Tax Type
Retail Sales and Use Tax
Description
Network services
Topic
Exemptions
Date Issued
10-31-1984
October 31, 1984
Re: Ruling Request/Sales and Use Tax
Dear *******
This responds to your letter of August 1, 1984, requesting a ruling on the sales and use tax application to certain transactions engaged in by your client in Virginia.
FACTS
The taxpayer, a foreign corporation doing business in Virginia, claims that its sole business purpose is to establish a nationwide network of computerized information on an optional basis to cable television subscribers. The network information, essentially, is described as software broken into a series of electrical impulses and transmitted via available channels on a cable television system. These electrical impulses, when received by compatible computer terminal equipment in the subscriber's residence, will function as computer programming for a variety of purposes, ranging from video game playing to financial calculations and instructional use. The network is designed so that the software transmitted can only be temporarily used and cannot be copied or otherwise retained by the subscriber.
At the present time, the taxpayer has begun, on a temporary, experimental basis only, to operate the network in one Virginia location. In Order to implement the experiment, the taxpayer has provided compatible computer terminal equipment for the subscriber. The hardware with the network service is offered to customers for a monthly charge. However, the taxpayer does not intend to enter the business of marketing computer hardware such as that used in the Virginia experiment. The taxpayer intends to let the subscriber supply his own hardware to be used with the network, once the equipment is completed. Furthermore, the experimental access to the taxpayer-supplied computer hardware is pursuant to an experimental license issued by the Federal Communications Commission on April 13, 1984, subject to expiration on May 1, 1985.
RULING
Based upon the facts presented, we have determined that the total monthly charge made for the network service with the compatible computer hardware represents the charge for a service. As a result, this transaction is exempt from the sales tax under the provisions of Virginia Code § 58-441.6(a). It follows that the charge for the network service without the hardware is also exempt as a service and is not a sale of tangible personal property. However, it should be noted that the taxpayer is liable for payment of the use tax on all terminals and other tangible personal property purchased for use in Virginia. In addition, should the taxpayer in the future lease terminals or other equipment separate from the monthly charge for service, it will need to charge and collect the sales tax on such leases.
Sincerely,
W. H. Forst
State Tax Commissioner
Re: Ruling Request/Sales and Use Tax
Dear *******
This responds to your letter of August 1, 1984, requesting a ruling on the sales and use tax application to certain transactions engaged in by your client in Virginia.
FACTS
The taxpayer, a foreign corporation doing business in Virginia, claims that its sole business purpose is to establish a nationwide network of computerized information on an optional basis to cable television subscribers. The network information, essentially, is described as software broken into a series of electrical impulses and transmitted via available channels on a cable television system. These electrical impulses, when received by compatible computer terminal equipment in the subscriber's residence, will function as computer programming for a variety of purposes, ranging from video game playing to financial calculations and instructional use. The network is designed so that the software transmitted can only be temporarily used and cannot be copied or otherwise retained by the subscriber.
At the present time, the taxpayer has begun, on a temporary, experimental basis only, to operate the network in one Virginia location. In Order to implement the experiment, the taxpayer has provided compatible computer terminal equipment for the subscriber. The hardware with the network service is offered to customers for a monthly charge. However, the taxpayer does not intend to enter the business of marketing computer hardware such as that used in the Virginia experiment. The taxpayer intends to let the subscriber supply his own hardware to be used with the network, once the equipment is completed. Furthermore, the experimental access to the taxpayer-supplied computer hardware is pursuant to an experimental license issued by the Federal Communications Commission on April 13, 1984, subject to expiration on May 1, 1985.
RULING
Based upon the facts presented, we have determined that the total monthly charge made for the network service with the compatible computer hardware represents the charge for a service. As a result, this transaction is exempt from the sales tax under the provisions of Virginia Code § 58-441.6(a). It follows that the charge for the network service without the hardware is also exempt as a service and is not a sale of tangible personal property. However, it should be noted that the taxpayer is liable for payment of the use tax on all terminals and other tangible personal property purchased for use in Virginia. In addition, should the taxpayer in the future lease terminals or other equipment separate from the monthly charge for service, it will need to charge and collect the sales tax on such leases.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner