Tax Type
Retail Sales and Use Tax
Description
Professional, Insurance or Personal Service Transactions
Topic
Exemptions
Date Issued
02-15-1985
February 15, 1985
Dear ****
This will reply to your letter of November 12, 1984 requesting a ruling on the correct application of the sales and use tax to various types of transactions involving the sale or lease of computer hardware, including installation, maintenance, training and other services pertaining to such computer equipment.
FACTS
* * * (* * *) has developed a computerized reservations systems known as the "SABRE' system, with a central database located in * * *. * * * has contracted with travel agents in the state for the sale or lease of the necessary computer hardware and the installation, maintenance and training required for proper use of the system. A monthly lump sum charge payable by the travel agency to * * * represents the sale or lease of the computer hardware plus several non-optional services such as the use of software and access to a communications network to send and receive information from the central database. Furthermore, * * * contracts for various optional software, items or services which enhance the data maintenance and retrieval capabilities of their computer database.
DETERMINATION
The key issue in determining the taxability of these transactions is whether they are essentially service transactions or whether the nature of the transaction is a sale of tangible personal property. The determination of the "true object' of a transaction is a factual matter which must be resolved on a case by case basis. § 58.1-608(2) of the Virginia Code states that the sales and use tax shall not apply to, "Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made, nor [to] services rendered by repairmen for which a separate charge is made.'
Based on the information which you presented, we have determined that the total charge for the "Sabre System' represents the charge for a service. As a result this transaction is exempt from the sales tax under the provisions of Virginia Code § 58.1-608(2). However, insofar as its leased hardware is concerned, * * * is liable for the payment of the use tax on such computer equipment terminals and other tangible personal property used in Virginia in providing the reservation service to the travel agencies.
Furthermore, any charges for duplicate copies of printouts, journals, or manuals, such as the additional charge for training manuals stated on page 2 of your attachment, would constitute the sale of tangible personal property, and therefore be subject to the sales tax, since the true object of the transaction is the provision of tangible personal property, and not personal services.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner