Tax Type
Retail Sales and Use Tax
Description
Services; Miscellaneous service enterprises; Abstracts
Topic
Taxability of Persons and Transactions
Date Issued
01-27-1995
January 27, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This is in response to your letter of September 16, 1994 in which you seek correction of a sales and use tax assessment issued to***********(the Taxpayer) for the period April 1987 through March 1993. 1 understand that revisions were made to the original assessment, and the Taxpayer has paid the uncontested portion of the audit assessment.
FACTS
The Taxpayer operates as an information and library consulting firm. In this capacity, the Taxpayer acts as an information clearinghouse and provides literature abstracting and indexing, writing, editing, and database conversions. The only transactions under protest are sales made to the**************(the Association), a professional organization which maintains a database of studies published throughout the world.
Under contract with the Association, the Taxpayer is required to prepare abstracts and other technical summaries of foreign language articles and studies. This process involves translating the study, writing the abstract (including indexing information) and providing a copy to the customer. In most instances, the Taxpayer translates and abstracts articles selected by the Association, but in some instances the selection is done by the Taxpayer. The completed abstract becomes the property of the Association which subsequently has them copyrighted.
The abstracts may be provided to the Association in a number of forms: Diskette, magnetic tape, or through electronic transmission. During the audit period, however, I understand that the abstracts were provided on disks supplied by and then returned to the Association. The abstracts are then entered into the Association's database.
RULING
Code of Virginia §58.1-609.5(1) provides an exemption from the tax for "[P]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements...." The department's policy on this statute appears in Virginia Regulation (VR) 630-10-97.1 which indicates that:
In order to determine whether a particular transaction ... constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred is not critical to the transaction, then the transaction may constitute an exempt service.
In the instant case, I find that the Association is relying primarily on the Taxpayer's professional expertise in translating foreign language documents and then editing those documents to create an abstract. Accordingly, the contract between the Association and the Taxpayer is deemed to be for the provision of nontaxable services.
Based on this determination, the audit assessment will be revised to remove the contested transactions. If you have any questions regarding this letter, please contact *********at the department's Office of Tax Policy at****************
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/8488I
Rulings of the Tax Commissioner