Tax Type
Retail Sales and Use Tax
Description
Manufacturing, Research and development.
Topic
Taxability of Persons and Transactions
Date Issued
10-27-1997
October 27, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*******
This is in response to your letter in which you seek correction of a sales and use tax assessment issued to *****(the "Taxpayer") for the period October 1992 through September 1995.
FACTS
The only contested issue in this case is tangible personal property purchased by the Taxpayer under authority of a contract with an agency of the federal government. The contract is pursuant to Public Law 102-240 which calls for the development and evaluation of intelligent highway systems and area wide traffic management control centers. You maintain that the contested property is for direct and exclusive use in an exempt research and development activity.
The contract at issue calls for the design, development, and implementation of an operational test program. The operational test program attempts to move two key technologies from the laboratory area into the public sector. These technologies are: (1) wide area traffic flow measurement, or the ability to detect traffic conditions over a wide geographic area, and (2) vehicle communications, or the ability to pass information to and from individual vehicles and fixed locations.
The operational test calls for the use of the existing cellular technology infrastructure. The cellular infrastructure takes advantage of high capacity data transfer over an existing network. The network consists primarily of a proliferation of vehicles equipped with cellular telephones and existing cellular communications towers.
I understand that the operational test will be conducted on various interstate roadways west of Washington, D.C., including the I-95, I-395, and I-495 corridors. If the demonstration system proves effective, the project will be extended to include the entire I-495 and I-95 corridor and its major arterial roadways. I further understand that the traffic data generated from the operational test will be distributed to a number of fixed sites, including the U.S. Department of Transportation, the Maryland Traffic Management Center, and the Virginia Department of Transportation.
DETERMINATION
Code of Virginia § 58.1-609.3(5) provides an exemption for tangible personal property for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense. This exemption is addressed in Title 23 of the Virginia Administrative Code (VAC) 10-210-3070 through 10-210-3074. These regulations indicate that activities qualifying for this exemption include any activity which has as its goal (1) the advancement of existing knowledge or technology; (2) the development of new uses for existing products, technology, or processes; or (3) the improvement of existing products, technology, or processes, provided that the activity is conducted in the experimental or laboratory sense.
I find that the operational test program set out in the instant contract qualifies as an exempt research and development activity. In effect, the contract calls for the Taxpayer to explore new uses for existing cellular technology. Further, the Taxpayer's objectives and tasks are conducted in the experimental sense in that the project is directed through tentative procedures under controlled conditions. Accordingly, to the extent that the contested purchases are used directly and exclusively, they will be removed from the assessment.
The audit will be returned to the audit staff to be revised in accordance with this determination. I note that most of the contested assessment has been paid. A refund, as applicable, will therefore be made as soon as practicable. In the meantime, please contact **** at the department's Office of Tax Policy at ****if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12552I
Rulings of the Tax Commissioner