Tax Type
Retail Sales and Use Tax
Description
Computer Software and Equipment; Computer Software Updates
Topic
Taxability of Persons and Transactions
Date Issued
06-28-1991
June 28, 1991
Re: Request for Ruling: Retail Sales and Use Tax
Dear********************
This will reply to your letter of April 8, 1991 in which You request a ruling on behalf of************* (the Taxpayer) regarding the applicability of the Virginia retail sales and use tax on update tapes provided under a software maintenance contract.
FACTS
The Taxpayer is a professional corporation engaged in the medical services business. The Taxpayer receives updates for software used in its business operations on tape under a software maintenance contract on the original software purchase. The original software is a prewritten "canned" software program supplied to numerous customers. The Taxpayer receives the updates on tape via common carrier from ********** and downloads the enhancements into the computer in**************. The Taxpayer requests that the purchase of the tapes be exempt from the retail sales and use tax and that overpayments of tax already paid be refunded.
RULING
Virginia Regulation (VR) 630-10-62.1 provides that maintenance contracts which provide in whole or in part for the provision of repair parts or replacement of covered property would be subject to the tax (copy enclosed). Therefore, a computer software maintenance contract that provides for the furnishing of tangible enhancements or updates or any other tangible personal property would be subject to the tax. on the other hand, an agreement providing only for the provision of labor would be exempt. The tax applies in this instance because the agreement will provide the Taxpayer with updated computer software in tangible form, i.e., the tape which in effect replaces the prior version of' the software. I have enclosed a copy of a previous ruling by the department, P.D. 87-209 (9/15/87), which addresses the application of the tax to computer leasing and software agreements with replacement provisions.
Va. Code §58.1- 608(5)(g) provides an exemption for custom programs and their updates. Custom programs are computer programs that are specifically designed and developed for one customer. However, in this instance the underlying program is not a custom program but one sold to other similar businesses as well as to the Taxpayer and therefore, is not exempt.
I hope the forgoing information has answered your questions. However, if you have any questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner