Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Test period audit
Topic
Collection of Delinquent Tax
Date Issued
11-21-1996
November 21, 1996
Dear***************
This is in reply to your letter in which you seek correction of sales and use tax assessed to *** ****(the "Taxpayer') for the period April 1992 through March 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates as a data processing services company and maintains databases containing information useful to political candidates for their campaigns. During the audit period, the Taxpayer contracted to provide customized voter registration information to its client via computer tape. To perform this service, the Taxpayer obtained voter registration lists from various jurisdictions inside and outside Virginia. This data was provided to the Taxpayer in the form of printed lists, computer tapes, and diskettes. The auditor assessed tax on the purchases of voter registration lists as tangible personal property used by the Taxpayer in the provision of a service to its client. The Taxpayer protests the tax and believes that the fees paid to various jurisdictions for voter registration lists represent charges for nontaxable data processing services.
The Taxpayer requests that if the tax is upheld, the liability attributable to the disputed purchases should not be extrapolated over the entire audit period because the dollar amount of the purchases is disproportionate to the Taxpayer's normal expenditures.
DETERMINATION
The department has previously ruled that data processing businesses render nontaxable services when they provide data entry, data editing, and information transmission services to their clients. As service providers, such businesses are deemed the consumers of tangible personal property used in providing their data processing services. See enclosed P.D. 84-197 (10/25/84) and P.D. 91-302 (11/27/91).
In the instant case, the Taxpayer's purchase of voter registration lists provided in tangible form constitutes the sale of tangible personal property. Such purchases are distinguishable from the purchase of nontaxable data processing services because they do not include a service element. Specifically, the jurisdictions are not engaged in data editing or modification for the purpose of producing a specific list for the Taxpayer different from voter registration lists provided to other requestors.
This situation is analogous to the department's policy regarding standard mailing lists as discussed in the Ruling of the Commissioner dated May 28, 1985, copy enclosed. The production of standard mailing lists does not involve a service element unique to a particular purchaser, but instead all purchasers receive the same product. The same rationale applies in this case. Because the Taxpayer received the voter registration lists in tangible form and used such property to provide nontaxable data processing services to its client, the Taxpayer is subject to the tax on the fees paid for the voter registration lists.
Code of Virginia § 58.1-609.1 (8), copy enclosed, provides an exemption from the sales and use tax for materials furnished by the State Board of Elections pursuant to Code of Virginia § § 24.2-404 through 24.2-407. This exemption applies to sales of voter lists and as such, the Taxpayer's purchases of voter registration lists from the State Board of Elections qualifies for exemption. Purchases of voter registration lists from other states for use by the Taxpayer in Virginia remain subject to the tax.
Based on the fact that the disputed purchases comprise a disproportionate amount of the expense purchases sample liability and that such purchases occurred primarily during the sample period, l will allow the audit sample for purchases to be divided into two segments, one sample for the voter registration purchases and a separate sample for the remaining audit expense purchase population.
In accordance with my decision, the Taxpayer will be contacted by the ***** District office in order to revise the audit. The Taxpayer will be required to verify the purchases of voter registration lists for Virginia jurisdictions. Once the revisions are completed, the Taxpayer will receive an adjusted bill including interest accrued through the date of the letter of protest. If you have any questions concerning the policy set forth in this letter, you may contact *** at *** . If you have questions regarding the audit revisions, please contact *** at *** .
Sincerely
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner