Yet another technical bulletin is released by the NJ Division of Taxation discussing the application of sales and use tax on computer software.
New Jersey taxes tangible personal property, unless specifically exempt or excluded from the tax base. In NJ, tangible personal property includes pre-written computer software, including pre-written computer software delivered electronically. It was only recently (prior to October 1, 2006) that the state excluded software transmitted electronically from the definition of tangible personal property, and not subject to sales or use tax.
There is, however, an exemption for pre-written software delivered electronically, if the software is to be used directly or exclusively in the conduct of the purchaser’s business or trade. The exemption does not apply if the software is delivered by the load and leave method. If the purchaser also receives tangible storage media containing the software, in addition to the software being delivered electronically, the transaction is not considered to have been a sale of software delivered electronically and is not exempt, ever if the software is used directly and exclusively in the purchaser’s business or trade.
Also, the sale of pre-written software is taxable regardless of whether the pre-written software is sold in its original form, or combined with other pre-written software programs, or with modifications to meet a purchaser’s special needs.
Custom designed software, created and written for the exclusive use of a specific customer is not considered pre-written software when sold to the specific customer for whom it was designed. Custom-made software is considered a nontaxable professional service, and therefore, is not subject to sales tax.
If you would like additional information on this topic or have any questions, please contact the firstname.lastname@example.org