Tax Type
Retail Sales and Use Tax
Description
Computers, services, and software; Licensing fees for prewritten software
Topic
Taxability of Persons and Transactions
Date Issued
04-26-1996
April 26, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear****
This will reply to your letter of December 17, 1995 in which you request a ruling as to the retail sales and use tax application to computerized employment and occupational evaluation tools distributed by *******(the "Taxpayer").
The Taxpayer is an international marketing company specializing in the publication of various computerized employment and occupational evaluation tools. The Taxpayer has authorized dealers and independent agents in every state which sell its product to businesses. The dealers and agents have been responsible for collecting taxes in their respective states.
The Taxpayer is instituting a new marketing concept in which dealers and agents are able to sign up customers for annual contracts. The Taxpayer will take over the collection of the monthly licensing fees for the unlimited use of the employment/occupational software, the servicing of such accounts, and the direct selling of evaluation booklets. The Taxpayer is requesting a ruling with respect to sales and use tax responsibilities in this situation.
Code of Virginia § 58.1-609.5(7) provides an exemption from the tax for custom computer software programs as defined in Code of Virginia § 58.1-602. Under that section, a custom program is defined as, "a computer program which is specifically designed and developed only for one customer." Code of Virginia § 58.1-602 also defines a prewritten program as "a computer program that is prepared, held or existing for general or repeated sale or lease...."
Based on the information provided in your letter, the Taxpayer does not sell software, but charges a monthly licensing fee for unlimited use of the product. In addition, the software being licensed is prewritten software which does not enjoy the exemption afforded in Code of Virginia § 58.1-609.5(7).
Code of Virginia § 58.1-603 imposes the retail sales and use tax on the sale, lease or rental of tangible personal property. Under Virginia law, the licensing of prewritten computer software constitutes a taxable lease or sale when the licensing agreement conveys not only the right to use computer software but also the software itself in tangible form. Since the Taxpayer's license agreement includes the software, the licensing fee for such software is subject to the tax. See P.D. 93-157 (7/23/93) and P.D. 88-211 (7/26/88) enclosed. Due to the fact the Taxpayer is taking over the responsibility of billing and collecting the monthly fees, the Taxpayer is also responsible for collecting and remitting the Virginia sales and use tax. In addition, the sale of the evaluation booklets to Virginia customers constitutes a taxable sale of tangible personal property. I have enclosed a Form R-1, Combined Registration Application Form, and instructions, for your use in registering for collection of the tax.
If you should have any questions, please contact***** Office of Tax Policy, at**********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10753K
Re: Request for Ruling: Retail Sales and Use Tax
Dear****
This will reply to your letter of December 17, 1995 in which you request a ruling as to the retail sales and use tax application to computerized employment and occupational evaluation tools distributed by *******(the "Taxpayer").
FACTS
The Taxpayer is an international marketing company specializing in the publication of various computerized employment and occupational evaluation tools. The Taxpayer has authorized dealers and independent agents in every state which sell its product to businesses. The dealers and agents have been responsible for collecting taxes in their respective states.
The Taxpayer is instituting a new marketing concept in which dealers and agents are able to sign up customers for annual contracts. The Taxpayer will take over the collection of the monthly licensing fees for the unlimited use of the employment/occupational software, the servicing of such accounts, and the direct selling of evaluation booklets. The Taxpayer is requesting a ruling with respect to sales and use tax responsibilities in this situation.
RULING
Code of Virginia § 58.1-609.5(7) provides an exemption from the tax for custom computer software programs as defined in Code of Virginia § 58.1-602. Under that section, a custom program is defined as, "a computer program which is specifically designed and developed only for one customer." Code of Virginia § 58.1-602 also defines a prewritten program as "a computer program that is prepared, held or existing for general or repeated sale or lease...."
Based on the information provided in your letter, the Taxpayer does not sell software, but charges a monthly licensing fee for unlimited use of the product. In addition, the software being licensed is prewritten software which does not enjoy the exemption afforded in Code of Virginia § 58.1-609.5(7).
Code of Virginia § 58.1-603 imposes the retail sales and use tax on the sale, lease or rental of tangible personal property. Under Virginia law, the licensing of prewritten computer software constitutes a taxable lease or sale when the licensing agreement conveys not only the right to use computer software but also the software itself in tangible form. Since the Taxpayer's license agreement includes the software, the licensing fee for such software is subject to the tax. See P.D. 93-157 (7/23/93) and P.D. 88-211 (7/26/88) enclosed. Due to the fact the Taxpayer is taking over the responsibility of billing and collecting the monthly fees, the Taxpayer is also responsible for collecting and remitting the Virginia sales and use tax. In addition, the sale of the evaluation booklets to Virginia customers constitutes a taxable sale of tangible personal property. I have enclosed a Form R-1, Combined Registration Application Form, and instructions, for your use in registering for collection of the tax.
If you should have any questions, please contact***** Office of Tax Policy, at**********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10753K
Rulings of the Tax Commissioner