Are internet-delivered course licenses, online hosting, software customization, and translation services subject to Georgia sales tax?

Plain-English summary

The taxpayer licensed internet-delivered training courses and hosted courses on its learning-management system. Customers could buy licenses and hosting separately or together. The company also customized an existing course or built a one-off course to a customer's specifications, and charged customers for third-party translations of courses that could later remain available to others.

The Department ruled that:

• Electronic course licenses and hosting: not taxable when the customer receives neither software in a tangible medium nor a vested right to receive a tangible copy.
• Customization and translation: not taxable because Georgia did not specifically list these software-related services as taxable services.
• Bundled electronic license and hosting: the described combination remained nontaxable because no tangible personal property was transferred.

The seller's invoice or supporting documentation must state that delivery was exclusively electronic. Without that documentation, delivery is presumed tangible and the seller bears the burden of proving otherwise. The service provider must pay tax on tangible personal property it uses to provide the services.

What this means for you

Online training and software businesses

Electronic delivery is central to the result. Giving the same software to the customer on a disc or other tangible medium would make the transaction taxable under the cited regulation.

Billing and compliance teams

Put the delivery method on every invoice or contract. A product description such as "online course" may not be enough if the records do not establish that the customer had no tangible copy or right to one.

Custom-content providers

Both one-customer customization and translation were treated as nontaxable services. The translated course's later availability to other customers did not make the translation charge taxable in this ruling.

Common questions

Q: Are licenses to online educational courses taxable?

A: No, when delivered exclusively over the internet without a tangible copy or right to receive one.

Q: Is learning-management-system hosting taxable?

A: No on the described facts. It was the use of software through the internet without tangible personal property.

Q: Are course-customization fees taxable?

A: No. Georgia did not specifically designate the described software customization service as taxable.

Q: Are translation charges taxable?

A: No. The ruling likewise treats the described external-translation charge as a nontaxable service.

Q: What records should the seller keep?

A: Invoices, contracts, or other supporting documents showing the software was delivered exclusively electronically.

Q: Can another provider rely on this ruling?

A: No. It is limited to this taxpayer's products, delivery method, and services.

Citations and references

Authorities:

• O.C.G.A. § 48-8-2(28.1) -- prewritten computer software
• O.C.G.A. § 48-8-3(22) and § 48-8-30(a) -- services and sales-tax imposition
• Ga. Comp. R. & Regs. r. 560-12-2-.111 -- software taxability and electronic-delivery documentation
• Ga. Comp. R. & Regs. r. 560-12-1-.14(7)(d) -- tangible property consumed by service providers

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2017-04

Original ruling text

Georgia Letter Ruling: LR SUT-2017-04
Dated: February 23, 2017
Topic: Services, Software & Online Courses
This letter is in response to your request for guidance on the application of Georgia sales and use tax to certain products
and services offered by [Redacted] (“Taxpayer”).
Facts Presented by Taxpayer
Taxpayer offers software-based, online training products to serve as communications tools for organizations. Taxpayer
sells licenses to its online educational courses and online course hosting services on its learning management system.
A customer may purchase a course license or hosting as individual products or as a bundled transaction. Taxpayer
also sells licenses for online courses owned by two other companies, and it similarly works with resellers that sell
licenses to Taxpayer’s online courses.
In addition, Taxpayer offers customization services. For a fee, Taxpayer will customize part of one of its courses for
a particular customer or build a new course to customer specifications. Once a course has been changed, the
customized version is not resold to another customer. For a customer who requests a course in a foreign language,
Taxpayer charges the customer the cost of an external translator to translate one of Taxpayer’s courses. Thereafter,
the translated course remains available for use by other customers.
Issue
Are Taxpayer’s sales of the products and services described above subject to Georgia sales and use tax?
Analysis
Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail sale, storage,
use, or consumption of tangible personal property, certain enumerated services, and utilities.1 Unlike sales of tangible
personal property, which are generally presumed taxable, sales of services are not taxable unless specifically
designated as such.
The sale, license, or use of prewritten computer software is subject to sales and use tax when sold in a tangible
medium.2 Computer software delivered electronically is not a sale of tangible personal property and therefore is not
subject to sales or use tax.3 “Computer software” means:
any computer data, program or routine, or any set of one or more programs or routines, which are used
or intended for use to cause one or more computers, pieces of computer-related peripheral equipment,
automatic processing equipment, or any combination thereof, to perform a task or set of tasks. Without
limiting the generality of the foregoing, the term “computer software” shall include operating programs,
application programs, system programs, and any other subdivisions (such as assemblers, compilers,
generators, and utility programs).4
“Prewritten computer software” generally means computer software, including prewritten upgrades, which is not
designed and developed by the author or other creator to the specifications of a specific purchaser. 5 Prewritten
computer software includes software designed and developed by the author or other creator to the specifications of a
specific purchaser when it is sold to a person other than the specific purchaser. 6
1

