Tax Type
Retail Sales and Use Tax
Description
Computer Software and Technical Support Issues
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
09-11-2001
September 11, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in response to your letter of July 19, 2001, requesting a ruling on the application of the retail sales and use tax to software maintenance and technical support charges made by ***** (the "Taxpayer").
FACTS
The Taxpayer is a developer of prewritten software and offers software maintenance and technical support. Previously, the Taxpayer had combined both technical support and software upgrades into one taxable offering termed "maintenance." According to the Taxpayer, it is now breaking this "maintenance" charge into two separate categories as follows:
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- Upgrades - releases of the Taxpayer's software and patches, including the shipment of a physical CD media.
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- Technical support - a professional service that provides customers with access to the Taxpayer's technical support center via e-mail or telephone.
The Taxpayer believes that the upgrades will remain taxable since a tangible medium is delivered to the customer. However, the Taxpayer asks whether technical support will be a taxable or exempt charge.
RULING
The answer to your question will generally depend upon whether the Taxpayer makes two separate and distinct agreements independent of the sale of tangible personal property or has only one agreement for the provision of upgrades and technical support.
Separate agreements which are independent of each other and any sale of prewritten computer software may be treated as separate transactions. Thus, if separate agreements are used (i.e., one agreement is for upgrades and the other is for technical support), the charge for the upgrade agreement is taxable, and the charge for the technical support agreement is exempt. This treatment is consistent with the exempt treatment applied to hot line support agreements providing for telephone consultation services only and the taxable treatment applied to software subscription agreements providing for tangible software upgrades, as addressed in Public Document (P.D.) 87-209 (9/15/87).
However, if the Taxpayer's upgrade and technical support categories are combined into only one agreement, the charges for both categories, even though separately stated, will be taxable. This is in accordance with the policies set out in Title 23 of the Virginia Administrative Code 10-210-910(D). This is also consistent with the taxable treatment accorded one contract for the provision of telephone support and software enhancements addressed in P.D. 95-286 (11/7/95).
In the event that the Taxpayer sells prewritten computer software and includes technical support services as part of such sale, the charge for such services are taxable regardless of whether separately stated or not.
If you have any questions about this response, please contact ***** of the department's Appeals and Rulings Office at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR0/36002R
Rulings of the Tax Commissioner