Tax Type
Retail Sales and Use Tax
Description
Sales to government contractors; Software
Topic
Exemptions
Property Subject to Tax
Date Issued
12-29-1995
December 29, 1995
Re: Request for Ruling: Retail Sales and Use Tax
Dear******************
This is in response to your letter of November 20, 1995 in which you seek a ruling on the application of the tax to sales made by***********(the "Taxpayer"). I understand that you recently spoke with a member of my staff regarding your correspondence.
The Taxpayer develops, markets and sells computer software and related services. Earlier this year the Taxpayer opened a field office in Virginia, and by doing so was required to register as a dealer to collect and remit the tax on its Virginia sales.
Many of the Taxpayer's sales are for federal government agencies and procured through government subcontractors by way of contracts issued by the Government Services Administration (GSA). The Taxpayer indicates that the federal government must first authorize subcontractors to use GSA contracts, and requests a ruling on the application of the tax to sales made to these subcontractors.
The department has previously ruled that in considering the tax treatment of government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. In making such a determination, the department considers the entire contract, including any addenda or task orders, as one transaction which is either taxable or exempt. The amount of tangible personal property transferred relative to the overall value of the contract has no bearing on the tax status of the contract. Instead, the "true object" of the transaction as described in Virginia Regulation (VR) 630-10-97.1 is used to determine whether the contract is for the sale of tangible personal property or for the provision of some service.
As explained in Public Documents 88-159 (6/23/88) and 94-155 (5/23/94), if a contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its services, even though title to some or all of the property may pass to the government. Conversely, if a contract is for the sale of tangible personal property to the government, the contractor may purchase such property exempt from the tax under a resale exemption certificate. The subsequent resale of that property to the government is exempt from the tax under Code of Virginia § 58.1-609.1(4) which provides an exemption for sales of tangible personal property to the Commonwealth and the federal government.
When making sales to a government contractor, the Taxpayer is not expected to know at the time of sale whether the transaction is an exempt sale for resale or a taxable sale for the contractor's own use or consumption. In this regard, the Taxpayer will be governed by Code of Virginia § 58.1-623. This statute indicates that:
Before accepting a certificate of exemption, the Taxpayer must ensure that it is fully completed and shows the customer's Virginia Certificate of Registration number where indicated. However, a government contractor may use the ST-10 in some limited cases without holding a Certificate of Registration. In these cases, the contractor must have a letter from the department authorizing the use of the ST-10.
Further, and pursuant to VR 630-10-45, sales made directly to the government (i.e., via official purchase orders and paid for with public funds) are exempt of the tax. In making such sales, the Taxpayer may accept a governmental certificate of exemption, Form ST-12, from its government customers. As noted on the ST-12, its use is limited to the Commonwealth, political subdivisions of the Commonwealth, and the United States. Therefore, the Taxpayer may not accept Form ST-12 from a contractor.
I trust that this information answers your concerns. Please contact***********in my Office of Tax Policy at************* if you have any further questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10593I
Re: Request for Ruling: Retail Sales and Use Tax
Dear******************
This is in response to your letter of November 20, 1995 in which you seek a ruling on the application of the tax to sales made by***********(the "Taxpayer"). I understand that you recently spoke with a member of my staff regarding your correspondence.
FACTS
The Taxpayer develops, markets and sells computer software and related services. Earlier this year the Taxpayer opened a field office in Virginia, and by doing so was required to register as a dealer to collect and remit the tax on its Virginia sales.
Many of the Taxpayer's sales are for federal government agencies and procured through government subcontractors by way of contracts issued by the Government Services Administration (GSA). The Taxpayer indicates that the federal government must first authorize subcontractors to use GSA contracts, and requests a ruling on the application of the tax to sales made to these subcontractors.
DETERMINATION
The department has previously ruled that in considering the tax treatment of government contracts, it must be determined whether the contract is for the sale of tangible personal property or for the provision of services. In making such a determination, the department considers the entire contract, including any addenda or task orders, as one transaction which is either taxable or exempt. The amount of tangible personal property transferred relative to the overall value of the contract has no bearing on the tax status of the contract. Instead, the "true object" of the transaction as described in Virginia Regulation (VR) 630-10-97.1 is used to determine whether the contract is for the sale of tangible personal property or for the provision of some service.
As explained in Public Documents 88-159 (6/23/88) and 94-155 (5/23/94), if a contract is for the provision of services, the contractor is deemed to be the taxable user or consumer of all tangible personal property used in performing its services, even though title to some or all of the property may pass to the government. Conversely, if a contract is for the sale of tangible personal property to the government, the contractor may purchase such property exempt from the tax under a resale exemption certificate. The subsequent resale of that property to the government is exempt from the tax under Code of Virginia § 58.1-609.1(4) which provides an exemption for sales of tangible personal property to the Commonwealth and the federal government.
When making sales to a government contractor, the Taxpayer is not expected to know at the time of sale whether the transaction is an exempt sale for resale or a taxable sale for the contractor's own use or consumption. In this regard, the Taxpayer will be governed by Code of Virginia § 58.1-623. This statute indicates that:
-
- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale ... of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under [the Retail Sales and Use Tax Act].
The certificate mentioned in this section shall relieve the person who takes such certificate from any liability for the payment or collection of the tax, except upon notice from the Tax Commissioner that such certificate is no longer acceptable.
- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale ... of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under [the Retail Sales and Use Tax Act].
Before accepting a certificate of exemption, the Taxpayer must ensure that it is fully completed and shows the customer's Virginia Certificate of Registration number where indicated. However, a government contractor may use the ST-10 in some limited cases without holding a Certificate of Registration. In these cases, the contractor must have a letter from the department authorizing the use of the ST-10.
Further, and pursuant to VR 630-10-45, sales made directly to the government (i.e., via official purchase orders and paid for with public funds) are exempt of the tax. In making such sales, the Taxpayer may accept a governmental certificate of exemption, Form ST-12, from its government customers. As noted on the ST-12, its use is limited to the Commonwealth, political subdivisions of the Commonwealth, and the United States. Therefore, the Taxpayer may not accept Form ST-12 from a contractor.
I trust that this information answers your concerns. Please contact***********in my Office of Tax Policy at************* if you have any further questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10593I
Rulings of the Tax Commissioner