Tax Type
Retail Sales and Use Tax
Description
Services; Professional or Personal; Computer-Aided Drafting Designs
Topic
Taxability of Persons and Transactions
Date Issued
08-27-1992
August 27, 1992
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letter of June 17, 1991 in which you seek correction of sales and use tax assessed to your client,*****************(the Taxpayer), as a result of an audit for the period May, 1987 through January, 1991.
FACTS
The Taxpayer provides drafting services to the engineering market through the use of computer aided design technology. Upon receipt of a drawing from its customer, the Taxpayer makes the necessary changes, modifications or additions as requested and returns the drawing on a computer disk with a hard copy.
The Taxpayer protests the assessment of tax on charges resulting from its drafting services and maintains that it is providing an exempt service and that any tangible personal property provided in connection with that service is an inconsequential element of the transaction.
DETERMINATION
The Taxpayer's argument relies on Virginia Regulation (VR) 630-10-97.1 which provides:
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- In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined.
In analyzing the Taxpayer's transactions in view of the above test, it is apparent that the true object of the Taxpayer's customers is to obtain the end product or the drawing. The Taxpayer's contention that it is providing an exempt service has no basis in that, without a suitable finished product, such as the drawing on a computer disk and/or on hard copy, it is not likely that its customers would seek its services. The application of tax with respect to this issue was addressed in a previous ruling, P.D. 89-183 (6/13/89), copy enclosed, in which the department concluded that the true object in relation to drawings enhanced through the use of computer aided drafting was the acquisition of the tangible drawing itself. Therefore, the auditors were correct in applying the tax to charges for these transactions.
Furthermore, VR 630-10-37, copy enclosed, defines fabrication as "[a]n operation which changes the form or state of tangible personal property....The tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish either directly or indirectly, the materials used in the fabrication work." Emphasis added. The manipulation of data from one form to another constitutes a change in form and state of the drawings, thus, subjecting the total charge for the transaction to the tax based on the above regulation.
Based on the foregoing, I find no basis for correction of the audit assessment. The Taxpayer will receive an updated bill with interest accrued to date, which is now due and payable in full.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner