News and Insights

Minnesota Department of Revenue Releases Updated Tax Fact Sheet on Software

Tax Development Sep 01, 2016

The Minnesota Department of Revenue (“Department”) has provided updated guidance on the treatment of software sales. This guidance is set out in Sales Tax Fact Sheet No. 134. Among other things, the application of sales and use tax to the following transactions/situations is discussed:

  • The sale of prewritten software delivered via different methods,
  • The sale of custom software,
  • The sale of software maintenance agreements,
  • The sale of software installation and conversion services,
  • Application of multiple points of use,
  • Application of capital improvement exemptions,
  • Sales to nonprofits, and
  • Sales of computer equipment.

Minnesota Tax Fact Sheet No. 134 can be found here. The Fact Sheet, revised as of August 2016, provides an excellent overview regarding the guidelines for taxing custom and canned software. It reinforces that computers and software purchased for use in a production environment may qualify for the capital equipment exemption, making the purchase exempt for sales tax. Previously, a taxpayer had to pay the sales tax and then file for a refund.