BARROWS ENTERPRISES, INC. (1985)(F)(ST)

Topic Code: B146Burden of Proof -, C276Computer Software (ST)          Document Reference:

RE: BARROWS ENTERPRISES, INC. Docket No. 85-352-6B-A Letter of Findings

James Holstein, CPA

Dee Gosling & Company

2320 North Second Street

Clinton, Iowa 52732

Dear Mr. Holstein:

The Tax Review Committee has reviewed the above-entitled Protest and now issues its findings:

On August 27, 1985, the Protestor was assessed consumer use tax. Protestor paid the amount of the assessment and appealed on September 3, 1985 that portion of the assessment relating to license fees for IBM computer software and the purchase of a paint booth during the assessment period of April 1, 1980 through March 31, 1985.

First, with respect to the IBM computer software, the Protestor was assessed use tax on amounts paid to IBM Corporation during the last quarter of 1983 upon the "purchase price" of IBM computer software. The Protestor maintains that the transactions were not purchases but rather license fees. The Committee finds that these transactions are not purchases of software programs but rather rentals of computer software. Departmental rule 730-Iowa Administrative Code-18.34(3)(g) specifically deals with the rental of computer programs. It provides that prior to July 1, 1984 the rental of computer programs are not subject to tax.

Therefore, the Committee finds and concludes that the Department improperly assessed the Protestor on amounts paid for the rental of the IBM computer software program. You should note that on and after July 1, 1984 the rental of canned (as opposed to custom programmed) computer software is taxable as the rental of tangible personal property. See Department rule 730- I.A.C.-18.34(3)(a).

Next, Protestor claims that it paid a use tax on a paint booth it purchased in the second quarter of 1984. At the time of the audit, the taxpayer's records did not contain any information showing that the tax had been in fact paid. However, the Protestor has now provided the Committee sufficient information to find that the tax on the paint booth was in fact paid.

In sum, the Committee finds that the tax, interest and penalty on the computer software and the paint booth should be cancelled. The Protestor is entitled to a refund of $3,977.60 computed as follows: 

     Tax paid on IBM licensed programs -        $1394.00 
     Penalty paid on IBM licensed programs -      348.50 
  Interest paid on IBM licensed programs -     2    11.89 
     Tax paid on paint booth -                   1494.25 
     Penalty paid on paint booth -                373.56 
  Interest paid on paint booth -               155.40 
                                                -------- 
     Total refund due                           $3977.60 
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Computed through August 31, 1985, the month of payment.

There are no remaining issues in the Protest. A copy of this Findings will be filed with the Hearing Officer with instructions that the Protest may be closed. If you have any questions with respect to the above matter, please feel free to contact me.

Very truly yours, Elizabeth G. Beck Attorney at Law Appeals Section 515/281-4071