State of Texas recently announced that a Utah corporation’s (the “Company”) sales of licensed software and digital content to Texas users was subject to Texas sales and use tax as it had established nexus by retaining ownership to the products it sold, mostly through internet downloads.
The software license granted the customers a license to use the products but retained all rights in, title to, and the ownership of the licensed products. The corporation had two employees attend conferences in Texas but this was not considered as a primary factor in establishing nexus for the Company since the employees did not solicit sales or engage in any other sales activities in Texas. The software was characterized as tangible property by the state of Texas. The classification of the software as tangible property was not contested by the Company. The fact that the Company retained all rights in the software, as most software companies do, played a significant part in establishing that the Company had sufficient nexus in Texas to be subject to the collection and remittance requirements of sales tax
The ruling also notes that “an out-of-state retailer who is engaged in business in Texas must continue to collect Texas use tax on sales made into Texas for 12 months after the seller ceases to be engaged in business in Texas. SEE 34 Tex. Admin. Code SECTION 3.286(b)(2).” Many taxpayers may not be aware of this requirement to collect sales and use tax for 12 additional months after the seller ceases to be engaged in business in Texas.
The full case ruling is available here.