Document Number
95-91
Tax Type
Retail Sales and Use Tax
Description
Manufacturing; Basic research
Topic
Taxability of Persons and Transactions
Date Issued
04-28-1995
April 28, 1995




Re: § 58.1-1821 Application: Retail Sales and Use Tax


Dear***************

This is in response to your letter of December 13, 1994 in which you seek correction of a sales and use tax assessment issued to********(the Taxpayer) for the period December 1988 through June 1994.
FACTS

The Taxpayer operates as a government contractor which provides research in physics to agencies of the federal government. The only issues under protest are untaxed purchases of tangible personal property used in two contracts for the U. S. Army. I understand that the property was ultimately used at a government research site in Maryland, but was first delivered to the Taxpayer's facility in Virginia.

The first contract, identified as HDL-9, calls for the creation of a scale model of a transmission line! capable of generating vertical electrical fields. In doing this work, the Taxpayer is required to explore new construction techniques and materials. In regard to the second contract, HDL-7, the Taxpayer is required to conduct research and study a nuclear radiation simulator, including the improvement of existing simulation technology and the development of new products to refine simulation.

The Taxpayer maintains that the tangible personal property purchased in connection with these contracts is used in exempt research activities.
DETERMINATION

Code of Virginia §58.1-609.3(5) provides an exemption for tangible personal property "purchased for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense."

The department's policy regarding this exemption is set out in Virginia Regulation 630-10-92. This document defines "basic research" as:
    • 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.

The contracts under question in this case indicate that the Taxpayer is to perform research activities at a government laboratory. The scope of the work is deemed to be "basic research" as defined above, and it is agreed that the property purchased by the Taxpayer is used "directly and exclusively" in carrying out the contractual agreements. Accordingly, the contested items will be removed from the assessment.

I note that the Taxpayer has paid the uncontested portion of the assessment. In accordance with this determination, the outstanding balance will be abated in full.

If you have any additional questions regarding this letter, please contact**********in my Office of Tax Policy at*************
                        • Sincerely,



                          Danny M. Payne
                          Tax Commissioner

OTP/9169I

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46