Does a Georgia business owe Georgia sales tax on prewritten (canned) software delivered on USB keys it picks up in Georgia, even if the software is later distributed to employees outside Georgia?

Plain-English summary

A design-software company loads its software onto USB security keys ("USB Keys") and ships them to its own location in Georgia. A customer picks the keys up at that Georgia location and then hands them out to its employees around the world -- none of whom are in Georgia. The customer argued it owed no Georgia sales tax because the software is ultimately used outside the state.

The Georgia Department of Revenue disagreed on both points. First, prewritten (or "canned") computer software delivered on a tangible medium is taxable tangible personal property in Georgia -- the statute expressly lists prewritten software as tangible personal property, and the rule says software sold on a tangible medium stays taxable even when customized for the buyer. Second, the sale is sourced to Georgia because the customer takes possession at the seller's Georgia location; what the customer does with the keys afterward does not change that. Georgia courts have already held that a good shipped into Georgia and then forwarded elsewhere by the buyer remains subject to Georgia tax.

Finally, the customer's "multiple point of use" (MPU) argument fails because Georgia simply has no MPU exemption. Some states let a buyer of software used in many jurisdictions apportion or exempt part of the tax, but Georgia does not, so the customer could not claim a break the state does not offer. The full sale is taxable.

What this means for you

Software vendors selling on physical media in Georgia

If you deliver prewritten software on a USB drive, disc, or other tangible medium and the buyer takes possession in Georgia, charge Georgia sales tax on the whole sale. Modifying or customizing canned software for the buyer does not make it exempt custom software -- the Department treats enhanced canned software as still prewritten.

Multistate buyers picking up software in Georgia

Where you take possession matters more than where you ultimately use the software. Taking delivery at a Georgia location sources the sale to Georgia and makes it taxable here, even if you distribute the media to employees or offices in other states. Georgia recognizes no multiple-point-of-use exemption to split that tax across jurisdictions, so plan delivery logistics with that in mind.

Accountants and tax professionals

The taxability turns on O.C.G.A. § 48-8-2(37) (prewritten software is tangible personal property) and Ga. Comp. R. & Regs. r. 560-12-2-.111, while the outcome is driven by sourcing under O.C.G.A. § 48-8-77(b)(1)(A) and the holding in Inglett & Stubbs Int'l, Ltd. v. Riley, 339 Ga. App. 375 (2016). Note this ruling addresses software on a tangible medium; electronically delivered software raises a separate analysis the ruling does not reach.

Common questions

Q: Is prewritten software taxable in Georgia?
A: Yes, when it is sold on a tangible medium (such as a USB key or disc). Georgia's statute lists prewritten computer software as tangible personal property, and the Department's rule keeps it taxable even if it was modified or enhanced for the buyer.

Q: I picked the software up in Georgia but use it out of state -- do I still owe Georgia tax?
A: Yes. The sale is sourced to where you receive the product. Taking possession at the seller's Georgia location sources the sale to Georgia and makes it taxable here, regardless of where the software is later used.

Q: Does Georgia have a multiple-point-of-use (MPU) exemption for software used in many states?
A: No. The ruling states plainly that Georgia has no MPU exemption. A buyer cannot claim a break Georgia does not recognize.

Q: Can I rely on this ruling for my own situation?
A: Not automatically. A Georgia letter ruling binds the Department only for the taxpayer and facts it was issued to, and no other taxpayer may rely on it. It shows how the Department reasons, but your facts may differ -- and it does not address electronically delivered software.

Citations and references

Statutes and rules:

• O.C.G.A. §§ 48-8-1, 48-8-30(a) (imposition of sales/use tax on retail sales of tangible personal property)
• O.C.G.A. § 48-8-31 (retail sale)
• O.C.G.A. § 48-8-33 (sale)
• O.C.G.A. § 48-8-2(37) (tangible personal property includes prewritten computer software)
• O.C.G.A. § 48-8-77(b)(1)(A) (sourcing to the seller's business location where the product is received)
• O.C.G.A. § 48-8-3 (exemptions)
• Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(d), (2)(i), (3)(a) (computer-software definitions; taxability of software on a tangible medium)

Cases:

• Inglett & Stubbs Int'l, Ltd. v. Riley, 339 Ga. App. 375 (2016) (goods shipped into Georgia and then forwarded elsewhere by the buyer remain subject to Georgia sales tax)

