In it's Q1 (January 2012) newsletter, Property Tax Review, The WA Department of Revenue discusses the taxability of software. More specifically, the newsletter clarifies the differences and taxability of canned, custom and embedded software.
"Canned" software is software that is distributed "as is" for multiple users (think MS Office). Canned software is valued at 100% of cost for the first year, 50% in the second year and is exempt in the third year.
"Custom" software is designed or modified to meet the needs of a specific user (think custom database, accounts receivable systems, etc.). Custom software is exempt.
"Embedded" software resides permanently on a device, computer system or equipment and is integral to the "devices" operation (think the software that runs a piece of machinery). Embedded software is considered as part of the equipment and is valued at the established life of the personal property of which it is part of.