Tax Law section 1105 imposes sales and use tax on retail sales of tangible personal property and enumerated services. Prewritten computer software is included within the definition of tangible personal property, “regardless of the medium by means of which such software is conveyed to the purchaser.” Tax Law §1101(b)(6). Prewritten software, even though modified or enhanced to the specifications of a specific purchaser, remains prewritten software subject to tax. However, if a charge for the custom modification or enhancement is reasonable and separately stated on the invoice or billing statement, then the separately stated charge for the custom modification or enhancement is not subject to tax. See Tax Law §1101(b)(6); State and Local Sales and Compensating Use Taxes Imposed on Certain Sales of Computer Software, TSB-M-93(3)S.
Section 526.7(e) of the Sales and Use Tax Regulations provides generally that “a sale is taxable at the place where the tangible personal property or service is delivered, or the point at which possession is transferred by the vendor to the purchaser or his designee.” Section 526.7(e)(4) further provides that, with respect to a “license to use,” a transfer of possession has occurred if there is a transfer of actual or constructive possession, or if there has been a transfer of “the right to use, or control or direct the use of, tangible personal property.”
To the extent that the CSA also involves custom modifications of software, separate charges for that service would not be subject to tax if the charges are reasonable in relation to the total charges.
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