Connecticut explains the taxability of data and computer processing services.

Connecticut Policy Statement 2004(3) clarifies the definitions of computer and data processing services, canned or prewritten software, and custom software as defined in Sec. 12-407(a)(35). This statement also reiterates that there is a 1% sales and use tax on computer and data processing services, other than Internet access services, which came into effect on July 1, 2001. Specific computer and data processing services discussed include:

– Creation and maintenance of web sites. This service is not taxable under Sec. 12-407(a)(37)(A) when services are performed on a specific client’s web site. Charges for access to web sites maintained by others would be a taxable service.

– Sale, installation, maintenance, and repair of computer hardware. The sale of computer hardware is taxable at the 6% rate attributable to tangible personal property. Likewise, any charges for installation of the hardware are taxable at 6% unless separately stated and provided the hardware is sold instead of leased. If the hardware is leased, all installation charges are taxable, regardless of whether or not they are separately stated. Under 12-407(a)(37)(CC) the repair of maintenance of tangible personal property is taxable. Therefore, the repair of maintenance of computer hardware is also taxable.

– Sales of computer software. Canned software qualifies as tangible personal property and is taxable at the 6% rate. Custom software, which undergoes special processing, designing, developing, or adapting, is considered a computer or data processing service and is taxable at the 1% rate. (Connecticut Policy Statement 2004(3))

Posted on December 15, 2004