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Need to know if the support for software is taxable for use tax?

Full Question: Need to know if the support for software is taxable for use tax?

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Answer:

Diane Yetter photoYou state that your question pertains to New Jersey. In New Jersey, no tax is due on the purchase of services for the exclusive use in fulfilling a contract with the United States, its agencies, or instrumentalities. As you are a government contractor, you do not need to pay use tax on the purchase of software support services. For purchasers who are not government contractors, the taxability of software support varies. If there is a lump sum charge for both services and updates, updates delivered in tangible form are taxable and updates delivered electronically are exempt if sold to a business for use in their trade or business regardless of whether the support agreement is mandatory or optional. If the charges for services and updates are separately stated on the agreement, upgrades and bug fixes are taxable regardless of whether the support agreement is mandatory or optional. If the charges for services and updates are separately stated, upgrades and bug fixes delivered electronically are exempt if sold to a business for use in their trade or business. If the charges for services and updates are separately stated, customer support services are exempt whether they are delivered in tangible form or electronically.

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