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Arizona Taxes Web-Based Training Courses.


Software/Hi-Tech

A taxpayer who provided web-based training to its customers via the internet was subject to transaction privilege tax on its gross income derived from the lease of such software. The taxpayer offered its customers the ability to install, deploy, and use the course materials as well as make copies of the course materials on multiple local area networks, wide area networks, intranet servers, and standalone computers at one or more sites. The taxpayer also provided extranet hosting services where it would maintain the course materials on its servers for customer access through the internet. The Arizona Department of Revenue stated that the software was considered canned or prewritten software as it was not specific to a customer’s needs, therefore tangible personal property. Since the agreement between the taxpayer and its customer states that upon termination of the agreement, the customer must destroy all copies, return the originals, and certify in writing that this has all been done; the Department of Revenue considered the software transaction with Arizona customers to be subject to the transaction privilege tax as leases or rentals of tangible personal property. Also, any gross income derived from the extranet hosting service to Arizona customers is subject to the transaction privilege tax if such services relate to the software lease or rental. (Private Taxpayer Ruling LR04-010, Arizona Department of Revenue, November 15, 2004)

(02/15/2005)
(Archived)
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