Document Number
10-144
Tax Type
Retail Sales and Use Tax
Description
Purchase qualifies as tangibles personal property used exclusively in exempt research and development activities.
Topic
Exemptions
Tangible Personal Property
Date Issued
07-26-2010

July 26, 2010






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

Dear *****:

This reply 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 for the period April 2006 through March 2009.

FACTS


The Taxpayer is a manufacturer of optical image scanners and digitizers. The Taxpayer purchased a microarray scanner exempt of the sales tax. The Taxpayer was audited by the Department, and tax was assessed on the purchase of the scanner. The Taxpayer asserts that the scanner was purchased for research purposes only and was evaluated to assist in the development of a comparable machine. The Taxpayer protests the assessment of use tax on this purchase, contending that it qualifies as tangibles personal property used exclusively in exempt research and development activities.

DETERMINATION


Virginia Code § 58.1-609.3 5 provides an exemption from the retail sales and use tax for "tangible personal property purchased for use or consumption directly and exclusively in the basic research or research and development in the experimental or laboratory sense." Title 23 of the Virginia Administrative Code 10-210-762 asserts that "generally, a research activity which has as its goal the advancement of products, knowledge or technology, the development of new uses for existing products, technology or processes, or the improvement of existing products will be entitled to the
exemption."

Based on the information provided, the scanner at issue is not used in the Taxpayer's manufacturing or administrative functions. The Taxpayer analyzed the scanner's technology to assist in the development of its own product for competitive purposes. Therefore, based on the fact that the scanner was used exclusively in the research and development of the Taxpayer's new product, the purchase qualifies for exemption under Va. Code § 58.1-609.3 5. Because the audit assessment was paid in its entirety by the Taxpayer, it will be revised to remove this item and the appropriate tax and interest will be refunded.

The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this letter, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings at *****.
                • Sincerely,

                • Linda Foster
                  Deputy Tax Commissioner



AR/1-4014851449.M


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46