Was electronically downloaded software taxable in Florida, and did the seller's Florida personnel raise nexus concerns?

Plain-English summary

Customers received the software through remote electronic installation from the taxpayer's server. No CD, paper manual, or other tangible property accompanied the product, and the taxpayer represented that it provided no tangible training materials.

Florida treated software delivered solely in electronic form as a nontaxable transaction because no tangible personal property was conveyed. The downloaded software was therefore not subject to sales tax under the stated facts.

Separately, public records and the taxpayer's website indicated Florida-resident corporate officers and possible onsite training personnel. The Department cautioned that this physical presence could create substantial nexus but did not state a final nexus conclusion.

What this means for you

Keep the product-delivery question separate from seller nexus. Electronic-only software may be nontaxable even when the seller has enough Florida presence to create other registration or compliance duties.

Common questions

Was the downloaded software taxable? No.

What tangible items accompanied it? None, under the represented facts.

Did the TAA conclusively find nexus? No; it warned that Florida officers and training personnel could create it.

Citations and references

• Fla. Stat. §§ 212.02, 212.05, and 212.06 and Fla. Admin. Code rr. 12A-1.027 and 12A-1.032, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11A-021

Original ruling text

SUMMARY
ISSUE ONE: Whether the Taxpayer’s activities in Florida create nexus.
QUESTION: Does the taxpayer's activities in Florida create nexus?
ANSWER: Information obtained from the Florida Department of State, Division of
Corporations, as well as the Taxpayer’s website, provides that the Taxpayer’s does have a
continuing presence in Florida. Further, Exhibit A to the request for advisement provides that
the Taxpayer offers onsite training for sale to its customers. The physical presence of corporate
offices, officers, and agents in Florida may, in fact, create substantial nexus.
ISSUE TWO: Whether the sale of the Taxpayer’s software that is delivered via electronic
download is subject to Florida sales tax.
QUESTION: Is the sale of the Taxpayer’s software, which is downloaded electronically by the
customer subject to Florida sales tax?
ANSWER – Based on the Facts Below: The sale of the Taxpayer’s software that is delivered
via electronic download, is not subject to Florida sales tax.

July 23, 2011
XXX
Re:

Subject: Technical Assistance Advisement (TAA) 11A-021
Sales and Use Tax – Computer Software
Sections 212.02, 212.05, and 212.06, Florida Statutes (F.S.)
Rules 12A-1.027 and 12A-1.032, Florida Administrative Code (F.A.C.)
[Taxpayer] XXX (“Taxpayer”)
FEI # XXX

Dear XXX:
This is in response to your letter dated April 8, 2011, requesting this Department’s issuance of a
Technical Assistance Advisement (“TAA”), pursuant to section 213.22, F.S., and Rule Chapter
12-11, F.A.C., that addresses whether the sale of the computer software and training offered by
your client is subject to sales and use tax according to Chapter 212, F.S. An examination of your
letter has established that you have complied with the statutory and regulatory requirements for
issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA.
Facts

Technical Assistance Advisement
Page 2 of 7

Your letter provides the following, in part:

TRANSACTION
. . . [Taxpayer] is a software company based in XXX and incorporated in Florida.
[Taxpayer’s] products are available for download nationwide through a secure
internet connection. [Taxpayer’s] products can be described as office management
software designed to assist financial advisors with client services.

. . . A customer can access [Taxpayer’s] products and service either through their website,
. . . or by calling [a phone number]. The purchase process for the software consists of a
proposal and order agreement signed by the customer and [Taxpayer]. . . . [T]he product
is remotely installed directly to the customer’s computer. There is no tangible aspect to
this product. There is no software CD or paper instruction manual. All help and
instructions needed by the customer are available on the computer.
SALES TAX
Each [Taxpayer] software package purchased in Florida has been charged with a 7%
Florida sales tax. [Taxpayer] has been charging and remitting sales tax in Florida
regardless of whether it should have been. The nature of the product is intangible and
should not be subject to sales tax. The issue in question for this determination is whether
[Taxpayer’s] software is subject to sales tax in Florida.

. . . [Taxpayer] has no physical retail offices located in Florida and there are no officers
located here for the purpose of furthering [Taxpayer’s] business. [Taxpayer’s] principal
place of business is located in . . . XXX. [Taxpayer] is incorporated in Florida only for
the purpose of collecting and remitting Florida sales tax.

Along with your request for advisement, you provided the following exhibits: Exhibit A
(referenced in your letter as “New Purchase process”), which describes Phase I: New Purchase
process and Phase 2: Fulfillment process; and Exhibit B (referenced in your letter as “Order for
Products and Services”), which provides a product and service schedule.
Exhibit A, provides the following in part:

Phase 2: Fulfillment process:

a. [Program]

Technical Assistance Advisement
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Implementation Services
i. A series of 6 modules/phone meetings (1.5 hour phone sessions) . . . .

2. Module 2 is the install of [Program]: Tech Support performs the installation of
   [Program] remotely/electronically via [remote support] and phone, the install files are
   downloaded to client’s environment from our server at [Program].
3. We also deliver a 1 hour private Q&A session with a trainer via phone and [remote
   support] after module 6 is completed.
   b. [Live Program]:
4. The install of [Live Program] is performed by Tech Support (includes the [Program]
   Data Connector) happens remotely/electronically via [remote support] and phone - the
   installation files are downloaded from the XXX server and installed into the client’s
   environment
   c. [Program] Mobile:
5. The install of [Live Program] is performed by Tech Support (includes the [Program]
   Data Connector) happens remotely/electronically via [remote support] and phone - the
   installation files are downloaded from the XXX server and installed into the client’s
   environment.
   d. Data Migration Services
   • A series of meetings via [remote support] (electronic)-all data transfer is done this way,
   we transfer the client’s data to our secure, off network SQL2 server that only the
   migration team has access to, perform their work on the data and connect back to the
   client via [remote support] to deliver the database.
   e. Training and Consulting Services:
   • Online training classes (Webinars): This is our most common training delivery method.
   Clients log in via [electronic meeting product] (like XXX) and attend remotely.
   • Personal Web training (Private Webinars): Session delivered like online training classes
   but privately for a single client.
   • Onsite Training: if the client purchases onsite training
   i. We prepare and print training materials and send them via mail to the client prior to the
   onsite class. The materials are: one copy of the “On Site Basic Workbook” (SEE
   ATTACHMENT) for each class attendee.

Technical Assistance Advisement
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• Practice Management Consulting Engagements (includes an onsite component):

Exhibit B provides that all available products are installed via “remote installation” and that
technical support is offered “via toll-free number.” The training for the listed products and
services is described as either “web-based” or “video-based.”

Review of the Taxpayer’s registration information filed with the Florida Department of State,
Division of Corporations, as well as the 2011 For Profit Annual Report, provide that the
Taxpayer’s principal place of business and the address of its President and Vice Presidents are in
Florida.
The Taxpayer’s website provides the following:
[Program] is the award-winning and flagship product of [Taxpayer], an innovative
software development firm based in [Florida] with operations in [XXX].

Exhibit A provides, in part, that the Taxpayer will print and mail the training materials to the
clients prior to the onsite training. During a phone conversation on April 25, 2011, a Taxpayer
representative stated that this information is incorrect. The Taxpayer representative provided that
the training materials consist of a workbook that is only available electronically on the
Taxpayer’s website. The Taxpayer representative stated that the taxpayer does not provide a
physical copy of the workbook, does not mail any material to the client and does not impose a
separate charge for the workbook.
Taxpayer’s Position
The Taxpayer asserts that “[Taxpayer] has no nexus with the state of Florida,” and that to subject
Taxpayer to taxation in this state “would violate the due process clause of the 14th amendment of
the United States Constitution.” The Taxpayer further asserts that the products it sells “are
intangible and should not be subject to sales tax.”
Requested Advisement
You request an advisement that provides that Taxpayer “not be required to collect sales tax on all
future Florida transactions.” You also provide that “[Taxpayer] understands that there will be no
refund on sales tax already remitted from past sales.”
Applicable Authority
Nexus:
Section 212.06, F.S., provides that sales tax is collectable from all dealers. Section 212.06(2)(c),
F.S., defines “dealer” to mean:

