Death and Taxes

Just as in your normal life, contracts deal with some consistent yet unwelcome issues – such as taxes.

Let’s see, there exist: sales tax, use tax, value added tax, ad valorem tax, excise tax, income tax, transfer tax, and my personal favorite, tariffs.

In most licensing situations in the US, you should ONLY be worried about paying sales and use taxes. Language that lists any other taxes should be cut down to only address sales and use tax if for no other reason that within the US, those are the taxes that really apply to the sale itself – and they’re the only taxes that the seller is required to collect from you. The other taxes, even if they apply, are really the responsibility of the seller… but if they can get you to pay, so much the better for them. [I’ll save discussion of telecom tariffs for another day, but these are NOT taxes – they’re fees that are passed along to the buyer.]

Even within sales and use taxes, though, there are some exceptions (depending on your specific state’s laws) which might allow you to avoid paying taxes on the purchase of software in the event that the software is delivered electronically. My state (North Carolina) is one of those states.

We have an additional requirement – maintenance can’t be mandatory. I didn’t think this requirement really merited any extra attention until the other day. All I’ll say at this point is that I would recommend that anyone who has this requirement in their sales tax law quietly (and quickly) insert language into your template agreements that clearly states that maintenance is OPTIONAL and not mandatory, and that the buyer is free to purchase maintenance from anyone they wish (or refrain from buying maintenance entirely).

Oh… and if you happen to be a NC-based person like me and you work on the procurement side of the house, please get in touch. We need to talk.

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