Document Number
95-99
Tax Type
Retail Sales and Use Tax
Description
Manufacturing; Research related purchases
Topic
Taxability of Persons and Transactions
Date Issued
05-04-1995
May 4, 1995




Re: Request for Ruling: Retail Sales and Use Tax



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

This is in response to your letter addressed to the department's in which you seek a ruling on the application of the tax to a federal government contract awarded to************* (the Taxpayer).
FACTS

The Taxpayer has entered into a contract with an agency of the federal government the objective of which is to improve the performance of space transportation vehicles. The Statement of Work provided with your correspondence indicates that the Taxpayer is to advance the understanding of aerodynamic flows and to apply that knowledge to the design and performance of space vehicles.
RULING
    • Code of Virginia §58.1-609.3(5) provides an exemption from the tax 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. (Emphasis added)
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.
It is apparent that the Taxpayer has entered into a contract which encompasses "basic research" as defined above. Accordingly, and based on the facts presented, the Taxpayer qualifies For the exemption when purchasing items for direct and exclusive use in the research activities conducted pursuant to the instant contract.

However, in order for an item of tangible personal property to qualify for this exemption, the item must be used solely in exempt research activities. Items that are used in both exempt and non-exempt activities in connection with the research are not used exclusively and are therefore subject to the tax. Further, as noted in the regulation, the exemption is limited in its application and therefore does not apply to all tangible personal property purchased by the Taxpayer.

I trust that this information is helpful. If you have further questions please contact********** in my Office of Tax Policy at***********.
                        • Sincerely,


                          Danny M. Payne
                          Tax Commissioner

OTP/9596I

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46