If an optional agreement for prewritten software includes future updates or "tangible deliverables" (like new code versions), it may become subject to tax .
AI responses may include mistakes. For financial advice, consult a professional. Learn more Michigan Sales Tax on Software and Digital Products
Maintenance contracts for custom software (designed for a specific user's needs) are generally considered non-taxable services. Critical Factors and Exemptions Michigan Sales Tax On Software Maintenance
If a maintenance agreement is required as part of the purchase of taxable prewritten software and includes future updates or enhancements, the entire cost is generally taxable . Optional Agreements:
When a transaction includes both taxable software and exempt services, Michigan uses this test to determine if the primary "object" of the sale is a service or a product. If the software is merely incidental to a professional service, the whole transaction may be exempt. Compliance Tips To protect against audit risks, businesses should: If an optional agreement for prewritten software includes
Software delivered via physical media or downloaded in full is taxable as tangible property. Conversely, Software as a Service (SaaS) accessed purely via a web browser (with no downloaded code) is typically exempt .
Out-of-state vendors must collect tax if they have a physical presence or meet economic thresholds ($100,000 in annual sales or 200+ transactions in Michigan). Learn more Michigan Sales Tax on Software and
When claiming an exemption, ensure Michigan Form 3372 (Sales and Use Tax Certificate of Exemption) is correctly executed.