Tax Type
Retail Sales and Use Tax
Description
True object of the contract is the performance of a service license fees exempt
Topic
Assessment
Exemptions
Payment and Refund
Taxable Transactions
Date Issued
05-18-2007
May 18, 2007
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 period January 2002 through December 2004.
As a result of the Department's audit, the Taxpayer was assessed tax on license fees paid pursuant to a contract with ***** ("DMS"). You maintain that the software for which the license was granted is exempt from the retail sales and use tax. You contend that the initial software and all updates to the software were received electronically. In the alternative, you state that the true object of the contract between DMS and the Taxpayer is the performance of a service and therefore the license fees should be exempt.
In the case Intersections, Inc. v. Virginia Department of Taxation, Case No. CL-2005-4731 (November 8, 2006), the Circuit Court of Fairfax County determined that the license fees for the contract at issue are exempt from the retail sales and use tax. As a result, the court found that the Taxpayer was entitled to a refund of the tax paid on the license fees held taxable by the Department for the period April 1999 through December 2001.
The administrative appeal you filed on behalf of the Taxpayer for the period January 2002 through December 2004 involves the identical issue that is addressed in Intersections, Inc. v. Virginia Department of Taxation. Based on the court's decision in that case, the license fees at issue are not taxable. Therefore, the Department will issue a refund to the Taxpayer. The refund will be in the amount of ***** paid by the Taxpayer and obtained through debt set-off, plus interest calculated pursuant to Va. Code §§ 58.1-15 (A) and 58.1-1833 (A).
If you have any questions about this response, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/56780. i
Rulings of the Tax Commissioner