Tax Type
Retail Sales and Use Tax
Description
Information Retrieval
Topic
Collection of Delinquent Tax
Exemptions
Date Issued
11-27-1991
November 27, 1991
Re: Request for Ruling: Retail Sales & Use Tax
Dear*****************
This will reply to your letter of October 8, 1991 in which you seek a ruling on the applicability of the retail sales and use tax to certain sales by **************(the "Taxpayer").
FACTS
The Taxpayer is engaged in the business of information retrieval. It edits and inputs onto computer tapes or diskettes raw data submitted by customers. In a majority of cases, the data is then transmitted electronically to a customer's main frame computer and becomes part of its data base. In other instances, it is delivered to a customer on a diskette or tape which is then loaded into its main frame and the data becomes part of its data base. A customer is charged a fully refundable deposit for the diskette or tape which is later returned to the Taxpayer for a full credit.
You seek a ruling on the application of the sales and use tax to the above transactions.
RULING
Va. Code §58.1-608(A)(5)(a) provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made...." Virginia Regulation (VR) 630-10-97.1 provides that in determining whether a particular transaction involving both the provision of services and the sale of tangible personal property is taxable, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including services Provided will be taxable.
Based on the information provided, the provision of data editing, entry and transmission (information retrieval) services by the Taxpayer for a specific client qualify for exemption from the tax as personal service transactions since the object of the transactions is the provision of information, and not the sale of tangible personal property. In addition, while the transfer of data via a magnetic tape or diskette involves the transfer of tangible personal property, such property is incidental in nature when furnished in connection with data entry/processing services, and therefore the charge or deposit for a tape or diskette is nontaxable.
However, should the Taxpayer make and sell multiple copies, in tangible form, of information which was processed for a specific client for either that same client or for different clients, it will be deemed to be making retail sales of tangible personal property and thus will be required to collect and remit the sales tax on such sales.
If you have any further questions about this matter, please contact the department.
Sincerely.
W. H. Forst
Tax Commissioner
TPD/5682H
Rulings of the Tax Commissioner