Tax Type
Retail Sales and Use Tax
Description
CD Fabrication; Prewritten software
Topic
Taxability of Persons and Transactions
Date Issued
09-11-1996
September 11, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear**************
In your letter, you request a ruling concerning the application of the retail sales and use tax to certain sale transactions made by**************(the Taxpayer). I apologize for the length of time it has taken to respond to your letter.
FACTS
The Taxpayer provides a service called "CD archiving". In other words, clients furnish a tape containing company data which the Taxpayer transfers onto a compact disc (CD) for use as a storage device. The processing or conversion fee is separately billed. The Taxpayer also provides its clients with the software needed for using the CDs; the software is separately invoiced on a monthly basis.
The Taxpayer asks whether the processing or conversion fee and the software fee are taxable to its clients.
RULING
Conversion of Data
It has been the long-standing policy of the department that the conversion of data from one medium to another constitutes taxable fabrication. See the enclosed public documents: PD's 87-88 (2/27/87) and 86-22 (1/16/96). Also see Virginia Regulation (VR) 630-10-37, copy enclosed. Accordingly, the processing or conversion fees charged by the Taxpayer are subject to the retail sales and use tax.
Computer Software
A "custom program" as defined in Code of Virginia § 58.1-602 (copy enclosed) is exempt from the retail sales and use tax under Code of Virginia § 58.1-609.5(7), copy enclosed. A "prewritten program" is also defined by Code of Virginia § 58.1-602 but is not statutorily exempted from the tax. Accordingly, the retail sale of prewritten computer software (i.e., a prewritten program on magnetic tape, disc or other tangible medium) is taxable. The only exceptions would be when a client qualifies for a specific statutory exemption on its purchases and has furnished the Taxpayer with a valid certificate of exemption issued by the Virginia Department of Taxation. For additional information, see VR's 630-10-20 and 630-10-74.
If you have any questions about this ruling, please contact*****at***********.
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10280R
Rulings of the Tax Commissioner