Tax Type
Retail Sales and Use Tax
Description
Purchases by other state governments; Out-of-state seller/out-of-state purchaser; Custom software sales
Topic
Exemptions
Property Subject to Tax
Date Issued
04-30-1999
April 30, 1999
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
In your correspondence of April 16, 1999, you request a ruling concerning the application of the retail sales and use tax to a proposed purchase by the ***** (the Purchaser). Cited resources are enclosed.
FACTS
The Purchaser is a government agency for the State of Wyoming and intends to buy computer hardware from a Colorado supplier. The Colorado vendor will direct ship this hardware to a corporation in Virginia. The Purchaser intends to contract with the Virginia corporation to set up the system environment and install the baseline configuration on the hardware. Once the hardware is configured, the contractor will ship the hardware to the Purchaser in Wyoming where it will be installed and operated.
You ask whether there is a taxable event in Virginia. If so, you ask whether any exemption would apply.
RULING
The Virginia retail sales and use tax generally applies to sales of prewritten programs as defined by Code of Virginia §58.1-602 when the tangible software (i.e., disk, tape or other tangible medium encoded with the prewritten program) is included in the transaction. Separately stated charges for installation labor or labor rendered in connection with the modification of prewritten programs are excluded from the tax. See Code of Virginia §§58.1-609.5(2) and (6). In addition, charges for custom programs as defined in Code of Virginia §58.1-602 may be purchased exempt of the tax even if transferred on a tangible medium such as disk or tape. See Code of Virginia §58.1-609.5(7).
The Virginia statutes contain no exemption from the retail sales and use tax for tangible personal property purchased for use or consumption by other state governments. However, it is my understanding that you informed a member of my tax policy staff that the Virginia company is only providing custom programming services to the Purchaser. As the retail sale of a custom program is statutorily exempted from the tax, the Purchaser is not liable for the tax on the described transaction.
In the event the transaction includes prewritten computer software, it will be governed by the provisions of Title 23 of the Virginia Administrative Code (VAC) 10-210-780 which states in part that "[t]he sales and use tax does not apply to sales of tangible personal property in interstate or foreign commerce.' However, this regulation provides that "a sale in interstate commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia.' Although the sale of prewritten computer software is generally taxable, such software would qualify as an exempt sale in interstate commerce, provided it is shipped to the Purchaser outside Virginia and the Purchaser makes no use of it in Virginia.
If you have any questions about this matter, please contact ***** with my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22383R
Rulings of the Tax Commissioner