Charging sales tax on the Meraki license

[LV_MW_MSP]

Hi Meraki,

I know sales tax is different between states, but I am trying to identify is the Meraki License is actually counted as software and should not be taxed.

This link gives good information: https://www1.avalara.com/us/en/learn/software-sales-tax.html?sessionId=1523309824179&referrer=&lastR...

There is either canned software, or software that is delivered on tangible property. Technically the software is delivered on the tangible property, however it is unlocked through the licensed.

Any feedback would be greatly appreciated.

[PhilipDAth]

How is an Office 365 licence treated?  Should be the same.

I would probably check with your companies accountant to make sure.

[MerakiDave]

Agree with @PhilipDAth that it's likely an "it depends" type of answer and to check with your company accountant or tax attorney.  In some states, SaaS is tax-exempt, while software licenses are taxable.  And your answer might also be different for different products, like vMX or 100% software products like SM and MI.  The engineer in me can find a way to argue this both ways, because it might be a SaaS model, but it's also technically on-premise software running on your on-prem infrastructure, and just the management is cloud/SaaS based.  The other thing that comes to mind is that when I see Meraki bills of materials and quotes, from a discounting perspective, the licensing discount is typically the same as the equipment discount, as if the license is equated to a taxable capex purchase the same as the equipment.  I'll stick with saying consult your tax/legal/purchasing folks.  Sorry nothing concrete.

[LV_MW_MSP]

Thanks, our accounting team is looking into it. Once I have a concrete answer I will share with the community. I appreciate the feedback.

[BrandonS]

I was giving this some thought today.  For California, I have decided we do need to charge sales tax based on this: https://www.boe.ca.gov/formspubs/pub119/

My interpretation is basically that since the license is essentially a warranty and is not optional it needs to be taxed.

[BrandonS]

And a little more if you don't buy into defining the Meraki license as maintenance and warranty: http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1502.html

(f) COMPUTER PROGRAMS.

(B) Tax applies to the entire amount charged to the customer. Where the consideration consists of license fees, all license fees, including site licensing and other end users fees, are includable in the measure of tax. Tax does not apply, however, to license fees or royalty payments that are made for the right to reproduce or copy a program to which a federal copyright attaches in order for the program to be published and distributed for a consideration to third parties, even if a tangible copy of the program is transferred concurrently with the granting of such right. Any storage media used to transmit the program is merely incidental.

(C) Maintenance contracts sold in connection with the sale or lease of a prewritten computer program generally provide that the purchaser will be entitled to receive, during the contract period, storage media on which prewritten program improvements or error corrections have been recorded. The maintenance contracts may provide that the purchaser is entitled to receive storage media on which a backup copy of the same or similar prewritten program is recorded, so that the purchaser may use the backup copy to restore the prewritten program. The maintenance contract also may provide that the purchaser will be entitled to receive, during the contract period, telephone or on-site consultation services.

If the purchase of the maintenance contract is not optional with the purchaser, that is, if the purchaser must purchase the maintenance contract in order to purchase or lease a prewritten computer program, then the charges for the maintenance contract are taxable as part of the sale or lease of the prewritten program. Tax applies to any charge for consultation services provided in connection with a maintenance contract except as provided below.

[JPAWELCHAK]

Great posts! Any idea what Avalara Product Code Meraki licenses would be then? I've gone with SM020400 - Mandatory maintenance agreements related to the sale of tangible personal property.

[randerson73]

I was Leary on the word "personal" but looking it up, that does include business property. I couldn't find a better fit on Avalara so I think you nailed this one. Also, Avalara has done a good job on the search engine asking key questions to narrow down the choices. After I answered the questions, it highlighted SM020400.

https://taxfoundation.org/tangible-personal-property-tax/