• Vermont: Sales Tax Moratorium for Remote Software Sales Removed
  • July 3, 2013
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • Existing Vermont law (HB 528), which temporarily placed a moratorium on taxing remote software sales, is set to expire on June 30, 2013. Beginning July 1, 2013, certain remote sales of computer and similar electronic software will be subject to Vermont’s 6 percent sales tax. While many expected Vermont to permanently extend the moratorium on remote software sales, no such law was ever passed and thus, the temporary exemption will expire. The moratorium was also regulated under the Vermont Department of Taxes’ (the “Department”) Technical Bulletin 54, which has been repealed. The Department plans to issue a new Technical Bulletin providing further information about the imposition of sales tax on remote software sales. In the meantime, the Department has provided a fact sheet which provides basic guidelines that can help businesses comply with the sales tax on remote software sales until the Technical Bulletin is released.

    Generally, sales of remote software subject to the sales tax will include any “prewritten software” that is available to customers on a disk, as a download, or as accessed by customers from a remote server. The “prewritten software” distinction reflects an underlying policy that a product should be taxed but not a service. Therefore, any software that is specifically custom created for one particular customer will not be subject to sales tax. The Department, recognizing that it is often difficult to determine which software is a nontaxable service versus a taxable product, provides further guidance in its fact sheet which contains specific examples of what software is taxable versus nontaxable. For example, the Department provided the following examples of software sales that may be taxable:

    • The seller provides the customer with software that operates with little or no personal intervention by the seller or the seller’s employees (other than a help desk for any problems that the customer may encounter while using the software)
    • The seller provides the customer with access to software, even if the software is never officially transferred to the customer (cloud computing)
    • The software is bundled with a non-taxable service as long as the software is the predominant value of the sale
    • The seller provides an application for a fee that is downloaded to any device including computers, smart-phones, or tablets

    On the other hand, the Department provided the following examples of software sales that may not be taxable:

    • The seller provides any professional or personal services (i.e. legal, accounting, data management and data storage/backup)
    • The seller is creating custom software (unique to the customer)
    • The software is bundled with a non-taxable service and those services constitute the predominant value of the sale