Tax Type
Corporation Income Tax
Retail Sales and Use Tax
Description
Noncustomized computer software; Out-of-state vendor
Topic
Collection of Tax
Date Issued
05-31-1989
May 31, 1989
Re: Ruling Request/ Miscellaneous Taxes
Computer Software
Dear*****************
This will reply to your letter of March 22, 1989 seeking information on the application of various taxes to the sale of noncustomized computer software by an out-of-state supplier, (taxpayer).
FACTS
Specifically you ask how the taxpayer must comply with the sales and use tax, personal property taxes, and franchise or income taxes in connection with sales of noncustom computer software to Virginia customers. You also ask whether the sales and use tax would apply differently to the outright sale rather than the monthly lease of the taxpayer's computer software.
RULING
The Virginia sales and use tax applies to all sales of "tangible personal property", unless specifically exempted by law. The term "tangible personal property" is defined in Virginia Code §58.1-602(19), as not including, "stocks, bonds, notes, insurance or other obligations or securities or custom programs as defined in subdivision 24 of this section." (Emphasis added) See copy of Virginia Code §58.1-602(24) enclosed. Therefore, while sales of custom software are exempt from the sales and use tax, no exemption exists for sales of noncustom computer software, such as that sold by the taxpayer.
In addition, the term "sale" is defined in Virginia Code §58.1-602(16) to include "leases or rentals" of tangible personal property. Therefore, if the taxpayer also meets the definition of "dealer" set forth in Virginia Code §58.1-612, copy enclosed, the tax will apply to the total charge for its noncustom software, whether the software is leased or sold outright to Virginia customers. See also, Virginia Retail Sales and Use Tax Regulation (VR) 630-10-57 governing leases or rentals, and VR 630-10-51 governing interstate commerce, enclosed.
Personal property taxes are levied only at the local level in Virginia. Therefore, the Commissioner of Revenue for each locality where the taxpayer either leases or maintains tangible personal property should be contacted to determine whether local property taxes apply to such property.
Further, there is currently no franchise tax in Virginia. However, if it has not already done so, the taxpayer should contact the State Corporation Commission at: Jefferson Building, 1220 Bank Street, Richmond, Virginia 23219, for information on registering to do business in this state.
The facts presented in your letter are insufficient to determine whether the taxpayer's software sales would subject it to corporate income tax in Virginia, or if the taxpayer may be exempt from such taxation under P.L. 86-272 (codified at 15 U.S.C.A. §381). However, the ownership or leasing by the taxpayer of property in Virginia would generate income from Virginia sources and subject it to Virginia corporate income tax. Please also find enclosed copies of Virginia Corporation Income Tax Regulations (VR) 630-3-302 and 630-3-401 for your further information.
I hope that the foregoing and the enclosed materials have responded to your questions, but let me know if you have any additional questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner