280 R.I. Code R. 280-RICR-20-70-46.8

Current through December 26, 2024

Section 280-RICR-20-70-46.8 - Maintenance Agreements

A. For periods prior to October 1, 2011, taxability as it pertains to a prewritten computer software maintenance agreement or contract is based on both tangible personal property, and how the updates/upgrades/services per the agreement are received. A computer software maintenance contract in which updates/upgrades are delivered in tangible form is taxable. Updates/upgrades delivered electronically with respect to prewritten software also received electronically are not subject to tax. Updates/upgrades delivered electronically with respect to prewritten software received in tangible format (ex: disk or CD) are subject to tax. However, a contract for mere technical support services is not subject to tax. The total sale price of tangible prewritten computer software including separately stated charges for computer software maintenance contracts whether received electronically or in tangible format is subject to tax.

B. Effective October 1, 2011, all prewritten computer software maintenance agreements or contracts delivered electronically are subject to tax regardless of whether the related prewritten computer software was purchased in tangible format or received electronically. However, a contract for mere technical support services is not subject to tax.

C. The following examples are effective October 1, 2011.

1. Example #1

A software company has the following charges to a customer:

Prewritten computer software $5,000.00

Software maintenance agreement ($100 per year for five years, paid upfront as part of purchase agreement included with software) $500.00

Sales Tax $385.00

Total $5,885.00

2. Example #2

A software company has the following charges to a customer:

Prewritten computer software $5,000.00

Software maintenance agreement ($100 paid at time of software purchase, and $100 per year for next 4 years per purchase agreement) 100.00

Sales Tax 357.00

Total $5,457.00

Remaining annual payments of $100 per the computer software maintenance contract delivered electronically or in tangible format are subject to tax.

3. Example #3

A software company has the following charges to a customer:

Prewritten computer software (tangible format or delivered electronically) $5,000.00

Sales Tax 350.00

Total $5,350.00

Software maintenance agreement (purchased after the original software purchase and received electronically) $ 500.00

Sales Tax 35.00

Total $ 535.00

Note: A computer software maintenance agreement purchased on or after October 1, 2011 delivered electronically or in tangible format is subject to tax.

4. Example #4

A software company has the following charges to a customer:

Custom computer software (tangible) $5,000.00

Computer software maintenance contract ($100 per year for five years, paid upfront as part of purchase agreement included with software) 500.00

Sales Tax -0-

Total $5,500.00

Custom software and related services are not subject to tax.

5. Example #5

An individual purchases the following:

Prewritten computer software package delivered electronically $200.00 *

E-book delivered via digital download 50.00

Music delivered via digital download 75.00

Ringtone delivered via digital download 5.00

Wireless (cellular) phone application 100.00 *

Computer game delivered via digital download 50.00 *

Sales Tax (* items subject to tax) 24.50

Total $504.50

280 R.I. Code R. 280-RICR-20-70-46.8