A taxpayer was liable for Washington use tax on its purchase of information technology and software support services because it qualified as a bundled transaction. The agreement with the vendor included both taxable products, such as software installation and updates and computer hardware maintenance, and nontaxable services, such as help desk and network monitoring, for one nonitemized price. A “bundled transaction” means a retail of two or more products that are distinct and identifiable and are sold for one nonitemized price.
The taxpayer claimed that its purchase was excluded from the definition of bundled transaction because the price of the taxable products was de minimis. However, the department could not determine from the taxpayer’s submissions whether the price of the taxable products in the taxpayer’s agreement was ten percent or less of the total contract price.
The taxpayer also alleged that its purchase was not a bundled transaction because the true object of the sale was the non-retailing service. The true object exclusion requires that (i) the retailing activity is essential to a non-retailing service, (ii) the retailing activity is supplied exclusively in connection with the non-retailing service, and (iii) the true object of the sale is the non-retailing service. In this case, the exclusion does not apply because the installation of software updates is not essential to the receipt of help desk services. Furthermore, the repair of computer hardware is not necessary to receive network system monitoring.
Determination No. 15-0328R, Washington Department of Revenue, November 30, 2017, ¶204-318
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