The following is not meant to be legal advice.
The Internal Revenue Service (IRS) on
In the treatment of software under the tax code Section 199 deduction (T.D. 9317), the IRS held that companies are providing a service through online software, not selling a product to taxpayers as intended by the law to qualify for the tax break. This firm view by the IRS might affect software companies with the on demand business model.
The rules do not make exceptions for online software even where taxpayers sell the same or substantially identical software through download or physical sale.
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