Tax Type
Retail Sales and Use Tax
Description
Computer software; Leases and rentals
Topic
Taxability of Persons and Transactions
Date Issued
12-28-1984
December 28, 1984
Re: Request for Ruling/Sales and Use Tax
Dear **************
This will reply to your letter of October 23, 1984 in which you submit a request for a ruling on the applicability of the sales and use tax to various products sold and leased and services provided to customers by
You note in your letter that in addition to selling its software products, ******* allows customers to obtain the same products through full equity leases. Also, you note that*******provides training and consulting services and conducts seminars for customers. Lastly, you note that******* enters into maintenance agreements with customers, providing both service and computer tapes containing the latest enhancements to ********* products.
The sales tax is imposed under §58-441.4 of the Code of Virginia upon both the sale and lease of tangible personal property. The basis of the tax on sales is the "sales price" of an item. The term "sales price" is defined in Virginia Code §58-441.3(b) as:
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- the total amount for which tangible personal property or services are sold, including any services that are a part of the sale...without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any expenses whatsoever.
- the total amount for which tangible personal property or services are sold, including any services that are a part of the sale...without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any expenses whatsoever.
As computer software is tangible personal property under present departmental policy, the sale or lease of ******** products in Virginia are subject to the sales and use tax. The basis for the tax under the above statutes is the total charge for the product, including all services that are a part of the sale or lease. Inasmuch as the provision of training ant consulting services and seminars involves only the provision of services, such transactions are not taxable. However, if the charge for such services is included in the price of tangible personal property sold or leased, the tax will be applicable to the total charge without any deduction on the cost of training, consultation, or providing seminars.
Lastly, I find the provisions of Virginia Retail Sales and Use Tax Regulation 1-90 to be analogous and applicable to ****** maintenance contracts. The regulation provides the following:
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- Contracts for the maintenance of tangible personal property are subject to the tax if a specified annual or periodic sum is charged to keep the property in repair by furnishing needed parts and providing labor. The tax must be added to the total charge for such contracts, since the dealer cannot separately state, itemize or segregate the value of parts that will be furnished at the time the contract is entered into.
- Contracts for the maintenance of tangible personal property are subject to the tax if a specified annual or periodic sum is charged to keep the property in repair by furnishing needed parts and providing labor. The tax must be added to the total charge for such contracts, since the dealer cannot separately state, itemize or segregate the value of parts that will be furnished at the time the contract is entered into.
It should be noted here that the department is presently re-evaluating its policy with respect to computer software. In connection therewith, the department has submitted a draft regulation for public comment in which custom software would be exempt from the sales and use tax. prewritten or "canned" programs and modified prewritten programs would continue to be subject to the tax under the draft regulation, a copy of which is attached.
Please contact the department if you have any further questions.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner