confused about the taxability for Software Maintenance Agreements in Florida. This service offered to clients in Florida that have purchased our software access to technical support via phone or internet, downloadable software service packs and fixes, and occasional major upgrades by CD or other physical media. Normally these are 1 or multiple year agreements. Our software is not custom software, but our parent company in Denmark, with help from other international employees, creates and updates our software. The support, service packs or upgrades may be sent or supported by employees out of state and/or country, but since we do have an office in Florida, we know we have to collect and report. Can you help us understand if this is considered taxable in part or full? If there are exceptions because of the type of software or service offered?

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Answer:

Diane Yetter photoThe sales tax treatment of canned software maintenance agreements in Florida varies depending on how the updates are delivered and whether the contract is a single charge for updates and phone support or separate charges for the different components. If the maintenance agreement contains a lump sum charge for services and updates regardless of whether it is mandatory or optional and the updates and bug fixes in are delivered in a tangible form (such as a cd), then the maintenance contract is taxable. However if the updates and fixes are delivered electronically for the same type of agreement then the contract is exempt. However, if the maintenance agreement separately states the charges for customer support services and upgrades/bug fixes and the updates are delivered in tangible form then all charges including the phone support are subject to sales tax. But, if the updates and bug fixes are delivered in electronic form then all the charges under this type of agreement are exempt.

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