Tax Type
Retail Sales and Use Tax
Description
Taxability of Various Items or Activities
Topic
Persons Subject to Tax
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
10-05-2001
October 5, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to various products and services sold by ***** (the "Taxpayer") to Virginia customers.
Generally
Code of Virginia § 58.1-602 defines "sale" to mean "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property . . . for a consideration . . . ." Accordingly, all that is needed to constitute the "sale" of tangible personal property is the transfer of possession of the tangible personal property to another person. Transfer of title to the tangible personal property is not required to create a sale as long as possession of the property is transferred to another person for a consideration.
However, Code of Virginia § 58.1-609.5(1) provides an exemption from the sales and use tax for:
-
- Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made . . . and services not involving an exchange of tangible personal property which provide access to or use of the international network of computer systems commonly known as the Internet and any other related electronic communication service.
Accordingly, transactions involving data accessed on-line by personal computers are nontaxable service transactions. This is also true of information sent via fax, Internet, or other electronic means. Such sales are generally exempt from the tax unless they are provided in connection with the sale of tangible personal property. I have enclosed Public Documents (P.D.) 97-405 (10/02/97) and 97-425 (10/21/97) related to the sale of software and supporting services.
Software Licenses
The products are proprietary software courses used by educators desiring to expand their classroom through the use of the Internet. The software is electronically delivered to the educational institution, which then electronically hosts the course for professors and students who access the course from the institution's server. Alternatively, the Taxpayer will also electronically host the course that is accessed by the professors and students.
In either instance, there is no transfer of tangible personal property and all information is electronically accessed. Accordingly, there is no sale of tangible personal property and the tax is not applicable.
Sale of Content
There is no transfer of tangible personal property and all information is available electronically. Accordingly, there is no sale of tangible personal property and the tax is not applicable to this transaction.
Technical Support
Charges for software maintenance agreements are taxable when tangible software updates are included in the agreements. The enclosed copy of P.D. 96-49 (4/17/96) discusses a case in which a taxpayer entered into a contract for telephone support services that also included the provision of tangible software updates. Although a separate charge was billed for the updates, the support agreement was considered taxable because the contract specifically stated that tangible updates would be provided. However, if the software updates are provided electronically, the tax will not be applicable.
Services
Generally, the total charge for tangible personal property, including services such as consulting, training, etc. provided in connection with the sale of tangible personal property, is subject to the tax when such services are included in the price of the tangible personal property sold or leased. However, the tax does not apply to the charge for training that involves only the provision of a service.
Course Development
Unless there is a transfer of tangible personal property critical to the transaction, there is no sale of tangible personal property and the transaction is not subject to the tax.
Trainer Certification
This appears to be an exempt service transaction.
Educational Institutions
Code of Virginia § 58.1-609.4(2) provides an exemption for sales of tangible personal property to nonprofit schools, colleges or other institutions of learning for their use or consumption and paid for out of their funds. In order to make exempt sales to such educational institutions, a registered dealer must secure from the institution one of the following exemption documents:
Certificate of Exemption Form ST-12: This certificate is used by public schools.
-
- Exemption Letter: Exemption letters are used by nonprofit private schools. Such letters are issued by the Virginia Department of Taxation and include a ten-digit tax exempt number in the reference line of the letter followed by an E.
In making exempt sales to educational institutions, vendors must be provided one of these exemption documents.
Conclusion
Based on all of the foregoing, and unless there is a transfer of tangible personal property in the sales at issue, I do not find that the Taxpayer is required to register as a dealer with the department. However, if the transfer of tangible personal property becomes critical to the transactions at issue, the Taxpayer will be required to register as a dealer. The criteria requiring registration are set out in Code of Virginia § 58.1-612. Also see P.D. 00-53 (04/14/2000).
I trust that our response has been of assistance. However, if you need additional information, please contact ***** of the department's Office of Policy and Administration, Appeals and Rulings, at ***** or at *****. Further, you may access the department's Tax Policy Library through the department's home page at www.tax.state.va.us. This site provides access to determinations of the Tax Commissioner and other documents that set out Virginia tax policy.
Sincerely,
Danny M. Payne
Tax Commissioner
ARO/36031Q
Rulings of the Tax Commissioner