Tax Type
Retail Sales and Use Tax
Description
Computers, services, and software; Testing of computer equipment
Topic
Taxability of Persons and Transactions
Date Issued
07-08-1994
July 8, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear**********
This is in response to your letter of June 17, 1994 on behalf of an unidentified client (the "Taxpayer"). Specifically, you request a ruling on the application of the tax to the Taxpayer's purchase of computer hardware.
FACTS
The Taxpayer, a Virginia corporation, is in the business of developing, selling and supporting computer software. In order for the software to be operable, it must be installed on suitable computer hardware. In those cases when a customer has the hardware, the Taxpayer merely installs its software at the customer's site. However, if the customer does not have the appropriate hardware, the Taxpayer will purchase it under the following scenarios:
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In some instances the Taxpayer purchases the hardware and stores it at its Virginia headquarters. Subsequently, the hardware is shipped to the customer's site where the software is then installed.
Alternatively, the software may be installed while the hardware is in the Taxpayer's possession at its Virginia headquarters. In these instances the Taxpayer may also test the hardware and software prior to shipping.
DETERMINATION
The department addressed an analogous situation in the enclosed Public Document 88-159 (6/23/88) and determined that the testing of computer equipment prior to its transfer to the customer did not constitute a taxable use of that equipment. As in that case, the computer hardware in the instant case will ultimately pass to the customer, and the Taxpayer may purchase the referenced computer hardware exempt of the tax under the resale exemption.
As a precaution, P.D. 88-159 concerns sales made exclusively to the federal government. Such sales are exempt from the sales and use tax pursuant to Va. Code §58.1-609.1(7). In the instant case the Taxpayer must collect the tax from its customers on the sale of the computer hardware (as well as on the software and taxable services) unless such sales are specifically exempt under the law.
Additionally, this ruling assumes that the Taxpayer is making retail sales of prewritten software and is not using the hardware and software in the rendition of a service (such as the provision of computerized information services or the sale of custom software) or the rendition of a contract for the provision of services .
I trust this determination answers your concerns, but please contact the department if you need further information.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner