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STATE OF ARIZONA Department of Revenue TAXPAYER INFORMATION RULING LR Janice K. Brewer Governor Gale Garriott Director The Department issues this taxpayer information ruling in response to your request
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STATE OF ARIZONA Department of Revenue TAXPAYER INFORMATION RULING LR Janice K. Brewer Governor Gale Garriott Director The Department issues this taxpayer information ruling in response to your request of March 31, 2010, supplemented by your response of May 10, 2010, submitted on behalf of unnamed client ( Company ). You request a determination of the applicability of Arizona transaction privilege tax to the Company s business activities of providing tee time management software and computer hardware. Statement of Facts: Your March 31 request provides the following excerpted facts: Company is headquartered outside the [S]tate [of] Arizona.... Company has two employees who live in Arizona and work in Arizona and in surrounding states.... Company has operated in Arizona for a number of years.... Company provides a variety of services to golf courses aimed at improving the efficiency of their teetime reservation process and other aspects of golf course management. To deliver these services, Company provides Arizona customers with proprietary tee time management software and the hardware on which the software will run. Arizona sales tax is paid on the computer hardware that is supplied to customers for their use.... The contract used by Company lists the services it will provide and the value of the hardware and software it is providing under the service agreement. There is no transfer of title to the property provided to the golf course as a component of the services it provides. All property consumed by Company in providing its service remains on Company's books and is depreciated by Company for financial and tax purposes. There is no transfer of ownership to the equipment or to the software.... Company also provides telephone reservation services for golf courses under two plans. First is the on-demand reservation service which Company provides when the pro-shop is closed or when the pro-shop is too busy to answer the phone. Second is the full time reservation service where Company answers all of the golf reservation phone calls for the golf course.... Company also provides a web-reservation service for the golf-courses, lottery tee-time services, marketing services and training services to customers on how to effectively use Company's services.... In exchange for the golf course management services Company provides, Company is granted a set number of tee times and cart rentals by their customer. Company calls this an inventory exchange .... The contract used by Company includes the following language that describes the inventory exchange program: 1600 West Monroe Street, Phoenix AZ Page 2 INVENTORY EXCHANGE: An inventory exchange program may be presented by Company to the Client as an alternative to the monthly service and/or selected transaction payments, but is not required of Company, and can be denied at the presentation or renewal of the Agreement. Through this option the Client provides Company with a pre-determined amount of tee time inventory in lieu of monthly service and/or selected transaction payments as indicated on the Application for Service. Golfers that purchased their tee times through Company cannot be denied service at the time of their reservation by the Client, and should service not be possible (i.e. inclement weather), it is the responsibility of the Client to provide reimbursement in whatever form is agreed to be acceptable (i.e. rain check) by both the Client and the Golfer(s). The following rules shall apply to the Inventory Exchange Program: A tee time shall mean up to four players, including greens fees and carts. Unless otherwise agreed upon between Company and the Client, Company may reserve tee times for this program up to 14 days in advance. All tee times reserved through this program will be noted on the tee sheet as such. If Company, in its sole discretion, deems a tee time unsold , it will release the tee time back to the Client. If Company is unable to secure an allotted tee time due to scheduled outings, events, overseeding, course maintenance, or any other reason beyond Company'[s] control, Company has the right to sell a replacement tee time on a later date. The original date of the tee time will be noted on the replacement reservation. The Client will not cancel, move or edit a tee time reserved by Company through this program without first contacting Company. The Client will not apply a surcharge to golfers booked through this program which is not charged to regular golfers. On any given day, Company has the right to offer one tee time more than its allotment for that day. If Company reserves more than its allotment for a day, it will lower its allotment by that amount on a comparable day. Extra allotments will be noted on the tee sheet.... Company, through its own web-site, markets these tee times and attempts to sell them to prospective golfers. Each tee time is for a specific date and time and will expire if not resold.... Once the tee-time has been paid for by the customer, a certificate of payment is provided to them via and this coupon is redeemed at the golf course for the specific date and time covered by the reservation. A sample sales contract you provided with your May 10 response contained the following terms and conditions: A. DEFINITIONS: 1. CSR refers to a customer service representative working in [a Company] call center. 2. Product and [Company] Tee Time Network refer to [Company's] tee time reservation system. Page 3 3. POS and [Company] Point of Sale refers to [Company's] point of sale software. 4. PGC(s) refers to the golf course(s) participating in the product as a result of the Client's use of [Company]. 5. Played Round is any round reserved in the product and not cancelled on or before the intended time of play. 6. Third Party(ies) refers to any party, other than the Client and [Company], using the product to reserve tee times at PGC(s). This may include, but is not limited to, Internet sites, travel agents, golf packagers, and hotels. 7. We , our , us and [Company] refers to [Company]. 8. You , your , Facility and Client mean the business entity that signs this Agreement providing for participation in the product (the Agreement ). B. GENERAL: We will use our best efforts in the performance of this Agreement. Following reasonable advance notice to you, [Company] and any of its partners, principals, employees, or agents, shall be permitted to enter upon any portion of the Client's or its PGC's premises used in connection with [Company] during normal business hours for reasons relating to the maintenance of the [Company] network, software, or hardware.... C. PERFORMANCE OF THE PARTIES: The parties agree to assume the following rights, duties and responsibilities: 1. Pursuant to a separate agreement, [Company] shall license each PGC with computer software necessary for the PGC's participation in the product as detailed in this Agreement; 2. Client shall provide data connectivity as directed by [Company] to access product unless otherwise indicated in this Agreement; 3. Client shall provide dedicated, isolated and insulated AC power lines for all [Company]-supplied equipment; 4. Client shall provide any necessary networking within the PGC facility. This work should be completed prior to the installation and training provided by [Company]; 5. Client is responsible for local phone company charges necessary to forward calls to and from [Company]. [Company] is responsible for the long distance telephone charges associated with forwarding calls to [Company] (unless specified elsewhere in this Agreement); 6. [Company] shall, with the Client or PGC, develop a telephone protocol to be used by [Company] CSRs when answering telephone calls for the PGC; and 7. Client agrees that its PGC(s) will honor all tee time or other authorized reservations made by [Company] or Third Parties for that (those) PGC(s). * * * * E. SERVICE ENHANCEMENTS: [Company] may perform, design, programming and software enhancements to its service, the product, POS or software applications. Except as otherwise set forth in a written Page 4 * * * * agreement between the parties, any updates or enhancements provided shall be subject to all other provisions of this Agreement and shall be offered or provided to the Client as appropriate. P. VOICE RESERVATION OPTIONS: The Client can participate in one of two phone reservation options. The Client can change the selection at any time pending [Company] approval. These options are as follows: 1. On-Demand Service phone calls ringing into the Client's PGC will be forwarded to [a Company] CSR only during periods at which the Client selects, when the Client's phones are busy, or when the Client's phone is unanswered after a certain number of rings. The options used are at the discretion of the Client, and are based on the capabilities of the local telephone exchange carrier and the Client's telephone equipment. Various usage options for Staff-On-Demand service may provide optional pricing discounts Member Service the Client chooses for all tee time reservation calls to be handled by [Company] CSRs. Whether or not this service is available to the Client is based on the capabilities of the local telephone exchange carrier and the Client's telephone equipment. Member status may provide optional pricing discounts....unless specified on the Application for Service, the PGC must a) forward only tee time reservation calls through the use of an auto-attendant ; or b) publish a toll-free number for tee time reservations (and not forward the PGC's local phone number to such a toll-free number). Standard Call Center services include: 1. [Company] CSRs will endeavor to capture golfer data, including mailing address, phone number, and address. 