March 05, 1984


You inquire whether charges for computer program modifications recorded on magnetic media are subject to the sales tax in the circumstances herein described.

("Company") has entered into a contract to purchase computer equipment and programs from a Massachusetts supplier ("Vendor"). Under the contract, the Vendor will adapt its existing programs for the Company's use. The required modifications will be transferred to the Company on magnetic tape or other magnetic media.

The Vendor will bill the Company separately for the modifications, at hourly rates based on the time spent by the Vendor™s employees in determining what changes are necessary and in developing the appropriate modifications. Much of this work will be performed on the premises of the Company.

In determining the sales price of property on which the sales tax is based, no deduction may be taken on account of the cost of materials used, labor or service cost, interest charges, losses or other expenses, and any amount paid for any services that are a part of a sale must be included (G.L. c. 64H, § 1(14)).

Transfers of programs recorded on magnetic media generally are subject to the sales tax (see Subsection (6) of Sales and Use Tax Regulation 830 CMR 64H.06).

Based on the foregoing, it is ruled that the Vendor™s entire charge for the equipment and programs, including its separate charges for program modifications recorded on magnetic media, is subject to the sales tax.

Very truly yours

Ira A. Jackson
Commissioner of Revenue

March 05, 1984
LR 84-9