State and Local Sales and Use Tax

Rule §3.308

(a) Hardware.

(1) The sale, lease, or rental of computer hardware, including central processing units and all peripheral equipment, parts, and supplies, is subject to the sales and use tax.

(2) A taxable rental or lease can occur without the right to move the hardware if the lessee has total operational control of the hardware. For example: a lessee may contract to use a computer on the owner's premises for an exact period of time weekly. The lessee provides the operator and all materials. During the time of use by the lessee, no one else may use the hardware. This transaction constitutes a transfer of the total operational control of the hardware, which is a lease or rental of tangible personal property. However, if the owner provides and directs the operator, operational control has not been transferred to the lessee. The transaction will not be considered the rental or lease of the hardware. Note: if the only supervision provided by the owner is for maintenance, or training on proper use, this is not providing an operator. See §3.294 of this title (relating to Rentals and Leases of Taxable Items).

(3) Sales tax is due on charges for labor or services rendered in installing or applying computer hardware.

(4) Sales tax is due on charges for labor or services rendered in remodeling, repairing, maintaining, or restoring computer hardware. See §3.292 of this title (relating to Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property).

(5) Installation charges for remote terminals are taxable whether or not separately stated. Charges for telephone lines are taxable.

(6) A resale certificate may be issued by a purchaser only if the hardware is purchased for the exclusive purpose of resale. If the purchaser makes a taxable use of the hardware while holding it for resale, the purchaser is liable for sales tax. See §3.285 of this title (relating to Resale Certificate; Sales for Resale).

(b) Software.

(1) "Computer program" means a series of instructions sold as a completed program which are coded for acceptance or use by a computer system and which are designed to permit the computer system to process data and provide results and information. The series of instructions may be contained in or on magnetic tapes, semiconductor chips, punched cards, printed instructions, or other tangible or electronic media. This definition includes computer game cartridges which allow certain games to be played on a television set through interaction with a computer or on home computers. The combining of several existing program modules into a new program will be considered the sale of a completed program. A completed program includes any modification, installation, or maintenance charges made in connection with the sale of the program.

(2) Sales tax is due on the sale, lease or license of a computer program. Charges for the installation of the program are taxable whether or not separately stated.

(3) Charges for computer program maintenance by the person who sold the computer program are taxable. Maintenance means providing error correction, improvements, or technical support. Separately stated charges for instruction on the software's use will not be taxable.

(4) Charges to create a program or modify an existing program not sold by the person doing the modification are not taxable.

(c) Sales. The following are examples of transactions which involve the sale of taxable items and are taxable.

(1) A separate charge for additional copies of the result of services is taxable.

(2) The charge for processing, printing, or producing tangible personal property by a computer is taxable unless the processing, printing, or producing is performed as an incidental part of nontaxable service. Examples of taxable processing, printing, or producing: standardized amortization or depreciation table, newsletters, or advertising.

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