2. Phone calls into the [Company] call center will be routed over [a Company]-provided toll free number unless otherwise provided by the Client. 3. Callers that are in a hold queue will hear a standard recording that alerts them that the golf shop will be with them shortly. [Company] may also provide a generic or customized message substantially similar to We are a member of [Company].com, offering 24-hour reservations through the Internet and [a toll-free number]. 4. Where established, a tee time confirmation will be forwarded to the golfer immediately following the reservation. Q. POS LICENSE: [Company] hereby grants to Customer a non-exclusive, non-transferable license for Customer and any party authorized to use the POS System ( Authorized User ) to use the [Company] Point of Sale System for internal business purposes in accordance with this Agreement. The grant shall be limited to the one facility license as Page 5 identified in the Contract Price area of the Products / Services Costs and Fees section. Customer shall not: (a) sell, lease, sublicense, assign, or provide the POS System to third parties with the sole exception of transfer of ownership; (b) modify, alter, adapt, translate, create derivative works from, reverse engineer, disassemble, decompile or decode the POS System in any way for any reason; or (c) engage in or allow any action that is inconsistent with the terms and conditions of this Agreement or that violates any applicable law. The following shall remain the sole and exclusive property of [Company]: (a) the POS System (including any enhancements or upgrades thereto, [Company] Materials and all other software and materials developed, conceived, originated, prepared, generated or furnished by [Company] under this Agreement; and (b) all copyrights, trademarks, patents, trade secrets and any other intellectual property and proprietary rights in and to the foregoing (subsections (a) and (b) are collectively referred to as the [Company] Materials ). Except for the license granted above, Customer shall have no right, title or interest in or to the [Company] Materials. Upon any termination of this Agreement for any reason, Customer shall: (a) immediately cease using the affected POS System and any other [Company] Materials; (b) return, purge or destroy (as directed by [Company]) all affected POS System and other [Company] Materials and certify to [Company] In writing that all such copies have been surrendered or destroyed in accordance with the foregoing; and (c) pay to [Company] any fees due and owing under this Agreement and/or any Schedule as of the effective date of termination. Moreover, each party shall return or destroy (as directed in writing by the other party) all Confidential Information in such party's possession or under such party's control. R. INVENTORY EXCHANGE: An inventory exchange program may be presented by [Company] to the Client as an alternative to the monthly service fees and/or selected transaction payments, but is not required of [Company], and can be denied at the presentation or renewal of the Agreement. Through this option the Client provides [Company] with a pre-determined amount of tee time inventory in lieu of monthly service fees and/or selected transaction payments as indicated in the Inventory Exchange Payment Method section of the Sales Contract. Golfers that purchased their tee times through [Company] cannot be denied service at the time of their reservation by the PGC, and should service not be possible (i.e. inclement weather), it is the responsibility of the PGC to provide reimbursement in whatever form is agreed to be acceptable (i.e. rain check) by both the PGC and the Golfer(s). The following rules shall apply to the Inventory Exchange Program: A tee time shall mean up to four players, including greens fees and carts. Unless otherwise agreed upon between [Company] and the Client, [Company] may reserve tee times for this program up to 14 days in advance. All tee times reserved through this program will be noted on the tee sheet as such. Page 6 If [Company], in its sole discretion, deems a tee time unsold , it will release the tee time back to the PGC. If [Company] is unable to secure an allotted tee time due to scheduled outings, events, overseeding, course maintenance, or any other reason beyond [Company's] control, [Company] has the right to sell a replacement tee time on a later date. The original date of the tee time will be noted on the replacement reservation. The Client will not cancel, move or edit a tee time reserved by [Company] through this program without first contacting [Company]. The Client will not apply a surcharge to golfers booked through this program which is not charged to regular golfers. S. COSTS AND FEES: By entering into this Agreement, the Client agrees to pay to [Company], upon the Signing Date and thereafter during the term of this agreement, the costs and fees identified in the Contract Price area of the Products / Services Costs and Fees section for any products or services identified as Required. The Client agrees that all fees and costs paid by the Client or the PGC(s) to [Company] as of the Signing Date are non-refundable. The definition of these fees is as follows: 1. One Time Charges includes any [Company]-Supplied Hardware, Software, installation and networking of equipment, software or data service(s) needed for the Client or PGC to access the [Company] network, POS and onsite training by [Company] personnel. This does not include in-house wiring at the Client or PGC, installation of basic computer hardware that is supplied by the Client or PGC. The Client is responsible for networking of the Client's PCs. 2. Monthly Service includes access to the [Company] Tee Time Network, two user licenses (additional user licenses may be obtained), use of the 24-hour [Company] Golf Call Center, 24-hour Technical and Software Support, software upgrades, promotion of the Client or PGC by [Company] and [Company] partners if applicable, and upgrades to [Company] networking equipment and data circuit if deemed necessary by [Company]. The monthly service will be invoiced (as applicable) at the end of each month for service the following month. Billing shall begin upon installation (the Service Date ). 3. Transaction Fees transaction fees may vary depending on the originating source of the tee time transaction as well as the volume of tee times played during the specified month. A billable transaction is one in which a golf round is booked via the [Company] Tee Time Network and is not cancelled. There is no charge for transactional entries made into product by the Client or PGC at terminals onsite. Transaction Fee types and charges are detailed in the Contract Price area of the Products / Services Costs and Fees section. 4. Additional Costs any costs incurred by [Company] resulting from changes made by the Client that directly affect the [Company] Tee Time Network (i.e. moving a data circuit into a new clubhouse) will be billed back to the Client in full. 5. Additional Products & Services additional products and services that are selected by the Client and added to the Client's monthly service invoice which do Page 7 not appear on the Products / Services Costs and Fees section or an Addendum, will be priced and billed for the effective amount at the time they are selected. Such additional services may include, but are not limited to, additional training, custom reports, custom database requests, fee maintenance (beyond the first 90 days of this Agreement), and the setup of non-standard reservation capabilities (e.g. instructors). Should the Agreement be extended or rewritten, the pricing for those added services may be adjusted pending prior notification to the Client by [Company]. T. TERM: This Agreement shall be effective on the Service Date and continue for the length of time denoted on the Application for Service. Unless terminated as provided herein, the Agreement will renew for additional one-year periods unless canceled by written notice by the Client or [Company] to the other party thirty (30) days prior to the anniversary of the signing date of the Agreement. * * * * V. [COMPANY]-PROVIDED EQUIPMENT: Unless specified in the Sales Contract, any equipment or hardware we provide to you is our property. Title, ownership and right to possession of the equipment listed in the Contract Price area of the Products / Services Costs and Fees section shall remain with [Company] until all sums due are paid or depreciation provisions are fully met. [Company] warrants that upon delivery, the equipment shall be in good working order. After delivery, all risk of loss or damage to the equipment from fire, water, storm, burglary, power line fluctuations, spillage, accident, negligence, or abuse shall be borne by Customer. W. [COMPANY]-PROVIDED EQUIPMENT/SOFTWARE/SERVICES REIMBURSEMENT: [Company], at their sole discretion, may agree to provide hardware, software or services, normally requiring a One Time charge, as part of an inventory exchange payment option. All hardware, software or services included in this provision will be noted with a cost in the Equipment & Products Repayment area of the Products / Services Costs and Fees section of this Agreement. These items will be covered by the follow[ing] provisions: 1. All included Equipment/Software/Services will be depreciated over the term of agreement with equipment becoming property of the facility at end of term. 2. If Client changes method of payment to cash before end of original term, facility will owe the undepreciated amount of Equipment & Products Repayment Total . 3. The original amount of the Equipment & Products Repayment Total for this Agreement is $9,695.40[.] 4. Client is responsible for any and all property taxes assessed on the hardware detailed above. 5. The Client represents that it maintains insurance sufficient to cover any potential loss or damage up to the full value of all hardware provided by [Company] as detailed above. Page 8 X. PAYMENT CONDITIONS: Client s Installation fee is due at contract signing. All other payments are due within thir
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