O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), and 48-8-30(a).
Ga. Comp. R. & Regs. r. 560-12-2-.111(3). O.C.G.A. § 48-8-2(28.1).
3
Ga. Comp. R. & Regs. r. 560-12-2-.111(4)(a). However, if a dealer delivers computer software electronically and
also provides the same software to the purchaser in a tangible medium, the transaction is a taxable sale of tangible
personal property. Ga. Comp. R. & Regs. r. 560-12-2-.111(4)(b).
4
Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(d).
5
O.C.G.A. § 48-8-2(28.1).
6
Id.
2

LR SUT-2017-04
February 23, 2017
Page 2 of 2

In a software transaction, the dealer’s invoice, purchase contract, or other documentation must indicate the method of
delivery. If the method of delivery is not indicated on the dealer's invoice, purchase contract, or other documentation,
delivery will be presumed to have been made through a tangible medium, and the burden will be upon the taxpayer to
establish to the satisfaction of the Department that the software was delivered electronically. 7
Sales of services are not subject to the tax unless the service is specifically designated as taxable. 8 Georgia law does
not identify software-related services, hosting services, or translation services as taxable services. Nevertheless,
service providers are end-users and consumers of the materials they buy, use, or consume in providing a service and
thus must pay the sales tax at the time of purchase of such materials.9
As described by Taxpayer, the courses are computer applications delivered via the internet rather than a tangible
medium. Similarly, hosting services, in which Taxpayer sells the right to use its online platform, are the use of
computer software via the internet. Taxpayer does not sell tangible personal property. Consequently, the sale of course
licenses and hosting services are not subject to sales and use tax, as long as electronic delivery is clearly documented.
Moreover, because the software customization, hosting services, and translation services are not specifically
designated as subject to tax, sales and use tax should not be assessed on the charge for those services.
Ruling
Taxpayer’s charges for sales of electronically-delivered software, online courses and hosting, are not subject to sales
and use tax to the extent that the customer does not receive either prewritten computer software in a tangible medium
or receive the vested right to receive prewritten computer software in a tangible medium. The customer’s invoice or
supporting documentation must indicate that the software was delivered to the customer exclusively in an electronic
format.
Software-related services are not specifically identified in the Georgia Code as services subject to tax. Thus, charges
made by Taxpayer for software-related services, including customization and translation, are not subject to the tax.
However, Taxpayer is liable for tax on all tangible personal property used to provide its software-related services.
The opinions expressed in this ruling are based upon the information contained in your request and limited to the
specific transactions, facts, circumstances, and taxpayer in question. Should the circumstances regarding the
transactions change or differ materially from those represented, this ruling may become invalid. Subsequent statutory
or administrative rule changes or judicial interpretations of the statutes or rules upon which this ruling is based may
subject similar future transactions to different tax treatment than that expressed in this ruling.

7

Ga. Comp. R. & Regs. r. 560-12-2-.111(4).
O.C.G.A. §§ 48-8-3(22) and 48-8-30(a).
9
Ga. Comp. R. & Regs. R. 560-12-1-.14(7)(d) (providing “[s]ervice providers are deemed to be the consumers of
certain tangible personal property used or consumed during the provision of a service if the service provider does not
separately charge for such property”); See O.C.G.A. § 48-8-63(b) and Ga. Comp. R. & Regs. r. 560-12-2-.26(1)
(although these provisions specifically addresses contractors, they contain the general rule for all service providers).
8