Tax Type
Retail Sales and Use Tax
Description
Multiple listing service for the City real estate market, monthly fees
Topic
Exemptions
Date Issued
09-16-2004
September 16, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear **********
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you seek correction of the retail sales and use tax assessment issued by the Department for the audit period November 2000 through December 2003. I apologize for the delay in this response.
FACTS
The Taxpayer operates a multiple listing service for the ******* real estate market. The realtors use the Taxpayer's listing service to access its real estate listing database via the Internet. The Taxpayer continuously updates the database. The server is housed outside Virginia and is owned and maintained by ***** (the "Vendor"). The Taxpayer contracted with the Vendor for access to the server. The contract includes charges for monthly usage fees, hardware, software, training, set up and maintenance. In addition, the Taxpayer received an instruction manual in tangible form, with updates provided electronically.
As a result of the Department's audit, the Taxpayer was assessed use tax on the monthly fee it paid to the Vendor for use of its server. You contend that the assessment is erroneous because the monthly fee represents a charge for a nontaxable service.
DETERMINATION
Virginia Code § 58.1-609.5(1) provides, in pertinent part, that the retail sales and use tax does not apply to "Professional, insurance, or personal services transactions which involve sales as inconsequential elements for which no separate charges are made." Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(A) states, "Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable."
Pursuant to Title 23 VAC 10-210-4040(D), the true object of a transaction must be examined in order to determine whether a transaction that involves both the provision of a service and the sale of tangible personal property constitutes an exempt service or a taxable sale. The regulation further provides, "If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable."
In this instance, the Taxpayer contracted with its Vendor for the use of the Vendor's server, which is located outside Virginia. The server is necessary for the Taxpayer to give its customers access to its real estate listing database. Based on a review of the contract and the facts in this case, the true object of the transaction at issue is the use of the Vendor's server. Access to the server constitutes an exempt service, and the provision of an instruction manual in tangible form is incidental to the transaction. Accordingly, the monthly fee paid by the Taxpayer is not subject to the sales or use tax. The fees will be removed from the assessment.
This determination is consistent with Public Document 85-18 (2/15/85). The determination in that case applied the true object test to a computerized reservation system. The taxpayer contracted with travel agents for the sale or lease of the necessary computer hardware, and the installation, maintenance and training required for proper use of the system. The taxpayer's customers paid a monthly lump sum fee to the taxpayer for the sale or lease of the hardware plus other services, such as the use of software and access to a communications network. Utilizing the true object test, it was determined that the total charge for the reservation system represented the charge for a service exempt under Va. Code § 58.1-609.5(1).
The Code of Virginia sections cited, along with other reference documents, are available on-line 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 about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/50854P
Rulings of the Tax Commissioner