Tax Type
Retail Sales and Use Tax
Description
Maintenance contracts; Computer hardware and software
Topic
Taxability of Persons and Transactions
Date Issued
09-30-1992
September 30, 1992
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
This will reply to your letter of August 21, 1992 in which you seek information on the application of the Virginia sales and use tax to*************(the Taxpayer) regarding maintenance contracts.
FACTS
The Taxpayer, located without Virginia, retails computer hardware and software products to customers within Virginia. The customer may purchase a maintenance contract which provides: (1) parts and labor regarding the hardware and (2} upgrades and telephone support services regarding the software.
RULING
The application of the sales and use tax to maintenance contracts is set forth in Virginia Regulation (VR) 630-1062.1, a copy of which is enclosed. The regulation defines the term "maintenance contract" to mean, "any agreement whereby a person agrees to maintain and/or repair an item of tangible personal property over a specified period of time for a fee which is determined at the time the agreement is entered into." Under the regulation, 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.
The department has consistently held in the above cited regulation and numerous public documents that computer maintenance support contracts which include the provision of tangible personal property, including tangible enhancements (software upgrades), are taxable.
In the instant case, the Taxpayer's maintenance contract provides, in part, for the replacement of defective equipment and/or parts and software upgrades. As such, the total cost for the maintenance contract is subject to the tax.
Further, the fact that the Taxpayer may replace hardware under the contract on an exchange basis is inconsequential, given that the contract specifically states tangible personal property may be provided to the customer. Additionally, the maintenance agreement, upon annual renewal, is also subject to the tax on the full selling price due to the continual provision of tangible personal property.
I hope the foregoing has responded to your inquiry. If you have additional questions, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6391J
Rulings of the Tax Commissioner