Is a monthly fee to access and use pre-written software hosted on an out-of-state server subject to Kansas sales or use tax?

Plain-English summary

A California corporation charged a Kansas customer a monthly fee to access and use a pre-written computer software program. The software sat on a server in California, and the customer logged in through a web browser to use it. The question was whether that monthly fee is subject to Kansas sales or use tax.

The Department's answer was no. Kansas does not tax a provider's charges that let a customer electronically access information on the provider's remote server located outside Kansas. Because the software stayed on the out-of-state server and the customer merely reached it over the web, the monthly access fee is not subject to Kansas sales or use tax.

The key facts are that the software was not delivered to the customer in Kansas — no copy was downloaded or installed on the customer's own equipment — and the server was outside Kansas. The charge was for remote access, not for the transfer of software.

What this means for you

Businesses buying hosted / web-accessed software

A charge that only lets you log in and use software running on the vendor's server outside Kansas is not taxed by Kansas as a sale of software. What matters is that nothing is delivered to you in Kansas and the server is out of state.

Software and SaaS providers billing Kansas customers

A monthly fee for browser-based access to pre-written software on your own out-of-state server is not a taxable Kansas transaction under this ruling. Note that a different arrangement — for example, delivering a copy of pre-written software to the customer in Kansas — can be taxed differently, so the outcome turns on how the software is provided.

Common questions

Q: Is a monthly fee to use hosted software taxable in Kansas?
A: Not where the software runs on the provider's server outside Kansas and the customer only accesses it electronically through a web browser. That access fee is not subject to Kansas sales or use tax.

Q: Why isn't it taxed like buying software?
A: Because no software is delivered to the customer in Kansas. Kansas does not tax charges that merely allow a customer to electronically access information on the provider's remote out-of-state server.

Q: Would the answer change if the software were downloaded or installed in Kansas?
A: Possibly. This ruling addresses remote access to software on an out-of-state server. Delivering a copy of pre-written software to a customer is a different transaction and is not what the Department was asked about here.

Citations and references

• Kansas remote-access rule — the Department stated that "Kansas does not tax a provider's charges that allow a customer to electronically access information on the provider's remote server located outside Kansas," and applied that rule to the monthly fee for the California-hosted software. The ruling cites no specific statute section.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2009-005

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 26, 2009

XXXXXXXXX

Dear XXXXXXXX:

We wish to acknowledge receipt of your e-mail of June 23, 2009 regarding the application of Kansas Retailers’ Sales tax. You inquired regarding a California corporation that has a customer in Kansas and charges such Kansas corporation a monthly fee to access and use a pre-written computer software program. The software program is located on a server in California. The customer logs on via a web browser to use the software. You asked if the monthly fee is subject to Kansas sales or use tax?

Kansas does not tax a provider’s charges that allow a customer to electronically access information on the provider’s remote server located outside Kansas. Therefore the monthly fee charged to access the pre-written computer software program located on a server in California is not subject to Kansas sales or use tax.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Jack Smith
Policy and Research

Date Composed: 06/26/2009 Date Modified: 06/26/2009

Table 1

Table 2