Document Number
03-31
Tax Type
Retail Sales and Use Tax
Description
Computer software training services
Topic
Accounting Periods and Methods
Appropriateness of Audit Methodology
Property Subject to Tax
Date Issued
04-09-2003
April 9, 2003


Re: § 58.1-1821 Application: Retail Sales and Use Tax


Dear *****:

This is in reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period May 1998 through April 2001. I apologize for the delay in the Department's response.
FACTS

The sole issue in the Taxpayer's protest is the Department's treatment of computer software training services included with the sale of software. The Taxpayer contends that the charges for training are separately stated and are separate and distinct transactions from the sale of the software and are not taxable. The Taxpayer references two Public Documents, 84-257 (12/28/84) and 94-251 (08/12/94), in support of its position.
DETERMINATION

The retail sales tax is imposed on the gross sales price of tangible personal property when sold at retail or distributed in Virginia. Va. Code § 58.1-602 defines "sales price" as:
    • the total amount for which tangible personal property or services are sold, including any services that are a part of the sale ... without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever. (Emphasis added.)

Further, Title 23 of the Virginia Administrative Code (VAC) 10-210-4.040 indicates that services provided in connection with sales of tangible personal property are taxable. This same section further provides that transactions involving both the sale of tangible personal property and the provision of services generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated. The key element in determining if separately stated services are subject to the tax is the "true object" of the transaction. In this instance, it is clear that the true object of the transactions involving the sale of software and separately stated training services is the sale of the software. The training is of no use without the software application.

In the public documents referenced by the Taxpayer, the training and consulting services were contracted for separately from the sale of the software and such charges were not a part of the software charges. Accordingly, the tax was not applicable in those transactions.

I will address the training issues separately.

Training - Invoice # *****

This invoice clearly shows a sale of software including software support, updates and three days of training. While there are handwritten notes on the invoice to show a breakdown of the elements of the sale, it is clear that the software and training services were a bundled transaction. There is no documentation to show that training was contracted for separately. Consequently, based on the absence of such proof, there is no basis to allow for any adjustment to the audit.

Training - Invoice # *****

This invoice reflects separate amounts for software, additional hardware and training. Included with this particular invoice was an Attachment D, titled Electronic Data Delivery Services. Under section 1.C (User Training, Software Installation, Telephone Assistance), paragraph 1 provides that the Taxpayer is to provide the "initial software installation and training as the parties shall mutually deem necessary." This same section further states that "Additional training will be made available at client's request at mutually designated rates." Based on this information, the assessed training was bundled with the sale of tangible personal property and was subject to the tax. As noted above for Invoice #*****, there is no documentation that reflects that the training at issue was a separately contracted item. Accordingly, there is no basis to allow for any adjustment of the Department's audit.

Based on the information provided, the assessment is correct. An updated bill, with interest accrued to date, will be sent to the Taxpayer. No further interest will accrue provided the updated bill is paid within 30 days from the date indicated on the bill notice.

The Code of Virginia sections, regulations and public documents cited are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this matter, please contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax. state.va.us or at *****.

                • Sincerely,


                    • Kenneth W. Thorson
                      Tax Commissioner


AR/37280Q


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46