North Dakota Administrative Code
Title 81 - Tax Commissioner
Article 81-04.1 - Sales and Use Taxes
Chapter 81-04.1-03 - Miscellaneous Sales
Section 81-04.1-03-11 - Computers - Hardware and software

Universal Citation: ND Admin Code ยง 81-04.1-03-11

Current through Supplement No. 394, October, 2024

Computers, peripheral computer equipment, and computer software, with the exception of custom software, are subject to tax.

For purposes of administration of the sales and use tax law, unless the context otherwise requires, the following definitions apply:

1. "Computer" means an electronic device that accepts information in digital or similar form and manipulates it for a result based on a sequence of instructions.

2. "Computer software" means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.

3. "Delivered electronically" means delivered from the seller to the purchaser by means other than tangible storage media.

4. "Load and leave" means delivery to the purchaser by use of a tangible storage media when the tangible storage media is not physically transferred to the purchaser.

5. "Prewritten computer software" 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. The combining of two or more prewritten computer software programs or prewritten portions thereof does not cause the combination to be other than prewritten computer software. 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 purchaser. If a person modifies or enhances computer software of which the person is not the author or creator, the person is deemed to be the author or creator only of such person's modifications or enhancements. Prewritten computer software or the prewritten portion thereof that is modified or enhanced to any degree, if such modification or enhancement is designed and developed to the specifications of a specific purchaser, remains prewritten computer software. However, if there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser of such modification or enhancement, such modification or enhancement shall not constitute prewritten computer software.

6. Sale, lease, or rental of prewritten computer software. The transfer of title, possession, or use for a consideration of any prewritten computer software is taxable.

a. Tax applies to the entire amount charged to the customer. When the consideration consists of license fees, royalty fees, or program design fees, all fees present or future, whether for a period of minimum use or for extended periods, are includable in the purchase price subject to tax.

b. The sale of prewritten computer software is a taxable transaction, even though the program is delivered electronically or by load and leave. Tax does not apply to the sale or lease of custom computer software regardless of the form in which the program is transferred. If the custom computer software is not separately stated from the sale or lease of equipment, it will be considered taxable as part of the sale.

c. Maintenance contracts sold in connection with the sale or lease of prewritten computer software required by the seller as a condition of the sale or rental of prewritten computer software will be considered as part of the sale or rental of the prewritten computer software, and the gross sales price is subject to tax whether or not the charge for the maintenance contract is separately stated from the charge for the software.

d. If the purchase of the maintenance contract is optional with the purchaser, but the purchaser does not have the option to purchase the consultation services separately from the upgrades or enhancements, then the charges for consultation services are taxable as part of the sale or lease of upgrades or enhancements. If, however, the purchaser may at the purchaser's option, contract for the consultation services separately from the upgrades or enhancements, then the charges for the consultation services are nontaxable.

e. The sale of statistical reports, graphs, diagrams, microfilm, microfiche, photorecordings, or any other information, produced or compiled by a computer and sold or reproduced for sale in substantially the same form as it is produced is a sale of tangible personal property, unless the information from which such reports were compiled was furnished by the same person to whom the finished report is sold in which case the original report is not subject to tax.

f. When additional copies of records, reports, manuals, and tabulations are provided, tax applies to the charges made for the additional copies. Additional copies are all copies in excess of those produced simultaneously with the production of the original and on the same printer, when the copies are prepared by running the same program, by using multiple printers, by looping the program, by using different programs to produce the same output, or by other means.

If no separate charge is made for additional copies by the service bureau or data processing firm, then tax applies to that portion of the gross receipts on which the cost of the additional computer time, the cost of materials, and labor costs to produce the additional copies bear to the total job cost. Charges for copies produced by means of photocopying, multilithing, or by other means are subject to tax.

g. Separately stated charges for training services are nontaxable. Tax applies to charges for training materials, including books and manuals furnished to trainees for a charge separate from the charge for training services.

7. Time sharing. The sale or lease of computer time through the use of the terminal or as a result of a batch service arrangement is a nontaxable service and is not subject to tax if separately billed or charged. However, any charges for computer machines and equipment remain subject to tax.

8. Data processing service. The charge for reports compiled by a computer exclusively from data furnished by the same person for whom the data is prepared is a service and is not subject to sales or use tax unless it is part of a unitary transaction which is subject to sales or use tax.

General Authority: NDCC 57-39.2-19, 57-40.2-13

Law Implemented: NDCC 57-39.2-01, 57-39.2-02.1, 57-40.2-01, 57-40.2-02.1

Disclaimer: These regulations may not be the most recent version. North Dakota may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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