Are software licenses that only grant remote access to software hosted outside Kansas subject to Kansas sales or use tax?

Plain-English summary

A company asked whether its purchases of software licenses and support services are subject to Kansas Retailers' Sales Tax or Consumers' Compensating Use Tax, where the licenses only grant remote access to software that resides on the provider's servers located outside Kansas. The company receives no software in any form — the licenses are "solely remote access licenses."

The Department ruled the purchases are not taxable. Kansas does not tax a license to use software when the software is not delivered to the Kansas user. Because the software stays on the provider's out-of-state server and nothing is delivered to the customer in Kansas — physically or electronically — no Kansas sales or compensating use tax is due. (This ruling is a companion to P-2011-002, issued to a related company that presented the same facts and conditions.)

What this means for you

Businesses using cloud or remotely-hosted software

Remote access to software hosted on the vendor's own servers — with no download or physical media delivered to you in Kansas — isn't a taxable software purchase. The key fact is non-delivery: nothing about the software is transferred to you in the state. Keep documentation that the arrangement is access-only.

SaaS and remote-software vendors

If your Kansas customers only reach software on your out-of-state servers and receive nothing in the state, the license charge isn't taxable as a Kansas software sale under this reasoning.

Common questions

Q: Is a remote-access software license taxable in Kansas?
A: No, when the software isn't delivered to the Kansas user and simply resides on the provider's out-of-state server.

Q: Why isn't it taxed like prewritten software?
A: Kansas taxes prewritten software that's delivered to the user; here nothing is delivered in any form, so there's no taxable transfer.

Q: How does this relate to P-2011-002?
A: It's a companion ruling for a related company with the same facts — same access-only licenses, same nontaxable result.

Citations and references

• Kansas non-taxation of remotely-accessed software — the Department's position that Kansas does not tax a license to use software when the software is not delivered to the Kansas user; the licenses here grant only remote access to software on out-of-state servers, so no sales or compensating use tax is due. (The Department's holding cites no specific statute section; the taxpayer's own letter referenced K.S.A. 79-3603, 79-3602, 79-3606, and guide EDU-71R.)

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2011-010

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 27, 2011

XXXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXXX

Dear XXXXXXXXXX,

This letter is in response to your letter whereby you inquire whether the purchases by XXXX XXXCompany of software licenses and support services from XXXX are subject to Kansas Retailers’ Sales Tax or Kansas Consumers’ Compensating Use Tax.

Kansas does not tax a license to use software when the software is not delivered to the Kansas user. The transaction as stated in your letter is not subject to Kansas sales or compensating tax. The reason no tax is due is the fact that the software was not delivered to you in Kansas. The software resides on your software provider server.

In your letter, you state:

Please consider the following statement below regarding our taxable status for software for XXXX Company. We received a Private Letter Ruling from you dated XXX regarding the software purchases for XXXX Corporation and both of the companies (XXXXXX) have the exact same conditions. In other words, when we sign into our XXX software we are automatically signed in for both companies and we do the exact same work for both companies. The same conditions apply and nothing at all is different.

We have been working with XXX in an effort to get these taxable issues resolved with the letter you issued on XXXXXXXX. It would be extremely helpful to resolve our issues with XXX regarding the taxable status of our software forXXXXXXXXX with another letter issued since it is the same exact software and all of the same conditions exist.

XX purchases software licenses and support services from XXXXX. The licenses that XXXX purchases from XXX allow XXX to access software located on XXXXX servers located outside the state of Kansas. XXXX does not receive software from XXX in any form or manner (i.e., physical or electronic). The licenses are not for prewritten software or for a package of prewritten software for XXXXX to use to retrieve information from XXXX database. The licenses are solely remote access licenses.

XXXXX reading of K.S.A. 79-3603, K.S.A. 79-3602, K.S.A. 79-3606, EDU-71R (July 23,2010) leads us to the conclusion that these purchases are not subject to Kansas Retailers’ Sales Tax or Kansas Consumers’ Compensating Use Tax. XXXXX analysis is that these purchases are for nontaxable services consisting of access to software, records and/or data stored on a remote computer server system.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 01/10/2012 Date Modified: 01/10/2012

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