87-242 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Dealer's discount; Interest on late payment

Topic

Collection of Delinquent Tax

Penalties and Interest

Date Issued

10-26-1987

October 26, 1987

Re: §58.1-1821 Application/Sales and Use Tax

Dear ******************

This will reply to your letter of February 2, 1987, in which you request a reconsideration of my January 15, 1987 determination in the above referenced matter.

You question in your letter the applicability of interest to late payments of the use tax relating to your corporation's sales and leases of computer hardware, computer software, and computer software maintenance agreements to Virginia customers. You also question the disallowance of the dealer's discount on the late payment made by your corporation.

§58.1-1812 of the Code of Virginia specifically requires the addition of interest to all past due taxes and Virginia Regulation 630-10-80 specifically states that "[i]nterest (assessed on past due taxes) cannot be waived." Further, §58.1-622 of the Code of Virginia provides for the dealer's discount only "if the amount (of tax) due was not delinquent at the time of payment."

It must also be noted in this instance that the department did not seek to impose penalties on your corporation for its previous failure to pay use tax on sales and leases made to Virginia customers. Rather, the department merely wished to recover the tax due, including the dealer's discount, and interest thereon. Further, it must be noted that the department's treatment of your corporation is consistent with our long-standing policy involving businesses that make retroactive payments of sales or use taxes. In similar situations in the past, including businesses engaged in the sale of computer software, the department has held the seller liable for the tax, including the dealer's discount, and the interest thereon.

Lastly, it must be noted that the consistent policy of the department has been that computer software in the form of tapes, diskettes, punched cards, etc. is tangible personal property. §1-102. a of the January 1, 1979 Virginia Retail Sales and Use Tax Regulations and Virginia Regulation 630-10-102.2, published on January 1, 1985, both define the term "tangible personal property" as follows:

- personal property that can be seen, weighed, measured, felt or touched, or is any other manner perceptible to the senses.

Additionally, the sales and use tax applies to the total price of the software under the "sales price" concept set forth in §58.1-602.17 of the Code of Virginia and Virginia Regulation 630-10-95. "Sales price," upon which the tax is based, is defined as:

- the total amount for which tangible personal property or services are sold, including any services that are a part of the sale...without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever."

Of course, as noted in my earlier letter, the definition of "sales price" was amended effective July 1, 1986 to exclude separately stated labor or service charges in connection with the modification of prewritten computer software.

Based upon the foregoing, I cannot offer relief of the interest assessed to your corporation in this instance. However, as noted in my January 15, 1987 letter, the department remains willing to entertain a protective claim for refund on any tax paid with respect to sales of custom software. In addition, the department will keep you apprised of its progress in the promulgation of a comprehensive regulation to address sales of computer software.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner