The New Jersey Administrative Code provision dealing with sales tax and computer software was repealed, effective August 18, 2003. N.J.A.C. 18:24-25.2. The language in the repealed provisions no longer reflected the way computer software is currently developed, marketed and sold. Thus, the regulation was outdated, confusing, and difficult to apply. As of the date of the repeal, taxpayers may no longer rely on the language of the prior regulation, or on opinion letters, agency determinations or advice that was based upon the former regulatory language.
The New Jersey Sales and Use Tax Act imposes sales tax on all retail sales of tangible personal property, unless a specific statutory exemption is available. N.J.S.A. 54:32B-3(a). There is no statutory exemption applicable to the sale of pre-written software. Therefore, retail sales of software contained on discs, CD-ROMs and other tangible storage media are subject to tax. The sale of a "license to use" software is also treated as a sale for tax purposes. N.J.S.A. 54:32B-2(f).
Most business software sold in today's environment originates from a vendor's inventory of modules, platforms, groups, or other forms of pre-written software. Professional services may be performed in order to adapt or modify the pre-written software to the customer's particular business and operational needs. The sale of the pre-written software is subject to tax as the sale of tangible personal property, and the modification services are exempt as professional services, as long as separately stated from the charge for the tangible personal property. N.J.S.A. 54:32B-2(e)(4)(A).
Computer services that relate to enabling or configuring the software so that it properly operates within the customer's software or hardware environment are considered to be expenses of the software installation process. Installing tangible personal property is a taxable service and these services are part of the taxable receipt. N.J.S.A. 54:32B-2(d). When performed subsequent to the installation of the software, particular services may be taxable as maintaining or servicing tangible personal property. N.J.S.A. 54:32B-3(b)(2).
The Division's position regarding the taxability of software is set forth in a Technical Bulletin (TB-51)