Technical Assistance Advisement
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[E]very person . . . who sells at retail or who offers for sale at retail, or who has in his or
her possession for sale at retail; or for use, consumption, or distribution; or for storage to
be used or consumed in this state, tangible personal property, including a retailer who
transacts a mail order sale.
Section 212.06(2)(g), F.S., further defines as a “dealer,” in part, every person who solicits
business through representatives or agents and as a result receives orders for tangible personal
property from consumers for use in this state.
It is a settled principle that visible territorial boundaries will not always establish the limits of a
state’s taxing power or jurisdiction. The courts have turned to the activities of out-of-state
dealers in the taxing state to establish the necessary ties between the out-of-state dealer and the
taxing state. For purposes of the analysis, “nexus” is any activity, relationship, connection, link,
or business activity that must be present before a state has the right to impose a tax.
Due to the complexity and intricacies of the nexus issue, courts have dealt with nexus on a caseby-case basis, relying heavily on the specific facts of each case.
The Taxpayer cites Department of Revenue of the State of Florida v. Share International, Inc.,
676 So.2d. 1362 (Fla. 1996), to support its assertion that it does not have nexus in this state.
However, the facts in Share are distinguishable from the facts presented in this case. Share did
not have offices, officers, or agents residing in Florida. Share had a presence in Florida for
approximately three days each year for seminars at which its products were available for sale.
The court found that, under those facts (that is, the presence in Florida of representatives
accepting orders for three days from the attendees), the activities did not constitute sufficient
contacts with the state to constitute nexus. The most that can be drawn from that decision is that
a business with no agents soliciting orders, no employees, no offices, retail outlets, locations of
any kind, or property located in Florida, does not have nexus.
In this case, information obtained from the Florida Department of State, Division of
Corporations, as well as the Taxpayer’s website, provides that the Taxpayer does have a
continuing presence in Florida. Further, Exhibit A provides that the Taxpayer offers onsite
training for sale to its customers. The physical presence of corporate offices, officers, and agents
in Florida may, in fact, create substantial nexus.
Software:
Section 212.05, F.S., provides that the sale of tangible personal property is subject to tax. The
term “sale” includes a license to use tangible personal property. See Section 212.02(15), F.S.
Service only transactions, except those authorized for taxation by Chapter 212, F.S., are
generally not subject to sales tax. When tangible personal property and services are a part of the
same sale, the entire sales price is subject to sales tax. See Section 212.02(16), F.S. Software
supplied on a tangible medium is taxable. Charges for services that are part of the sale of such
taxable software are part of the sales price and are subject to sales tax.
Section 212.02(16) and Rule 12A-1.032, F.A.C., provides that a sale of customized software is a

Technical Assistance Advisement
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service transaction and is not subject to sales tax, provided that the customized software is not
part of the sale of other tangible personal property. Likewise exempt is a sale that solely
involves software, canned or customized, that is provided to the customer in an electronic
format, as there is no conveyance of tangible personal property. Keep in mind that electronically
accessed canned software is subject to Florida sales tax when sold as part of the sale of tangible
personal property.
In this case, the facts stated in your letter along with Exhibit A and Exhibit B provide that “the
product is remotely installed directly to the customer’s computer.” The Taxpayer provides
installation of the software “remotely/electronically.” The “install files are downloaded to [a]
client’s environment from [the Taxpayer’s] server.”
Exhibit A provides that online training classes represent “[the] most common training delivery
method.” However, the exhibit provides that in some cases the Taxpayer will provide onsite
training. For onsite training, the Taxpayer “prepare[s] and print[s] [the] training materials and
send[s] them via mail to the client prior to the onsite class.” Rule 12A-1.027(2)(a), F.A.C.,
provides that the sale of printed tangible personal property, including all charges to the consumer
for materials, for the production or fabrication of items used, and for binding and finishing the
printed property or graphic matter for distribution, are subject to tax. However, during the
referenced phone conversation of April 25, 2011, the Taxpayer’s representative asserted that in
no case does the Taxpayer provide a tangible copy of the training materials.
Conclusion
Information obtained from the Florida Department of State, Division of Corporations, and the
Taxpayer’s website provides that the Taxpayer’s corporate officers reside in Florida. The
physical presence of the Taxpayer’s corporate officers, as well as training personnel in this state,
may create substantial nexus. However, the facts submitted for review indicate that the software
under advisement is always provided in an electronic format. In addition, the Taxpayer asserts
that the Taxpayer does not provide any tangible personal property to its clients in conjunction
with the sale of the electronically delivered software. According to the foregoing discussion, the
sale of the Taxpayer’s software that is delivered via electronic download is not subject to Florida
sales tax.
This response constitutes a Technical Assistance Advisement under section 213.22, F.S., which
is binding on the Department only under the facts and circumstances described in the request for
this advice as specified in section 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above. You are advised that subsequent statutory or
administrative rule changes, or judicial interpretations of the statutes or rules, upon which this
advice is based, may subject similar future transactions to a different treatment than that
expressed in this response.
You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of section 213.22, F.S. Confidential information must be deleted before public disclosure. In an
effort to protect confidentiality, we request you provide the undersigned with an edited copy of

Technical Assistance Advisement
Page 7 of 7
your request for Technical Assistance Advisement, the backup material, and this response,
deleting names, addresses, and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department within 15 days of the date of this
letter.
Sincerely,

Brinton Hevey
Tax Law Specialist
Technical Assistance and Dispute Resolution
850/717-6839
Record ID: 101465