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Sales Tax for Open Dental

The Supreme Court recently issued a decision that states may charge tax on purchases made from out-of-state sellers: https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf In response to this decision, we have begun collecting sales tax in a number of states. This change is complex, involving new laws and rules in each state. Some states do not tax software, so we do not list those states here.

Separating out support services from the software

In most states where software is taxable, the associated support services are also taxable. A few states do allow exemption for certain support services, if they are stated separately from the software. But the intent is for truly separate one-time charges, not recurring charges that are closely linked to software updates. Our fee is for combined software updates and support. If we were to arbitrarily state that 50% of the fee was for software and 50% for support, we would be exposing ourselves to very significant risk of lawsuits from state governments. This is because, when there are mixed transactions, it's too arbitrary, and the government tends to make claims about the "true" object compared to the incidental object.
https://www.avalara.com/us/en/blog/2015/08/service-providers-understanding-the-true-object-test.html
Software companies frequently fail this test if they claim the true object is service. We must legally charge sales tax on the entire monthly support fee.

The wording on our Ordering page describes the monthly fee as, "Includes the software, full telephone support, and all software releases as they come out. ". Our License describes, "Open Dental Software, Inc distributes and supports this software through an authorized purchase." and "software updates as part of a monthly support plan are considered to be purchases as well"

List of States

Arizona - R15-5-154 B. gross receipts derived from the sale of computer software programs are taxable, regardless of the method that a retail business uses to transfer the programs to its customers.

DC - 47-2001 (n)(1)(N)(i) "data processing service" means ... any system or application programming or software

Hawaii - GET

Illinois - Admin. Code 130.1935 Canned software is considered to be tangible personal property when transferred electronically. Charges for training, telephone assistance, etc are exempt if separately stated from the software.

Indiana - IC 6-2.5-1-27 Tangible personal property includes prewritten computer software.

Kentucky - All digital property is taxable

Louisiana - Revenue Ruling 10-001 Software is taxable

Massachusetts - 64H.1 A transfer of standardized computer software ... shall also be considered a transfer of tangible personal property.

Michigan - Revenue Bulletin 1988-41 Canned software is subject to sales tax, regardless of method of delivery.

Minnesota - 297A.61 defs, Tangible includes computer software

Nebraska - REG-1-008 The gross receipts from furnishing software regardless of the manner in which it is conveyed are taxable. Charges for customer training are taxable whenever paid to the retailer of the software.

New York - Tax Bulletin ST-128: Prewritten computer software is taxable as tangible personal property when conveyed by electronic transmission. Software services are only exempt if charged separately and reasonably on the bill. Upgrades are taxable. Maintenance agreements that include upgrades are taxable unless reasonably separated out and billed separately.

North Carolina - 105-164.3.46 Tangible personal property includes computer software.

Ohio - 5739.01(YY) Tangible personal property includes prewritten computer software.

Pennsylvania - Software has long been considered tangible personal property. Act 84 of 2016 explicitly added software.

Rhode Island - SU 11-25 Software is taxable. Software delivered electronically is taxable. Services such as training and maintenance are taxable.

Texas - 34.1.3.O Rule 3.308 Software is taxable, including maintenance and support. Training can be untaxed if stated separately. But onsite training creates physical nexus and results in significant additional franchise tax for all customers. So we do not do onsite training in Texas.

Utah - Tangible personal property includes prewritten software.

Washington - Tangible personal property includes ... prewritten computer software

Wisconsin - 11.71, 2, (b) The retail sale ... prewritten computer software, regardless of how it is delivered to the purchaser. The sale of computer software maintenance contracts. (c) However, separately stated training services are not taxable, unless they are a service necessary to complete the sale of a taxable product.

Open Dental Software 1-503-363-5432