Tax Type
Retail Sales and Use Tax
Description
Computer maintenance agreements
Topic
Collection of Tax
Date Issued
02-22-1991
February 22, 1991
Re: § 58.1-1821 Application: Sales and Use Tax
Dear********************
This will respond to your letter of October 25, 1990 in which you contest a portion of a recent sales and use tax assessment.
FACTS
A recent audit of the Taxpayer produced an assessment in part for the Taxpayer's failure to remit use tax on its purchases of a computer maintenance agreement. The Taxpayer maintains that the computer system maintenance agreement which covers repairs as well as verbal and written support to operate the system should not be taxed because the majority of the charge is for the verbal and written support.
DETERMINATION
The application of the sales and use tax to maintenance contracts is set forth in Virginia Regulation (VR) 630-10-62.1, a copy of which is enclosed. Under the regulation, contracts calling only for the provision of repair service by the seller of the contract are not subject to the tax; however, those contracts that provide in whole or in part for the provision of repair parts or replacements for the covered property are subject to the tax based upon their full selling price.
While the majority of the charge for the maintenance agreement is for verbal and written support, the Taxpayer is entitled to receive tangible personal property for repairs; thus, the total cost for such is subject to the tax.
Accordingly, I do not find basis for revision of the department's audit which is now due and payable. You will shortly receive a bill with interest accrued to date which should be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner