October 2002
In our research, we recently found that software, including licenses, have received varied treatment by county assessors. Some have handled software and software licenses as either: (1) taxable assets, (2) software, or (3) exempt intangible personal property.
Depending on whether it is custom, canned, or embedded software, some software is taxable and some is exempt. But what about software licenses? Are software licenses exempt because they are an 'intangible?' The answer is 'no' -- they are not an 'intangible' and should be assessed just like software.
What is a software license? Software licenses grant the purchaser of the license the right to use the software. In this sense, a software license is no different than a box of canned software and should be treated as such. A software license is inherent with canned off-the-shelf software, and without the license or the right to use the software, the software has no use or value. (Do you remember clicking the “I AGREE” button when installing or downloading a box of canned software?)
Software and software licenses are often treated as exempt from property tax as intangible personal property. Software should not be included in the exemption for intangible personal property provided by RCW 84.36.070. Instead, there are specific statutes governing the taxation of software in RCWs 84.40.037 and 84.36.600.
The legislation providing for the intangible personal property exemption included a section which stated, "This act shall not be construed to amend or modify any existing statute or rule relating to the treatment of computer software, retained rights in computer software, and golden and master copies of computer software for property tax purposes." (Emphasis supplied.) This language can be found in the notes following RCW 84.36.070. Thus, the intangible personal property exemption does not apply to software. Instead, software and software licenses should be treated as provided under RCWs 84.40.037 and 84.36.600 -- the "software" statutes.
A computer software license is also different than retained rights or golden or master copies of computer software, which are exempt under RCW 84.36.600. Retained rights or a golden or master copy are property rights of software developers and are exempt.
Sometimes software or a software license will show up as a separate item on an asset listing and should be reported as part of a taxpayer’s personal property affidavit. In some instances, the software license will be taxable under the provisions in RCW 84.40.037. In other occurrences, it will be exempt under the provisions in RCW 84.36.600. Regardless of which provision it falls under, it is important for software and software licenses to be assessed under these provisions.