Tax Type
Retail Sales and Use Tax
Description
Data processing services for Virginia and its political subdivisions
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
10-25-1984
October 25, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear *****************
This will reply to your letter of June 20, 1984, in which you submit an application for correction of sales and use tax assessed to ***** as the result of an audit. Information submitted by you in our meeting of August 1, 1984 and with your letter of August 15, 1984 is also referenced herein.
FACTS
***** (hereinafter "Taxpayer") is engaged in providing data processing services. An audit of the taxpayer revealed the failure to remit the sales and use tax on certain purchases of materials used in rendering such services. Among the non-taxed purchases included in the audit were several relating to data processing services provided to Virginia localities.
The taxpayer contests the assessment, asserting that items such as landcards, assessment notices, and tax tickets purchased by the taxpayer, but provided to local governments, are exempt from the tax.
DETERMINATION
§ 58-441.6(p) of the Code of Virginia provides an exemption from the sales and use tax "[t]angible personal property for use or con-sumption by this State, any political subdivision of this State, or the United States."
It is argued here that since the taxpayer purchases items for a specific locality, no tax should be imposed upon the sale transaction inasmuch as a locality could itself purchase such items exclusive of the tax under the above statute. I agree that a local government could purchase the property in question exclusive of the tax; however, the purchaser in this case was a data processing service. Accordingly, under longstand-ing departmental policy, such items are taxable to the data processing service as property used in providing its service.
The situation here is analogous to the factual situation at issue in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd, 569 F.2d 811 (4th Cir. 1978) in which the federal courts concluded that the sales and use tax was properly assessed to a government contractor. The courts specifically found "that it is not critical who holds title to the purchased items between the United States and its contractor... [n]or is the degree of control over the contractor that the United States exercises with respect to the purchases critical... [t]he key factor is whose credit, between the United States and the contractor, is bound by the purchasing agreement with the seller (emphasis added).
In applying the principles of United States v. Forst to this case, I would find basis for relief of tax if it were shown that the items in question were in effect purchased by local governments. However, none of the evidence submitted tends to confirm such a premise. In fact, copies of invoices submitted to the department reveal that suppliers' charges for equipment and supplies were billed directly to the taxpayer. It would therefore appear that local governments bore no liability to the taxpayer's suppliers; rather, the only liability in the transactions rested with the taxpayer.
Based upon the foregoing, I must conclude that the sales and use tax was properly assessed to the taxpayer and is therefore due and payable.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner