Tax Type
Retail Sales and Use Tax
Description
Video tape purchase/sales; Research and development exemption; Audit sampling
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
10-10-1995
October 10, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***********************
This will reply to your letter received by this office on January 10, 1995 in which you request relief from tax, penalty and interest assessed to****************(the "Taxpayer") as the result of a sales and use tax audit for the period of August 1991 through July 1994.
FACTS
The Taxpayer is a government contractor. The Taxpayer entered into a contract with a federal government agency to produce a real-time video of various surgical procedures and the spread of infection by aerosol during these procedures. The purpose of this project is to determine which surgical procedures and tools have the potential for exposing health care workers to infectious aerosols during various surgical procedures. This was done by simultaneously performing real-time monitoring of aerosol production while videotaping the surgical procedure. The end result of this project was to provide a training tape to health care workers demonstrating that control procedures can be employed effectively to lower aerosol exposure during surgical procedures. The Taxpayer contracted with a video production company (hereinafter "Company A") to provide the actual video tape of the surgical procedures. The purchase of the video tapes were held taxable by the auditor. The Taxpayer is taking exception to the taxing of the tapes as the Taxpayer feels the tapes qualify for the sales and use tax exemption under the research and development exemption.
In the event the department finds that the purchase of the video tape described above does not meet the research and development exemption, the Taxpayer is contesting the inclusion in the sample of the purchase of the video from Company A, as the sale of the video was assessed in an audit of Company A. The Taxpayer feels this violates the provisions of Virginia Regulation 630-10-109 which provides that when the sales tax is not paid at the time of purchase, the use tax would apply. This regulation specifically provides that "there is no duplication of the tax." The Taxpayer feels the inclusion of the purchase of the video in this audit results in double taxation
DETERMINATION
Code of Virginia § 58.1-609.3(5) provides an exemption from the sales and use tax for "[t]angible personal property purchased for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense." (Emphasis added). Virginia Regulation (VR) 630-10-92 which interprets this Code section provides in pertinent part the following definitions:
-
- "Basic research" is a systematic study or search in a scientific or technical field of endeavor with the ultimate goal of advancing knowledge or technology in that field. Basic research in the experimental or laboratory sense is such research that is carried on in a laboratory environment or by experimental methods.
"Research and development" is a systematic study or search directed toward new knowledge or new understanding of a particular scientific or technical subject and the gradual transformation of such new knowledge or new understanding into a usable product or process. Research and development in the experimental or laboratory sense should have as its ultimate goal: (1) the development of new products: (2) the improvement of existing products: or (3) the development of new uses for existing products. (Emphasis added).
- "Basic research" is a systematic study or search in a scientific or technical field of endeavor with the ultimate goal of advancing knowledge or technology in that field. Basic research in the experimental or laboratory sense is such research that is carried on in a laboratory environment or by experimental methods.
In regard to the Taxpayer's position with respect to the double taxation of the video, the Taxpayer feels that since Company A was also audited by the department, the video was accounted for twice and therefore double taxed. In both audits, a "sample" audit period was selected and an error rate established for use during the entire audit period. In this case the sample periods used in the audit of the Taxpayer and the audit of Company A were two entirely different periods. Had the same transaction been included in the sample of both companies, the auditor would have allowed a credit. For this reason, the department finds that the Taxpayer has not offered any evidence to render the sample period invalid, or evidence that double taxation has taken place.
Based on the above, the department finds no basis for revising the audit. If you should have any further questions, please feel free to call ***********Office of Tax Policy, at *****************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9113K
Rulings of the Tax Commissioner