Since most businesses utilize software in their operations, it is important for tax and accounting professionals to recognize how the Georgia sales tax exemption for software impacts their business. GA Comp. R. & Regs. 560-12-2-.111(3)(b) provides a sales tax exemption on the sale, lease, rental, license or use of custom computer software. Custom computer software is defined as, “computer software, including custom updates, which is designed and developed by the author to the specifications of a specific purchaser” per GA Comp. R. & Regs. 560-12-2-.111(2)(e) This Georgia sales tax exemption for custom computer software will apply regardless of how the purchase obtains the software. A purchaser can receive the custom computer software through a tangible medium and it will not affect the taxability of the software since the tangible medium is considered incidental to the sale.
The real essence of the transaction with custom computer software is the professional service provided by the seller in the creation and development of the custom software program. If a software program that is developed to the specifications of a specific purchaser is then distributed for widespread use to different purchasers, the software ceases to be considered custom and would become subject to sales tax as prewritten computer software. However, the original purchaser can obtain multiple copies or license agreements of the custom software that was developed to their specifications and this would meet the criteria for the sales tax exemption.
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