Tax Type
Retail Sales and Use Tax
Description
Research and development materials
Topic
Exemptions
Date Issued
05-22-1986
May 22,1986
Re: §58.1.-1821 Application/ Sales and Use Tax
Dear **********************
This will reply to your letter of July 26,r 1985, requesting correction of an assessment issued in the above referenced case the period October 1, 1978 through August 31, 1984. This also has reference to a meeting held at the department between representatives of taxpayer and members of my staff on March 11, 1986.
FACTS
In connection with its performance of numerous highly classified contracts with agencies of the U.S. Government, the *********** (taxpayer), engages in state of the art research into such areas as signal detection and processing techniques, signal detection and processing techniques, signal microprocessing, artificial intelligence and surveillance sensors. Taxpayer accomplishes most of such classified research work in one or more of four laboratories located in a Northern Virginia facility. Pursuant to recent department audit certain items used by taxpayer in its research laboratories were held subject to sales and use tax. Taxpayer contends that some of such items should not have been held subject to the tax based on the sales and use tax exemption for items used directly and exclusively in research and development in the experimental or laboratory sense.
DETERMINATION
§58. 1-608(19) of the Virginia Code exempts from the sales and use tax "[t]angible personal property purchased for use or consumption directly and exclusively in basis research or research and development in the experimental or laboratory sense."
"Basic research" is then defined in §630-10-92(B) of the Virginia Retail Sales And Use Tax Regulations as "a systematic study or search in a scientific or technical field of endeavor with the ultimate goal of advancing knowledge or technology in that field." Furthermore, the regulation provides, "research and development ...should have as its ultimate goal: (1) the development of new products; (2) the improvement of existing products; or (3) the development of new uses of existing products."
Based on written documentation received and the additional information provided to the department at the above referenced meeting, I find basis for concluding that through its four research laboratories, taxpayer is involved in research and development in the experimental or laboratory sense and is therefore entitled to an exemption from the tax for purchases of tangible personal property used directly and exclusively in such research and development activities.
Therefore, taxpayer's check in the amount of ************ for sales and use tax due on its purchases of items for use in its laboratories but which are not used directly and exclusively in its experimental research and development work is hereby accepted in fill payment of the outstanding assessment.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner