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corresp

December 14, 2005

VIA EDGAR AND OVERNIGHT DELIVERY

Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street, N.W.

Washington, DC 20549

Attention: Mr. Brad Skinner

      Accounting Branch Chief

    Re:

    Tyler Technologies, Inc. (the “Company”)

    Form 10-K for the Year Ended December 31, 2004

    Filed March 10, 2005

    Form 10-Q for the Quarter Ended June 30, 2005

    Filed July 28, 2005

    Form 8-K

    Filed July 28, 2005

    File No. 1-10485

Dear Mr. Skinner:

This letter is provided in response to the Staff’s comment letter dated November 17, 2005 addressed
to Mr. John S. Marr, Jr., President and Chief Executive Officer of Tyler Technologies, Inc. (the
“Company”). We have restated the Staff’s comments and the Company’s response follows each comment.

Form 10-K for the Year Ended December 31, 2004

Item 8. Financial Statements and Supplementary Data

Consolidated Statement of Operations, page F-3

    1.

    We note your response to our previous comment number 4. The authoritative
literature, specifically Question 17 of the FASB Implementation Guide on Applying SFAS 86
and Item 302 of Regulation S-K, should be followed in classifying the amortization of
acquired software as a cost of revenue in your next ’34 Act filing.

Securities and Exchange Commission

December 14, 2005

Page 2

Company response:

Beginning with our next 1934 Securities Act filing, we will classify amounts charged for
the amortization of acquisition date software development costs to cost of revenue in our
consolidated statement of operations. We will continue to show amortization of other
acquisition date intangible assets in a single line item included in operating income. We
will also retroactively reclassify for all periods presented such amortization of
acquisition date software development costs as a component of cost of revenue.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Segment and Related Information, page F-12

    2.

    We note from your response to our previous comment number 9 that the software and
service gross margin economic characteristic for Division Five appear to be significantly
dissimilar to the same characteristic of the other four divisions. In view of this please
tell us how you concluded that Division Five meets the aggregation criteria of paragraph
17 of SFAS 131 for the 2004 and 2005 reporting periods. For additional guidance refer to
Question No. 8 FASB Status Report December 31, 1998.

    Company response:

    All of our divisions develop and market to local government entities their proprietary
software products, together with related post-contract customer support (maintenance) and
implementation services. Division 5 also provides appraisal services, in addition to its
related tax and appraisal software products and implementation services. However, discrete
financial information, including operating expenses, identifiable assets, and capital
expenditures, are submitted on a combined basis by division, and not by product lines or
revenue category, to the CODM (Chief Operating Decision Maker) to use in assessing
performance and making resource allocation decisions. As summarized in our response letter
dated September 2, 2005, we continue to believe our divisions meet the aggregation criteria
for the reasons cited in that letter and expanded upon below.

    Division 5 was purchased in late 1999 with the knowledge we would be required to
significantly upgrade their existing software products to bring them in line with our other
divisions’ software products. The historical gross margin for software license reflects
the amortization of software development costs capitalized in connection with this effort.
These costs will become fully amortized in early

Securities and Exchange Commission

December 14, 2005

Page 3

2006 and we expect that Division 5’s
software license margins will be comparable to the other divisions’ in the foreseeable
future. Accordingly, if we compare software license gross margins for the six year period
ended December 31, 2004, on a basis that excludes the amortization of software development
costs, Division 5’s software license margin is 90%, which is comparable to the other
divisions’ gross margins of 86% to 93%. We believe our long-term software license margin
adjusted to exclude the effects of this amortization is a more accurate measure to evaluate
the economic characteristics of the divisions and to conclude they have essentially the
same future prospects. We generally amortize software development costs over five years
and development costs are dependent on the timing of new product
releases for which the impact on gross margins over a
longer period than our six year history ( four of our divisions were acquired in 1998 and
1999 and one division was acquired in 2003), would normalize across divisions. We expect
Division 5’s gross margin for software licenses will be approximately 78% and 80% in 2006
and 2007, respectively. These future gross margins are slightly lower than the other
divisions because Division 5 has recently integrated an enhanced third party software
product in its offerings for which it is expected the related gross margins will be lower
in the first couple of years of deployment. However, in years subsequent to 2007 the impact on
Division 5’s margins is expected to diminish, with a
resulting improvement in gross margin. Third party software gross margins are lower than
proprietary gross margins due to the related costs to the third party vendor.

Division 5’s long-term historical services gross margin is 25%, which is somewhat lower
than the other divisions’ long-term historical services gross margins of 29% to 36%. In
the first couple of years after the acquisition, Division 5 had higher maintenance costs
due to efforts to support its software products during those early years. Subsequent to
the deployments of product upgrades, Division 5’s historical services gross margins were
29% for 2003 and 26% for 2004. In May 2005, we restructured
Division 5 and significantly
reduced headcount. Following the restructuring, the historical services gross margin for the third quarter of 2005 for
Division 5 was 30%. Our estimated services gross margin for 2006 and 2007 are projected to
be approximately 28% and 29%, respectively, which are comparable to the other divisions.

We believe we have properly considered the FASB Staff Implementation Guides, Q&A
131-Segment Information: Guidance on Applying Statement 131. All of our divisions have
similar long-term average gross margins, sales trends, future prospects, and have similar basic characteristics regarding products, services, customers,
distribution and the like and therefore, meet the aggregation criteria. We do not believe
separate reporting of Division 5’s information as a separate segment is required or would
add significantly to an investor’s understanding of the Company.

Securities and Exchange Commission

December 14, 2005

Page 4

Concentrations of Credit Risk and Unbilled Receivables, page F-13

    3.

    We note your response to our previous comment number 10. Please revise your
disclosures to separately disclose the amount of unbilled receivables that are expected to
be collected after one year and provide a general description of the prerequisites for
billing this amount. Additionally address when the $536,000 retainage amount is expected
to be collected. See Rules 5-02 (3) (c) (2) and (4) of Regulation S-X.

    Company response:

    We propose to revise the second to last paragraph of “Concentration of Credit Risk and
Unbilled Receivables” included in footnote 1 to our summary of significant accounting
policies in our Form 10-K for the year ending December 31, 2005, to read substantially as
follows:

The termination clauses in most of our contracts provide for the payment for the
fair value of products delivered or services performed in the event of early
termination. Our property appraisal outsourcing service contracts can range up to
three years and, in one case, as long as six years in duration. In connection with
these contracts, as well as certain software service contracts, we may perform the
work prior to when the software and services are billable and/or payable pursuant
to the contract. We have historically derived such unbilled receivables (costs and
estimated profit in excess of billings) in connection with (1) property appraisal
services contracts accounted for using proportionate performance accounting in
which the revenue is earned based upon activities performed in one accounting
period but the billing normally occurs shortly thereafter and may span another
accounting period; (2) software services contracts accounted for using the
percentage completion method of revenue recognition using labor hours as a measure
of progress towards completion in which the services are performed in one
accounting period but the billing for the software element of the arrangement may
be based upon the specific phase of the implementation ; (3) software revenue for
which we have objective evidence that the customer-specified objective criteria has
been met but the billing has not yet been submitted to the customer; and (4) in a
limited number of cases, we may grant extended payment terms generally to existing customers with whom we have a long-term relationship and
favorable collection history. In addition, certain of our larger property
appraisal outsourcing contracts are required by law to have an amount withheld from
a progress billing (generally a 10% retention)

Securities and Exchange Commission

December 14, 2005

Page 5

until final and satisfactory project
completion is achieved, typically upon the completion of fieldwork or formal
hearings.

In connection with this activity, we have recorded unbilled receivables of $XX and
$10.0 million at December 31, 2005 and 2004, respectively, of which $XX and $1.1
million is expected to be collected after one year, with billing primarily
dependent on a fixed payment schedule based on specific calendar dates. We also
have recorded retention receivable of $XX and $1.7 million at December 31, 2005 and
2004, of which $XX and $536,000 is expected to be collected after one year, and
these retentions become payable upon the completion of our field work and formal
hearings. Unbilled receivables and retention receivables expected to be collected
in excess of one year have been classified as non-current receivables in the
accompanying consolidated balance sheets.

