Tax Type
Retail Sales and Use Tax
Description
Developing computer software
Topic
Taxability of Persons and Transactions
Date Issued
12-23-1988
December 23, 1988
Re: §58.1-1821 Application: Sales and Use Tax
Dear ******************
This will reply to your letter dated July 11, 1988 in which you seek the correction of sales and use tax assessed to *********** ("The Taxpayer") as a result of an audit for the period December 1, 1984 through October 31, 1987.
FACTS
The Taxpayer is a professional technical services company. The Taxpayer is involved in solving problems for decision makers, designing and developing computer software, developing a new approach to systems integration, and managing telecommunication networks. A recent audit of the Taxpayer produced an assessment for its failure to remit the tax on purchases of various tangible personal property. The Taxpayer is contesting the assessment contending that the items qualify for exemption under the Innovative High Technology Industries and Research Exemption.
DETERMINATION
Persons producing high technology or technologically innovative products for sale or resale or who are engaged in research into innovative technology or fields may be exempt from the tax on purchases of tangible personal property used in such activities ( see enclosed copy of Virginia Regulation 630-10-49.2).
VR 630-10-63 (copy enclosed) explains in further detail the applicability of the industrial manufacturing exemption that is available for the production of technologically innovative products. The exemption is generally applicable to tangible
personal property used directly in the production of computer software in tangible form for sale or resale. However, the exemption is not available to persons who produce computer software for purposes other than for resale (i.e. the production of computer software for in-house use) or computer software that does not constitute tangible personal property (i.e. custom programs, which are specifically excluded from the definition of tangible personal property in §58.1-602(19) of the Code of Virginia).
As set forth in Section 3 of VR 630-10-49.2, "a research activity which has as its goal the advancement of existing knowledge or technology, the development of new uses for existing products, technology or processes, or the improvement of existing products, technology or process will be entitled to the research and development exemption." This exemption, which applies to tangible personal property used directly and exclusively in research and development, is explained in detail at VR 630-10-92 (copy enclosed).
Based on the information before me, the Taxpayer is apparently involved in the production of technological innovative products and/or engaged in research and development into innovative technology. Accordingly, I am asking the department's************** District Office to review the Taxpayer's audit and make any necessary changes for those purchases which may qualify for exemption. It is possible that additional information may be required from the Taxpayer to determine the applicability of the exemption to certain purchases.
If you have further questions on the issues raised in this determination or the outcome of the revised audit, please let the department know.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner