Tax Type
Retail Sales and Use Tax
Description
Computers, services, and software; Updates provided under maintenance contract
Topic
Taxability of Persons and Transactions
Date Issued
02-12-1997
February 12, 1997
Re: § 58.1-1821 Application: Retail Sales & Use Tax
Dear********
This is in reply to your letter in which you seek a correction of the department's assessment issued to *********** (the "Taxpayer"), for the audit period August 1993 through May 1996. I apologize for the delay of our response.
FACTS
The Taxpayer entered into a software maintenance contract in which the agreement stated that the Taxpayer would receive periodic updates to specific software, as well as enhancements to standard software products. The Taxpayer states that the updates are received in a disk format, entered into the Taxpayer's system, and immediately returned to the supplier. The Taxpayer states that since it does not retain the disks, the maintenance agreements must be considered tax exempt, and accordingly, removed from the audit.
DETERMINATION
Code of Virginia § 58.1-603 imposes the sales tax on the sales, lease, or rental of tangible personal property. Code of Virginia § 58.1-602 then defines the term "sale" to mean "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property ....
The department has traditionally held that the provision of information by way of electronic means is a nontaxable service. See Virginia Regulation (VR) 630-10-97.1, copy enclosed. This section specifically addresses the tax status of information transferred electronically.
With regard to the provision of updates or enhancements in tangible form the department's longstanding policy is that, notwithstanding the fact that a customer may not permanently retain the tangible product conveying information, a "sale" of tangible personal property occurs. I have enclosed copies of previous rulings, P.D.'s 88-20 (01/04/88), 95-68 (03/30/95), and 96-131 (06/13/96) which further details the department's position.
Accordingly, l do not find sufficient cause to allow any adjustment to the department's assessment, which remains due and payable. Please return your payment for tax, penalty and interest totaling ******** to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days. If payment is not received within that time, interest will accrue on the balance due. If you have any questions regarding this matter, please contact ********of the department's Office of Tax Policy at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11460Q
Rulings of the Tax Commissioner