As outlined in our response letter dated September 2, 2005, we consider the total
retentions and unbilled receivables expected to be collected after one year to be
immaterial in relation to our balance sheet and our liquidity, as it represents only 2.1%
of total current assets at December 31, 2004. Accordingly, we propose that the disclosure
in our Form 10-K for the year ending December 31, 2005 include the expanded discussion as
to the prerequisites for such billing described above and, in our Form 10-K for the year
ending December 31, 2005, we will reclassify our December 31, 2004 balance sheet to reflect
the non-current receivables as long-term.

Note 7. Goodwill and Other Intangibles, page F-17

    4.

    We note your response to our prior comment number 11. We also note that you have
grown considerably, since the staff’s last review, through numerous purchase acquisitions.
Provide us with substantive objective evidence that supports a weighted average estimated
useful life of 22 years for your acquired customer intangibles.

    Company response:

    We engaged the services of a nationally recognized outside appraisal firm to assist us in
determining the value and life of the intangible assets acquired for each of our
significant acquisitions. The customer related intangible asset arising from each of our
significant acquisitions were generally valued using an income approach on the estimated selling expense savings over the estimated remaining life of the
active customers. In general, the average remaining life for the customer base was
estimated in the range of 20-25 years, which is generally the inverse of the attrition rate
that was estimated at the date of the acquisition. In

Securities and Exchange Commission

December 14, 2005

Page 6

each case, we assigned useful lives
for customer related intangibles that were equal to or shorter than those suggested by the
appraisal firm.

The attrition rate was based on discussions with division personnel and an analysis of the
available data for each of the acquired companies’ customer bases, and was derived from
information regarding lost customers during a period preceding the acquisition. For each
significant acquisition, an annual attrition rate was selected for the valuation of the
customer base. The selected attrition rate, or decline, factor was applied to the revenue
projection to reflect the gradual loss of customers.

Below
is a summary of information regarding our customer related intangibles, including
attrition rates used at the time of acquisition to estimate the customer related intangible
value.

    Initial

    Year

    Customer

    Company

    Year

    Related

    Was

    Acquired

    Intangible

    Attrition

    Formed

    By Tyler

    Value

    Rate

    (000’s
    )

    Division 1

    1962

    1999

    $
    8,912

    3
    %

    Division 2

    1981

    1998

    1,527

    3
    %

    Division 3

    1981

    2003

    6,280

    4
    %

    Division 4

    1981

    1998

    2,300

    8
    %

    Division 5

    1938

    1999

    2,700

    4
    %

    Division 6

    1978

    1999

    2,560

    3
    %

Securities and Exchange Commission

December 14, 2005

Page 7

     Our actual post-acquisition experience has been that customer attrition rates (measured by
non-renewal of maintenance contracts) remain very low and justify the amortization periods being
used. The table below summarizes our post-acquisition customer attrition experience:

    Cumulative

    Annual Maintenance

    Percentage

    Maintenance

    Value of Customers

    of Base

    Revenue

    Maintenance

    Lost Since

    Year

    Base Year

    Revenue

    Acquisition Through

    Maintenance

    2000*

    Year 2004

    November 2005

    Lost

    (000’s
    )

    (000’s
    )

    (000’s
    )

    Division 1

    $
    8,380

    $
    20,410

    $
    742

    8.9
    %

    Division 2

    6,349

    12,046

    194

    3.1
    %

    Division 3

    3,267

    4,067

    70

    2.1
    %

    Division 4

    7,570

    9,969

    566

    7.5
    %

    Division 5

    7,456

    7,555

    362

    4.9
    %

    Division 6

    1,346

    2,995

    55

    4.1
    %

    *

    Since all of our acquisitions except for one occurred in 1998 and 1999, we
used calendar year 2000 as a Base Year to benchmark attrition information about lost
customers generally from the date of acquisition. Division 3 Base Year is 2003
because it was acquired in December 2003.

The above table confirms that our customer attrition rates since the date the division was
acquired remain very low and the use of a long estimated useful life is reasonable based on
this experience. As highlighted in the chart above, we believe losing less than an
estimated cumulative 10% of our acquisition date maintenance in the post-acquisition period
further supports an extended useful life. A lower attrition rate results in a greater
number of post-acquisition years which need to be accumulated to derive the initial
customer base value using the income approach over the remaining life of the active
customers. Since an extended number of years were aggregated to derive the customer
related intangible value (well in excess of 22 years), we believe it is reasonable to use
an extended number of yea