Florida: Apportionment of Software Customization Services Clarified, Conflicting Rules?

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If you or your client is providing software customization services and other computer related sales within Florida or to Florida customers, you should be aware that the Florida Department of Revenue recently released Technical Assistance Advisement 09C1-003. The Advisement addresses how income from a taxpayer’s software customizing and other activities should be sourced for purposes of Florida’s sales apportionment factor.

Software Customizing Activities

According to the Advisement, income derived from customizing software should be sourced to the state in which the software customizing activities take place.

Rule 12C-1.0155(2)(h)3., F.A.C., specifically provides that income from customizing software programs should be included in the numerator of the sales factor when the customizing activities take place in Florida.

Other Computer Related Sales

Income derived from other services provided by the taxpayer should be sourced to the location of the customer to whom the service is provided.

Rule 12C-1.0155(2)(h), F.A.C., generally provides for sourcing computer related sales to the location of the customer.


What we have here are what appears to be two conflicting methods of apportioning income received by a service provider when it involves computer related sales and customization activities.

Customization services = source to state of performance.

Other computer related sales = sourced to state of customer.

However, most likely a company would perform customization activities in the state or location of the customer. Therefore, all of the customization and computer related sales for a specific customer would be sourced to the same state (from Florida's perspective). With that said, there are always exceptions.


Whether you operate in Florida or any other state, and you are a computer software company/consulting company, it is a good idea to review the services you provide, what states you perform those services in, and where your customers are located.

How you apportion your income can make a big difference in the amount of state income tax you pay depending on where you and your customers are located. As always, each state may have different rules creating interesting results.


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