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Rent-a-Cloud: Arizona's Transaction Privilege Tax Applies to Receipts from the Temporary Use of Online Software

By Mary Alexander and Prentiss Willson

The Arizona Department of Revenue determined in a private letter ruling that gross receipts f

July 25, 2013

By Mary Alexander and Prentiss Willson

The Arizona Department of Revenue determined in a private letter ruling that gross receipts from “renting” prewritten software available online are subject to Arizona’s transaction privilege tax (TPT). The definition of tangible personal property for purposes of the TPT includes the electronic delivery of software. Thus, according to the Department, a business is subject to the TPT if the customer has “the defined and exclusive right of use of the software for a specified period….” The Department concluded that the requesting company’s customers had “the requisite amount of use and possession” to constitute a rental, because they could use the company’s employment application software to “add, delete, and modify job descriptions” and had the “ability to search and sort information in the reports produced by [the company].” Further, the Department noted that a customer’s access to the company’s software terminated when its contract expired. Thus, the Department determined the company’s gross receipts from customers using the software at locations in Arizona were subject to the TPT under the personal property rental classification. Ariz. Private Taxpayer Ruling LR13-005 (Apr. 29, 2013).

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