Path: utzoo!utgpu!watmath!att!pacbell!ames!claris!apple!motcsd!hpda!hpcupt1!jacka
From: jacka@hpcupt1.HP.COM (Jack C. Armstrong)
Newsgroups: comp.misc
Subject: Re: Software: why does sales tax apply?
Message-ID: <6540012@hpcupt1.HP.COM>
Date: 8 Aug 89 00:24:05 GMT
References: <5050@ucdavis.ucdavis.edu>
Organization: Hewlett Packard, Cupertino
Lines: 21

In many states (e.g. California) there is an attempt to tax and otherwise
encumber software developers, many of whom wish to be classed as a 'service'
industry.  We do not, for example, pay sales taxes on dental work.  (We do
on a toothbrush).  One is a service, the other a product.  Speaking as an
ex-consultant who often wrote custom software, I can tell you it is not just
an attempt to save the customer's money, it is a grade-A pain for a small
operator to sell a 'product' instead of a 'service'.  When the project involves
delivery of software, one recommended tactic is to *not* sell the software -
read the fine print - you may discover that the authors have given you an
'unlimited license to use', but in fact retained ownership of the software
itself.  This, of course, brings up the ugly matter of inventory tax - if
Borland really retains 'ownership' of all that software, they may owe a heap
of inventory tax come January.

In the case of shrink-wrapped software, I find it hard to classify as a 
'service', but what about the individually customised accounting package that
comes with considerable onsite training and support?  Things tend to get a
bit fuzzy.  Many attorneys in California suggest that software houses *not*
charge sales tax, but place funds in escrow, just in case the state rules that
it should have been collected.  Sort of makes you wish for the good old days
of nice, clean radical ethics again - Down With The Tyranny of Government!!