Tax Type
Retail Sales and Use Tax
Description
Computer sales to students by college bookstore
Topic
Taxability of Persons and Transactions
Date Issued
07-09-1984
July 9, 1984
Re: Request for Ruling/Sales and Use Tax
Dear ****
This will refer to your letter of May 15, 1984 to ***** in which you requested information on the applicability of the sales and use tax to sales of personal computers to certain students at ***** has forwarded your request to the department, requesting our response.
FACTS
***** at the ***** (hereinafter *****) has adopted the requirement, effective the Fall Quarter of 1984, that each incoming student have access to a personal computer. Such students will utilize personal computers as teaching aids in various courses and will perform computer assisted research.
As the result of this requirement, the ***** Bookstore will be selling personal computers to students at the ***** as well as offering such students an option to lease a personal computer for **** per quarter for a total of eight quarters, at which time the lessee becomes the owner of the computer. ***** questions whether its bookstore should be required to collect the sales tax on sales or leases of such personal computers in light of the exemptions from the tax provided in §§58-441.6(1) and 58-441.6(q) of the Code of Virginia.
RULING
In your letter to ***** you first set forth the possibility that the proposed sales and leases of computers would be exempt from the sales tax under the provisions of Virginia Code § 58-441.6(1) pertaining to certain textbooks. Specifically, the statute exempts from tax "school textbooks sold for use by students attending a college or other institution of learning not conducted for profit...when such textbooks have been certified by a department or instructor of such institution of learning as required textbooks for students attending courses at such institution."
For the reasons to follow, it is my opinion that the personal computers at issue do not fall within the exemption provided for textbooks under Virginia Code § 58-441.6(1). There is no statutory definition of "textbook" in the Virginia Retail Sales and Use Tax Act. Accordingly, we must look to the plain meaning of the word. The American Heritage Dictionary (1981 ed.) defines "textbook" as "[a] book used as a standard work for the formal study of particular subject." "Book" is defined as "[a] volume made up of written or printed pages fastened along one side and encased between protective covers." Id. Clearly, personal computers are not encompassed by these definitions. To attempt to extend the term "textbook" to the computers at issue is also contrary to the well established rule adopted by the Virginia Supreme Court that exemptions from taxation are to be strictly construed against the taxpayer. See, Commonwealth v. Community Motor Bus Company, 214 Va. 155, 198 S.E. 2d 619 (1973). In adherence to this rule of strict construction, the law must be interpreted as written, i.e. only textbooks required by an institution of learning are exempted from tax, not items such as laboratory equipment, physical education uniforms, and personal computers even though the use of such items is required by an institution of learning. Even if the instant computers were to be used in lieu of textbooks, which I do not feel to be the case here, I feel that such computers would still be subject to the tax under the doctrine of strict construction. Thus, the sales tax is applicable in this case to the sales price of computers when sold at a one-time flat fee or to the quarterly rental payments made by students leasing computers.
Secondly, you raise the possibility that the personal computers sold or leased by the ***** Bookstore would be exempt from the tax under Virginia Code § 58-441.6(q). This statute provides an exemption for "[t]angible personal property purchased for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense."
The Virginia Supreme Court interpreted the provisions of the above statute in Commonwealth v. Research Analysis Corporation, 214 Va. 161, 198 S.E. 2d 622 (1973). While "basic research" was not included within the exemption at that time, we find the Court's opinion to have bearing here. In its opinion, the Court defined "research" as "a systematic study or search directed toward new scientific knowledge or new under-standing of a particular subject." 214 Va. at 164. Further, the Court stated that "the definitions of experimental and laboratory accent basic scientific research," 214 Va. at 164. The court concluded that "the legislature intended Code § 58-441.6(q) to be a restrictive provision exempting only that tangible personal property...used in scientific or traditional physical science research and development which generates new tangible products or processes, or the improvement of existing products or processes, not mere management studies, reports or surveys." 214 Va. at 165. Thus, in the opinion of the Court, the exemption was available only for true scientific research, a test which I feel is applicable to Virginia Code § 58-441.6(q) today.
It is possible that the instant computers would be used in some exempt research activities as contemplated in Virginia Code § 58-441.6(q); however, all activities performed by the computers would not fall under the exemption. The statute requires that tangible personal property be used "exclusively" in research activities. Since the computers will be used as teaching aids (and likely in other non-research activities as well), I cannot conclude that the computers are to be used exclusively in basic research or research and development in the experimental or laboratory sense. Therefore, no exemption is available under Virginia Code § 58-441.6(q).
In examining your situation, I have been unable to identify any other statutes under which the instant computers could possibly be deemed exempt from the sales and use tax. While I regret that a tax exemption is not available to the students to be affected at *****. I hope that this has answered your questions. Please contact us if you have any questions.
Sincerely
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner