Tax Type
Retail Sales and Use Tax
Description
Out-of-state computer maintenance company.
Topic
Taxability of Persons and Transactions
Date Issued
11-18-1997
November 18, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear***************
This is in reply to your letter of October 22, 1997, in which you request a ruling on the application of sales and use tax to your client (Company A) which provides computer maintenance to its customers.
FACTS
Company A is located outside of Virginia, has no employees, business location, sales representatives, or inventory within Virginia. Company A has contracted with a customer (Company C) to perform maintenance on computer equipment located within Virginia. The actual maintenance on Company C's computer equipment, however, is subcontracted to a third party, Company B. You request a ruling on the application of sales tax to the sale of the maintenance contract to Company C in light of Company A's lack of physical presence in Virginia.
RULING
Maintenance Contracts
The application of the tax to maintenance contracts is set forth in Title 23 of the Virginia Administrative Code (VAC) 10-210-910. The regulation provides that contracts which provide for both repair or replacement parts and repair labor represent a sale of tangible personal property and are subject to the tax. Code of Virginia § 58.1-609.5(9) provides that effective January 1, 1996, maintenance contracts which provide for both repair or replacement parts and repair labor are subject to tax based on 50% of the total charge for such contracts. See the enclosed Tax Bulletin 95-8.
Based on the scenario presented, I find that a taxable transaction occurs between Company A and Company C. The performance of the actual maintenance work by the subcontractor has no bearing on the taxable nature of the transaction between Company A and C.
Nexus
While Company A is clearly a "dealer" as defined in Code of Virginia § 58.1-612(B), Company A does not appear to have "sufficient activity" within Virginia requiring it to register for the collection and remittance of the sales or use tax. As Company A does not appear to meet any of the other nexus requirements in the foregoing statute, it may voluntarily register with the department for the collection of the tax as a service to its customers. Without such registration, Company A's customer will be responsible for the accrual and remittance of use tax on the purchase of the maintenance contract. I have enclosed a registration form and instructions should Company A be required to register in the future or should they decide to voluntarily register for the collection of the tax.
I trust that our response has addressed your concerns in some manner. If you should have any additional questions regarding this matter, please contact ******** of the department's Office of Tax Policy at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13107Q
Rulings of the Tax Commissioner