Tax Type
Retail Sales and Use Tax
Description
United States, Property Sold for Use or Consumption by; Computer Network
Topic
Taxability of Persons and Transactions
Date Issued
03-13-1991
March 13, 1991
Re: Request for Ruling: Sales and Use Tax
Dear****************
This will reply to your letter of March 7, l 990 in which you request a ruling for your client (the "Taxpayer") regarding the Virginia retail sales and use tax application to contractual arrangements with the Federal Government.
FACTS
The taxpayer has entered into a fixed-price contract with the General Services Administration ("GSA") to assist other federal agencies with the installation of 13 local area computer networks (LAN), solely for the use and support of the federal agencies, The terms of the contract provide for the acquisition and installation of LAN components at the federal agency sites and the provision of all related support. The taxpayer will provide personnel. supervision, material, equipment, and facilities. In addition to and separate from the computer hardware and software sales. the taxpayer's activity includes cabling, installation, integration, warranty, and training for 320 workstation units at the various sites.
The taxpayer has subcontracted with an affiliated company to act as procurement agent for all equipment and to provide network engineering, connection and integration, training and warranty. All equipment and supplies are to be delivered directly from the manufacturers/distributors to the designated federal agency sites. exclusive of servers, which will be shipped to the Virginia facility of the taxpayer to be tested prior to delivery to the government sites. Neither computer programming nor software development is part of the taxpayer's contract.
Cable installation includes the provision of supplies. The taxpayer has been directed by the federal agency to use specific materials in conjunction with the cable network development. Existing wire systems are to be utilized wherever possible.
The taxpayer will also provide certain specified off-the-shelf, "canned" software programs, system documentation, user documentation, training materials, network user and operation guide, and hardware documentation. The taxpayer will install network interface cards and associated software in each designated PC already owned by Federal Agency and existing at each LAN site.
Training seminars will be conducted for LAN administrators and users by the taxpayer's employees. Training will feature both lecture and hands-on workshop formats. In addition. a "1-800" LAN support "hotline" will be provided.
Upon acceptance of each LAN system, the taxpayer will present an invoice to the Federal agency indicating all equipment and services provided. Acting as agent for Federal Agency. GSA will then issue payment to the Taxpayer who, in turn, will submit payment for the equipment to the supplier.
RULINGS
Based upon the facts presented. and consistent with previous rulings of the Commissioner (see P.D. 89-206 (7/28/89). copy enclosed), this contract is for the acquisition of equipment and items for LANs. The Taxpayer provides and installs the equipment and incidental to the sale provides training and maintenance and does not operate or manage the system or have beneficial use of the equipment. The specific rulings that you have requested follow.
Purchases by the taxpayer of computer hardware that are shipped directly from the manufacturer/distributor to the federal agency site for federal agency use in the same form in which it is received qualify as purchases of tangible personal property with the intent to resell and are not subject to sales or use tax pursuant to VA Code § 58.1-602 (14).
Furthermore. pursuant to Va. Code § 58.1-608(1)(e), the taxpayer is not liable for collection of the tax on its sales to GSA. as a federal government agency. as long as the sales are pursuant to official purchase orders and are paid using government funds.
Computer configuration. installation services. cable testing, and technical support provided to the Federal Agency are professional and installation services exempt from sales and use tax; and furthermore, the provision of wires and cables is incidental to the provision of the professional service and is therefore exempt from tax under the provisions of Va. Code § 58. l-608(5)(a).
If you have any further questions. please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner