A letter ruling issued by the Missouri Department of Revenue determined that an out-of-state corporation’s sales of hosted software of which no component is delivered in a tangible format was not subject to Missouri sales tax.
The taxpayer sells software systems to automate the trading process for sell-side equity firms engaged in securities transactions. The taxpayer hosts the software application in its data centers and provides the software to its customers as a managed service. The monthly managed access fee charged for the communications connection to taxpayer’s data centers is subject to sales tax because it meets the definition of a taxable telecommunications service. The routers and other equipment that the taxpayer provides to its Missouri customers at no additional charge are subject to sales or use tax because the taxpayer is considered using the equipment in Missouri since they retain title to the property. Since the sale of the hosted software is not subject to sales tax, the mandatory charges for deployment and support services as well as market data fees and pass-through market charges are also not taxable when sold as part of the initial sale of the software.
In the cases where the taxpayer installs the software on its customer’s computer system by means of a “load and leave” transaction in which no tangible format of the software is left with the customer, the hosted software is subject to tax. In addition, any mandatory service charges (e.g., deployment charges) in a “load and leave” transaction will also be subject to sales tax. (Letter Ruling No. LR5753, Missouri Department of Revenue, July 16, 2009)