Is Software Taxable in Florida?

The Basics of Software Taxation in Florida

Welcome to our guide on software taxation in Florida! This article aims to clarify whether software is taxable in the state of Florida, and what factors determine whether it is or isn’t. Whether you’re a business owner, software developer, or simply someone interested in tax law, we hope you find this guide informative and helpful.

Before diving into the details, it’s worth noting that tax laws can be complex and vary by jurisdiction. The information we provide here is accurate to the best of our knowledge, but it should not be taken as legal advice. If you have specific questions about software taxation in Florida, we recommend consulting a tax professional.

What is Software?

Software refers to a collection of computer programs, procedures, and documentation that perform specific tasks on a computer system. Examples of software include operating systems, mobile apps, video games, and web applications. The software industry is a major contributor to the economy, and its products are used across all sectors of business and society.

What is Sales Tax?

Sales tax is a type of consumption tax that is levied on the sale of goods and services. In Florida, sales tax is imposed at the state level and varies by the type of product or service being sold, as well as the county and city where the sale takes place. Currently, the statewide sales tax rate in Florida is 6%.

Is Software Taxable in Florida?

The answer to this question is: it depends. In Florida, whether software is subject to sales tax depends on how it is delivered to the customer and how it is used. The following factors could determine whether software is taxable:

Factor	Taxable?
Delivery Method
Physical media (CD, DVD, etc.)	Yes
Download (from a website or app store)	Varies
Cloud-based subscription	Varies
Use Case
Custom software development	No
Pre-written software for general use	Varies
Software as a Service (SaaS)	Varies

Physical Media

When software is delivered on physical media (such as a CD, DVD, or USB drive), it is generally considered a tangible product and is subject to Florida sales tax. This is because the customer is receiving a physical item in exchange for their payment, and the tax is assessed on that item.

Downloaded Software

When software is delivered via download (whether from a website or an app store), the taxability can depend on several factors:

Pre-written Software for General Use

Pre-written software that is intended for general use (such as Microsoft Office, Adobe Photoshop, or QuickBooks) may or may not be subject to Florida sales tax when downloaded. The determining factor is whether the software is considered a “canned” or “custom” product.

“Canned” software is pre-written software that is not designed to be modified or customized by the customer, and is typically sold off-the-shelf or via download. “Custom” software, on the other hand, is software that is developed specifically for a particular customer’s needs, and is not typically sold to others.

In Florida, “canned” software that is downloaded is generally subject to sales tax. However, if the software is considered “custom,” it may be exempt. To be considered custom software, it must meet two criteria:

• It must be developed specifically for a particular customer’s needs, and
• The customer must retain the right to control and use the software exclusively (i.e. other customers cannot purchase or use the software).

Software as a Service (SaaS)

Software as a Service (SaaS) is a delivery model where software is hosted by a provider and accessed by customers over the internet. SaaS is not subject to Florida sales tax, as it is considered a service rather than a product. However, certain ancillary services (such as data storage and backup) may be subject to tax if they are sold in conjunction with SaaS.

Cloud-based Subscription

When software is delivered via a cloud-based subscription (such as Microsoft 365 or Adobe Creative Cloud), the taxability can depend on how the software is used:

Personal Use

When cloud-based software is used for personal purposes (such as by an individual to create documents or edit photos), it is generally exempt from Florida sales tax. The reasoning here is that personal use is not considered a taxable use, as it is not tied to any specific business or economic activity.

Business Use

When cloud-based software is used for business purposes (such as by a company to manage its finances or marketing campaigns), it is generally considered taxable in Florida. This is because it is being used for economic activity that generates revenue, and is therefore considered a taxable use.

Frequently Asked Questions

1. What is the current sales tax rate in Florida?

The current statewide sales tax rate in Florida is 6%. However, the total tax rate can vary by county and city, as additional local taxes may also apply.

2. Does Florida charge sales tax on services?

Florida does not charge sales tax on all services. Some services (such as legal and accounting services) are exempt from tax, while others (such as car repairs and cleaning services) are taxable.

3. Are software updates taxable in Florida?

Software updates may or may not be taxable in Florida, depending on how they are delivered and how they are used. If the update is delivered on physical media or is considered “canned” software, it may be taxable. However, if the update is delivered over the internet and is considered a “service,” it is generally not taxable.

4. Is open-source software taxable in Florida?

Open-source software is generally not taxable in Florida, as it is freeware that is not sold for profit. However, if the software is distributed on physical media, it may be subject to sales tax.

5. Do I have to pay sales tax on software if I bought it out of state?

If you bought software out of state and did not pay sales tax on it at the time of purchase, you may be required to pay use tax when you bring the software into Florida. Use tax is a complementary tax to the sales tax and is imposed on goods and services that are purchased out of state and brought into Florida for use or consumption. The use tax rate is the same as the sales tax rate (currently 6%).

6. Can I deduct sales tax on software on my tax return?

If you are an individual filer and itemize deductions on your federal income tax return, you may be eligible to deduct sales tax on software as part of the state and local tax (SALT) deduction. However, the SALT deduction is subject to certain limitations, especially after the passage of the Tax Cuts and Jobs Act of 2017. Consult a tax professional for more information.

7. What should I do if I’m unsure whether to charge sales tax on software?

If you’re unsure whether software is taxable in Florida, or if you’re not sure how to classify a particular software product, consult a tax professional. They can analyze the specific details of your situation and provide guidance on how to comply with state tax laws.

Conclusion

In conclusion, whether software is taxable in Florida depends on a variety of factors, including how it is delivered and how it is used. If you’re a business owner or software developer, it’s important to understand these factors to ensure compliance with state tax laws. We hope this guide has been informative and helpful. If you have any questions or comments, please feel free to get in touch!

Don’t forget that tax laws can change frequently, so it’s important to stay up-to-date on the latest developments. Consult a tax professional or visit the Florida Department of Revenue’s website for the most current information.

Closing Disclaimer

The information provided in this article is for educational purposes only and should not be construed as legal or tax advice. The accuracy of the information is not guaranteed and may be subject to change. Any reliance you place on such information is therefore strictly at your own risk. While we strive to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the information, products, services, or related graphics contained in this article for any purpose. Any reliance you place on such information is therefore strictly at your own risk.