Tax Type
Retail Sales and Use Tax
Description
Research and development; Computer software design
Topic
Exemptions
Property Subject to Tax
Date Issued
07-23-1993
July 23, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This to letter of March 8, 1993 and prior correspondence in which you seek correction of a sales and use tax assessment issued to*********** (the Taxpayer) for the period January 1988 through June 1990.
FACTS
The Taxpayer provides technical services in the areas of computer software design and development, systems integration and telecommunications. The Taxpayer contests the tax on a portion of the assessed purchases, comprised primarily of computer hardware and software and telecommunications equipment, as well as all penalty and interest charges.
During a prior audit the Taxpayer was notified through a determination from the Tax Commissioner that certain of its purchases appeared to qualify for exemption under Virginia Regulations (VR) 630-10-49.2 and 630-10-92. The Taxpayer maintains that the items now being contested were purchased in accordance with that determination and with the prior auditors' interpretation of its contents. You further maintain that the current auditors have taken a much narrower interpretation of the regulations. Therefore, you argue that any new interpretation of the rules and regulations governing the exemptions should not be applied retroactively but rather on a prospective basis.
DETERMINATION
Despite the Taxpayer's arguments. I find no basis for the removal of the contested items. The courts have held that a tax assessment is prima facie correct and the burden is upon the Taxpayer to prove that the assessment is incorrect. The Taxpayer has not met this burden.
In reviewing my determination from the audit, and the regulations which were sent to you the applicable exemptions. it was made clear that those exemptions are limited based on the purpose for which property is purchased and how that property is used. The current auditors indicate that the contested items are used by the Taxpayer in general operations, administration and to fulfill contracts resulting in studies as opposed to the advancement of technology or the development of new products. I cannot agree that even a broad interpretation of the regulations would allow that purchases made for these activities enjoy the exemptions.
Furthermore, while many purchases made during the prior audit period were found eligible for exemption based on my determination of 12/23/88, I can find no evidence that purchases used for other than innovative technology or research and development were held exempt from the tax. Even if this was the case, the department's regulations in this area are quite clear as to the taxability of the transactions included in this assessment.
Based on the above, I find that the assessment is correct. However, as the Taxpayer has shown a marked improvement with respect to accruing the tax on its purchases, I find grounds to waive all penalty charges.
Accordingly, the assessment will be revised in accordance with this determination and with interest accrued to date. A payment copy of that revised assessment will be sent to the Taxpayer shortly and must be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6822I
Rulings of the Tax Commissioner