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Posted by Katie on May 10, 2007, 11:54 pm
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> To which state do we (a company) owe sales or use tax in the
> following scenario? We buy a computer and have the seller
> ship it to our office in New Jersey. There we install some
> software on the computer. This takes a few days. Then we
> ship the computer to our office in Arizona, where we use it
> in our business.
>
> Does it make any difference what the specific states are?
> Would the answer be different if two other states were
> involved, or is there a general rule that will apply for all
> or most states? Some other likely combinations are New
> Jersey-Florida, Colorado-Nebraska, Colorado-Arizona, and
> Nebraska-Missouri.
I thought I had replied to this several days ago, but it
seems to have gotten lost in cyberspace ...
If the property is shipped from NJ by the vendor or a drop
shipper, NJ sales tax will apply to this transaction. AZ
will give you credit against the use tax for the sales tax
that was paid to NJ.
If the property is shipped from outside NJ but the vendor
has nexus with NJ, the vendor will probably routinely
collect and pay over NJ use tax on the transaction. Again,
AZ will give credit for the use tax that was paid to NJ.
If the property is shipped from outside NJ and the vendor
has no nexus with NJ, the use tax is the purchaser's
responsibility. Several respondents here have opined that
only AZ would be entitled to the use tax; however, I believe
that most states (including NJ) would probably consider the
installation of the software to be a taxable use of the
property. This is not the same thing as just re-routing the
property to the AZ location, or reselling it.
N.J.S.A. 54:32B-2(h) : "'Use' means the exercise of any
right or power over tangible personal property by the
purchaser thereof and includes, but is not limited to, the
receiving, storage or any keeping or retention for any
length of time, withdrawal from storage, any distribution,
any installation, any affixation to real or personal
property, or any consumption of such property." The
installation of software on a computer in NJ would appear to
meet this definition. It certainly is "the exercise of" a
"right or power" over the property.
As a result, I believe the transaction described would be
subject to NJ use tax. It is probably also subject to AZ
use tax, but AZ will allow credit for the NJ tax.
I would suggest that the same pattern applies with respect
to most pairs of states. However, there may be statutory,
regulatory, or case law exceptions in some states whereby
the installation of the software would not constitute a
taxable use.
Katie in San Diego
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