The Michigan Department of Treasury has announced that the sections of RAB 1999-5 that suggest that access to software over the Internet is taxable without the delivery of either “the code that enables the program” to operate or a “desk top client” are inconsistent with the Court of Appeals decision in Auto-Owners Insurance Company v. Department of Treasury and do not represent the department’s policy. If only a portion of a software program is electronically delivered to a customer, the “incidental to service” test will be applied to determine whether the transaction constitutes the rendition of a nontaxable service rather than the sale of tangible personal property. However, if a software program is electronically downloaded in its entirety, it will be taxable. Taxpayers seeking a refund for taxes paid for a product falling within the Auto-Owners decision must file a written request to the department with the statute of limitations. If the refund is for a prior year, the taxpayer must include amended annual returns for the years involved. If the tax was paid to the vendor, the taxpayer must request a refund from the vendor. This finally resolves the Department’s position regarding the taxation of cloud services that was the subject to not only the Auto-Owners Insurance Company case but also the Thomson Reuters case.
For our previous news item on this topic, see Michigan Characterizes Cloud Computing as Nontaxable Service.
(Notice to Taxpayers Regarding Auto-Owners Insurance Company v. Department of Treasury, Michigan Department of Treasury, January 6, 2016)