analysis of section 1502

Software which SD sells over the internet to a web site visitor is not taxable.
Under �1502(f)(1)(D), the sale of a prewritten program is not a taxable transaction if the program is transferred by remote telecommunications from the seller's place of business to the purchaser's computer, and the purchaser does not obtain possession of any tangible personal property.
In this case, SD is transferring the software via the internet, which qualifies as "remote telecommunications". Whether or not SD's web site and/or its servers qualify as the SD's place of business or not is probably debatable, but I would argue that since SD is selling software from its website, that is its place of business, albeit virtual. The facts do not suggest that any tangible personal property is being exchanged. Therefore, this transaction is not subject to sales tax.
SD does not need to collect sales tax on the license fee it receives from Y Corporation for each computer Y sells which has SD's software installed on it.
�1502(f)(1)(B) states that sales tax does not apply to license fees that are made for the right to reproduce or copy a program which is copyrighted in order to sell the program to third parties, and that any storage media used to transmit the program is nontaxable as well.
In this case, SD is receiving a license fee in exchange for Y Corporation's right to install the software, which is presumably copyrighted, on computers which it sells to third parties. Under �1502(f)(1)(B) therefore, the license fee would be exempt from sales tax. Y Corporation would have to collect sales tax for the sale of the computer, but that does not impact SD in any way. If the OEM copy of the software is given to Y Corporation on tangible storage media, that transfer is also exempt from sales tax under �1502(f)(1)(B).
SD's installation of canned software on the customer's computer and provision of a back-up CD-ROM to the customer is a taxable event.
�1502(f)(1)(A) states that sales tax applies when canned software is sold to the customer by installing the software onto storage media furnished by the customer. �1502(f)(1)(D) states that the sale of a prewritten program is not taxed if the program is installed on the customer's computer, except when the seller transfers title or possession of storage media.
Under �1502(f)(1)(A), it would seem that SD would have to collect sales tax because the customer is providing the storage media (their computer's hard drive) onto which the canned software is stored. It is difficult to reconcile this conclusion, however, with �1502(f)(1)(D), which seems to exempt from tax the sale of software when the software is installed directly onto the customer's computer. The only way to reconcile the two is if the drafters of �1502(f)(1)(A) did not intend for "storage media" to encompass the hard drive of the customer's computer.
Fortunately this conundrum does not need to be resolved now, because the �1502(f)(1)(D) exemption does not apply when title to or possession of storage media. Because SD is transferring title and possession of a CD-ROM containing the software along with the software, this transaction is taxable. The fact that the CD-ROM is for backup purposes does not change this result.
SD's sale of canned software which has been modified for C Corporation, where no separate charge has been made for the modification, may be taxable depending how substantial the modifications were and the price history of the software.
Assuming that the transfer is made on tangible storage media, �1502(c)(1) and (c)(3) would impose the general rule that a sales tax must be collected upon the sale of tangible personal property.
�1502(f)(2)(A) exempts custom computer software from sales tax. Custom software is defined in �1502(b) as being that which is prepared to the special order of the customer, even if it incorporates preexisting program components. The definition states that custom software includes separate charges for modifications to an existing prewritten program prepared to the special order of the customer.
If SD can establish that the modifications to the software are significant, the software may qualify as "custom" and therefore be tax exempt. If SD were to separately state the charges for the program modifications, those amounts would also not be taxed.
As an alternative to the above exemption, �1502(f)(2)(B) requires that the charges for modifications to prewritten programs be separately stated in order to be nontaxable, unless the modification is so significant that it qualifies as a separate program. This occurs if the price of the previously marketed prewritten program was 50% or less of the price of the new customized program, or if not previously marketed, if 50% or more of the charge made to the customer consists of custom programming services.
Therefore, in order to establish this exemption, we would need to know how the price charged to C Corporation is divided between the cost of the canned software and the cost of the modifications. That would determine if the charges for the modifications would be nontaxable or not. Under this scenario, the cost of the canned software would still be taxed.
The separate modification charge to D Corporation for SD's customized software is nontaxable, under the above analysis of �1502(f)(2)(B). Because the modification charge is separately stated, there is no problem in not taxing that amount. The cost of the software itself would still be taxed, unless SD established that the modification was so significant that the software qualified as "custom" under �1502(f)(2)(A) (see above analysis).

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