There are various types of software including operating software, application software, and system software. All types of software are subject to sales or use tax if the software is available to the general public as opposed to being custom software. The deciding factor for the taxability of computer software is whether it is canned or custom software. Canned software, whether modified or not, is subject to the sales or use tax regardless of the method of delivery. A computer program transferred electronically by a network, intranet, the Internet or by any other electronic method is taxable if the software being transferred is within the definition of canned software.
Canned software is subject to sales tax when purchased in Michigan from a Michigan retailer.
When purchased from a seller not registered for either sales tax or seller's use tax, the purchaser is subject to consumer's use tax. In this case, the consumer is liable for the tax and must file a use tax return. As in II, canned software is taxable regardless of the method used to deliver the software to the purchaser. This RAB replaces Revenue Administrative Bulletin 1988-41 and is effective October 1, 1999. The sale of canned software by a Michigan seller is subject to sales tax regardless of the method of delivery.