Tax Type
Retail Sales and Use Tax
Description
"Tangible personal property"; Computer software
Topic
Taxability of Persons and Transactions
Date Issued
02-20-1985
February 20, 1985
Dear ****
This will reply to your letter of September 17, 1984 regarding the application of the sales and use tax to your business operation.
FACTS
* * * (hereinafter "Taxpayer') is engaged in providing office automation services to dentists and doctors. Taxpayer is developing original computer software for a physician which will most likely be subsequently copyrighted for sale to other surgeons.
Taxpayer requests a ruling on the applicability of the sales tax to the charge for the initial development of the custom software and to the subsequent sale of the copyrighted software to other users.
RULING
Virginia Code Section 58.1-602.16 defines "sales' as:
The consistent policy of the Department of Taxation has been that the transfer of computer software, both custom and application, in the form of disks, punched tapes, and cards constitutes a sale of tangible personal property, the total charge for which is subject to the tax. Therefore, based upon the facts presented in your letter, we must hold that the sales tax is applicable to the total charge for both the custom software and its subsequent sale as a copyrighted application program.
However, the department has submitted a proposed regulation, a copy of which is attached, to the Administrative Process Act for public comment. You will note that this proposal exempts charges for custom software. The proposed regulation would have retroactive effect, within the three-year statute of limitations. Therefore, if adopted, the exemption for custom computer software would apply retroactively. Should you not collect any tax on such sales pending action on the proposed regulation, the department would not be precluded from assessing the tax upon audit should the regulation not be adopted.
Sincerely,
W. H. Forst,
Tax Commissioner
Dear ****
This will reply to your letter of September 17, 1984 regarding the application of the sales and use tax to your business operation.
FACTS
* * * (hereinafter "Taxpayer') is engaged in providing office automation services to dentists and doctors. Taxpayer is developing original computer software for a physician which will most likely be subsequently copyrighted for sale to other surgeons.
Taxpayer requests a ruling on the applicability of the sales tax to the charge for the initial development of the custom software and to the subsequent sale of the copyrighted software to other users.
RULING
Virginia Code Section 58.1-602.16 defines "sales' as:
- any transfer of title or possession . . . lease or rental . . . of tangible personal property . . . and includes the fabrication of tangible personal property . . .
The consistent policy of the Department of Taxation has been that the transfer of computer software, both custom and application, in the form of disks, punched tapes, and cards constitutes a sale of tangible personal property, the total charge for which is subject to the tax. Therefore, based upon the facts presented in your letter, we must hold that the sales tax is applicable to the total charge for both the custom software and its subsequent sale as a copyrighted application program.
However, the department has submitted a proposed regulation, a copy of which is attached, to the Administrative Process Act for public comment. You will note that this proposal exempts charges for custom software. The proposed regulation would have retroactive effect, within the three-year statute of limitations. Therefore, if adopted, the exemption for custom computer software would apply retroactively. Should you not collect any tax on such sales pending action on the proposed regulation, the department would not be precluded from assessing the tax upon audit should the regulation not be adopted.
Sincerely,
W. H. Forst,
Tax Commissioner
Rulings of the Tax Commissioner