New Jersey Adopts New Regulations on Software and Software-Related Services

New Jersey has adopted amendments and new rules to clarify the application of sales and use tax software and software-related services. A new rule provides that since prewritten computer software is defined as tangible personal property, servicing, installing, or maintaining software is subject to tax, whether it takes place at the purchaser’s location or from or at a seller or service provider’s remote location. Modification of prewritten computer software for a purchaser and customer support services are not subject to sales tax. Clerical, data entry, or accounting services, etc., which may be performed with the use of software are not considered to be servicing software and are not subject to sales tax.Per the new rules, a software maintenance contract that only provides upgrades and updates is treated as a sale of prewritten computer software and is subject to tax regardless of whether the software is delivered in tangible form or electronically. However, if the upgrades and updates are delivered only electronically and for use directly and exclusively in the conduct of the purchaser’s business, trade, or occupation, the software maintenance contract is not taxable. A software maintenance contract that only provides customer support services is treated as a sale of non-taxable services.A software maintenance contract that includes both taxable and nontaxable or exempt products that are not separately itemized on the invoice or billing document is a bundled transaction and is treated as taxable unless the seller can demonstrate, using a reasonable and verifiable method based on its books and records as of the time of sale, the portion that is for nontaxable or exempt products. The method selected by the seller is binding on the purchaser.(N.J.A.C. 18:24-25.1, N.J.A.C. 18:24-25.1A, N.J.A.C. 18:24-25.6, and N.J.A.C. 18:24-25.7, effective December 1, 2014, expire October 28, 2015)

Posted on December 29, 2014