Tax Type
Retail Sales and Use Tax
Description
Computers, services, and software; Data on magnetic tape
Topic
Taxability of Persons and Transactions
Date Issued
06-13-1996
June 13, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This is in response to your letter of February 13, 1996, seeking correction of the sales and use tax audit assessment issued to *********** (the Taxpayer). Copies of all public documents (PD) referenced in this letter are enclosed.
FACTS
The Taxpayer is in the business of selling computers, peripheral equipment, computer supplies and related computer service applications to automobile, truck, motorcycle, industrial vehicle and agricultural equipment dealers. The Taxpayer sells standard updates of parts price information on a regular basis. Such updates are distributed to customers either electronically over telephone lines or by magnetic tape. When the information is provided by magnetic tape, the customer is charged a refundable deposit fee which is later returned to the customer for a full credit when the tape is returned.
An audit for the period of October 1994 through November 1995 resulted in an assessment of sales tax on charges billed to customers for information provided by magnetic tape. The Taxpayer maintains that such charges represent the provision of nontaxable information services.
In the current and prior audit, it was found that the Taxpayer had not acted in accordance with the information previously provided by the auditor and through determination letters to the Taxpayer, PD's 88-20 (1/4/88), 91-207 (9/6/91) and 95-68 (3/30/95), specifically in regard to the tax status of the parts price updates.
It is my understanding that the Taxpayer has not paid the assessment made in this case, nor has the Taxpayer paid the prior audit assessment covering the period October 1991 through September 1994.
DETERMINATION
The Taxpayer cites PD's 88-299 (10/31/88) and 91-190 (8/30/91) as examples demonstrating that the true object sought by purchasers is information services. Based on such rulings, the Taxpayer maintains that the true object of parts price information updates sought by its customers is information services, not the magnetic tapes containing updated parts price information.
Unlike the Taxpayer's situation in which parts price information is conveyed via magnetic tape (i.e., by tangible means), both of the above cited rulings involve transactions in which information is made available by on-line access to a database and conveyed to customers electronically (i.e., by intangible means). Thus, the mode through which the information is conveyed to customers in these two cases is demonstrably different than in the Taxpayer's case.
Furthermore, it has been the department's consistent and long-standing policy that transferring possession of tangible personal property, however momentary, to a customer for compensation represents the "sale" of tangible personal property. Examples of this established policy are set out in prior determinations of the department, such as PD 82-124 (9/10/82), a determination of the Tax Commissioner dated August 11, 1981, and prior determinations to the Taxpayer.
Based on the foregoing and for all of the reasons given in the department's prior determinations to the Taxpayer, the true object of the Taxpayer's parts price updates is the "sale" of tangible personal property. Accordingly, the assessment made in this case is valid.
Our records indicate that the Taxpayer owes**** for the latest audit assessment and***for the prior audit assessment. To preclude further interest charges on such assessments, full payment of these assessments should be sent to the Department of Taxation, Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880, ATTN: ****within the next 30 days.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10937R
Rulings of the Tax Commissioner