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2024-02

Original ruling text

November 25, 2024
This letter is response to your request for guidance on the application of Georgia sales and use
tax to a transaction involving prewritten computer software.
Facts presented by Taxpayer
Taxpayer is a provider of design software. Taxpayer loads its software onto HASP HL USB keys
(“USB Keys”) and ships USB Keys to their location in Georgia. The USB Keys constitute a
tangible medium that stores the Taxpayer’s software.
In the normal course of business, Taxpayer, unless a particular exemption is applicable, charges
Georgia sales tax when a customer takes possession of the USB Keys at Taxpayer’s facility.
Notwithstanding, Taxpayer has a certain customer that picks up the USB Keys from Taxpayer’s
facility in Georgia but has refused to pay sales tax. This customer, after taking possession of the
USB Keys at the Taxpayer’s Georgia facility, ultimately distributes them to its employees
worldwide. None of the recipient employees are located in Georgia. The customer argues that
because none of its employees are located in Georgia and the prewritten software (sold in a
tangible medium) is not used in Georgia, then the customer does not have to pay the Georgia
sales tax on the USB Keys.
Issue

1. Is the sale of prewritten computer software sold to a customer in Georgia subject to
   Georgia sales and use tax?
2. Does a multiple point of use (“MPU”) tax exemption apply to the sale of Taxpayer’s
   software ultimately used outside the State of Georgia?
   Analysis
   All retail purchases and sales of tangible personal property are taxable unless provided for
   otherwise. 1 A retail sale or a sale at retail means a sale to a consumer or to any person for any
   purpose other than for resale of tangible personal property or certain services. 2 A sale means any
   transfer of title or possession, transfer of title and possession, exchange, barter, lease, or rental,
   conditional or otherwise, in any manner or by any means of any kind of tangible personal
   property for a consideration. 3 Tangible personal property means personal property that can be
   seen, weighed, measured, felt, or touched or that is in any other manner perceptible to the senses.
   Tangible personal property includes electricity, water, gas, steam, and prewritten computer
   software. 4
   Taxable Software Sales
   O.C.G.A. §§ 48-8-1 and 48-8-30(a).
   O.C.G.A. § 48-8-31.
   3
   O.C.G.A. § 48-8-33.
   4
   O.C.G.A. § 48-8-2(37).
   1
   2

Computer software means a set of coded instructions designed to cause a computer or automatic
data processing equipment to perform a task. 5 Prewritten computer software, also known as
"canned computer software," means computer software that is designed, prepared, or held for
general distribution or repeated use, or software programs developed in-house and subsequently
held or offered for repeated sale, lease, license, or use. 6
Additionally, the sale, lease, rental, license, or use of prewritten computer software is subject to
sales and use tax when sold in a tangible medium. Prewritten computer software, even though
modified or enhanced to the specifications of a purchaser, remains prewritten computer
software. 7
Taxpayer, the seller, ships the USB Keys, which constitute prewritten computer software sold in
a tangible medium, to its locations in Georgia. The customer picks up the USB Keys from a
Georgia location and distributes the USB Keys to its employees outside of Georgia. The sale of
prewritten computer software sold in a tangible medium is taxable unless otherwise exempt.
MPU Tax Exemption
When a product is received by the purchaser at a business location of the seller, the sale is
sourced to that business location. 8 The product in this instance, USB Keys loaded with
Taxpayer’s software, are shipped to Taxpayer’s location in Georgia and the customer picks up the
USB keys from that location. Thus, the sale is sourced to Georgia.
Furthermore, Georgia courts have held that where a customer ships a purchased good to a
location outside of Georgia after the good was shipped to Georgia by the seller, the sale is subject
to Georgia sales tax liability. 9
Certain states provide an MPU exemption when a purchaser buys software for use in multiple
jurisdictions. While the MPU exemption exists in other states, the State of Georgia has no such
exemption. 10 Taxpayer’s customer cannot claim a tax exemption that the State of Georgia does
not recognize.
Ruling

1. The software sold by Taxpayer is prewritten computer software for purposes of Georgia
   sales and use tax. The prewritten computer software is delivered in a tangible medium
   and is subject to Georgia sales and use tax.

Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(d).
Ga. Comp. R. & Regs. r. 560-12-2-.111(2)(i).
7
Ga. Comp. R. & Regs. r. 560-12-2-.111(3)(a).
8
O.C.G.A § 48-8-77(b)(1)(A).
9
Inglett & Stubbs Int'l, Ltd. v. Riley, 339 Ga. App. 375, 377-78 (Ga. App. 2016).
10
O.C.G.A. § 48-8-3.
5
6

2. The sale is sourced to Georgia because the software is shipped to Georgia by the seller
and picked up by the customer in Georgia. Georgia does not have an MPU tax exemption.
Therefore, the sale of the USB Keys with the Taxpayer’s software is subject to Georgia
sales and use tax.
The opinions expressed in this ruling are based upon the information contained in your request
and limited to the specific transaction and customer in question. Should the circumstances
regarding the transactions change or differ materially from those represented, then this ruling
may become invalid. In addition, please be 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 tax treatment than that expressed in this
response.