Tax Type
Retail Sales and Use Tax
Description
Computer software licensing agreements
Topic
Taxability of Persons and Transactions
Date Issued
09-26-1985
September 26, 1985
Dear ****
This will reply to your letter of July 30, 1985, in which you request a ruling on the applicability of the sales and use tax to certain computer software licensing agreements.
FACTS
* * * ("Taxpayer') is engaged in the licensing of computer software programs which are furnished to licensees in tangible form on diskettes or magnetic tapes. The taxpayer collects the sales tax from its licensees in such instances. When a licensee desires to use a program leased from the taxpayer on additional computers, the taxpayer may grant additional licenses for the use of the program. Under the contracts governing such additional licenses, the taxpayer grants to the licensee the right to make copies from the taxpayer's programs obtained under the original licensing agreement. The taxpayer does not transfer to the licensee any tangible personal property in connection with the additional licenses. The taxpayer requests a ruling as to the applicability of the sales and use tax to such additional licenses.
RULING
The sales tax is imposed under the provisions of Section 58.1-603 of the Code of Virginia upon the sale, lease, or rental of tangible personal property and the furnishing of transient accommodations. "Sale' is defined in Virginia Code Section 58.1-602.16 as "any transfer or title or possession . . . of tangible personal property.' "Lease or rental' is defined in Virginia Code Section 58.1-602.8 as "the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without transfer of the title of such property.'
A taxable transaction is deemed to take place when one licenses to another the right to use a computer program and in connection therewith provides to the licensee a program in tangible form. The same is not true, however, when the licensee is merely authorized to copy a program already in his possesion. As possession of tangible personal property does not shift from one person to another in such a transaction, the tax is not applicable.
W. H. Forst
Tax Commissioner
Dear ****
This will reply to your letter of July 30, 1985, in which you request a ruling on the applicability of the sales and use tax to certain computer software licensing agreements.
FACTS
* * * ("Taxpayer') is engaged in the licensing of computer software programs which are furnished to licensees in tangible form on diskettes or magnetic tapes. The taxpayer collects the sales tax from its licensees in such instances. When a licensee desires to use a program leased from the taxpayer on additional computers, the taxpayer may grant additional licenses for the use of the program. Under the contracts governing such additional licenses, the taxpayer grants to the licensee the right to make copies from the taxpayer's programs obtained under the original licensing agreement. The taxpayer does not transfer to the licensee any tangible personal property in connection with the additional licenses. The taxpayer requests a ruling as to the applicability of the sales and use tax to such additional licenses.
RULING
The sales tax is imposed under the provisions of Section 58.1-603 of the Code of Virginia upon the sale, lease, or rental of tangible personal property and the furnishing of transient accommodations. "Sale' is defined in Virginia Code Section 58.1-602.16 as "any transfer or title or possession . . . of tangible personal property.' "Lease or rental' is defined in Virginia Code Section 58.1-602.8 as "the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without transfer of the title of such property.'
A taxable transaction is deemed to take place when one licenses to another the right to use a computer program and in connection therewith provides to the licensee a program in tangible form. The same is not true, however, when the licensee is merely authorized to copy a program already in his possesion. As possession of tangible personal property does not shift from one person to another in such a transaction, the tax is not applicable.
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner