Tax Type
Retail Sales and Use Tax
Description
Pricing information transferred by tapes and disks
Topic
Taxability of Persons and Transactions
Date Issued
01-04-1988
January 4, 1988
Re: §58.1-1821 Application/ Sales and Use Tax
Dear*****************
This will reply to your letter of September 21, 1987 on behalf of ************** (taxpayer), seeking correction of an assessment issued for the period November 1983 through October 1986.
FACTS
The taxpayer offers fully integrated data processing and management information services to auto, truck, and agricultural equipment dealers throughout the country. In addition to other application programs, the taxpayer offers its dealers a program which monitors all aspects of their parts inventories. For an additional fee, the taxpayer offers a related program known as "parts updates", which provides the dealers with periodic parts pricing information updates. Some of the dealers receive these updates in tangible form via magnetic tapes and floppy disks. However, title to and ownership of the tapes/ disks themselves is never conveyed to the dealers, since they must return the tapes/ disks to the taxpayer after the information contained on them has been loaded into their computers.
Pursuant to a recent audit, the taxpayer was held liable for its untaxed sales of "parts updates", in tangible form, to Virginia dealers. The taxpayer contests the application of the tax to these updates, contending that they represent the provision of a nontaxable service rather than a sale of tangible personal property.
DETERMINATION
The sales tax is imposed in §58.1-603 of the Virginia Code upon the sale, lease or rental of tangible personal property. The term "sale" is defined in §58.1-602(16) of the Code as, "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property and any rendition of a taxable service for a consideration." (Emphasis added) Subsection (19) of this same code section then defines the term "tangible personal property" to mean, "personal property which may be seen, weighed, measured, felt or touched, or is in any other manner perceptible to the senses."
Furthermore, Virginia Retail Sales and Use Tax Regulation 630-10-97.1 provides that the tax applies to "any services included in or in connection with the sale of tangible personal property." This regulation also sets forth the test for determining whether the "true object" of a particular transaction is an exempt service or a taxable retail sale.
-
- If the object of the transaction is to secure a service and the tangible personal property transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including services provided, will be taxable.
- If the object of the transaction is to secure a service and the tangible personal property transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including services provided, will be taxable.
The "parts updates" held taxable in the present case are unlike the market quotation services in the example given above, since the information conveyed in this case is conveyed via tangible, (tapes/ disks, etc.,) rather than intangible (electronic transmittal) media. In addition, since the mere transfer of "possession" of tangible personal property is all that is needed to trigger the application of the tax, it is not necessary for the taxpayer in this case to convey title to or ownership of the tapes/ disks to its dealers.
Accordingly, I cannot agree that the charge for the parts updates represents the charge for a nontaxable service, as contended by the taxpayer. For the taxpayer's future reference I have enclosed a copy of a recent ruling issued by the department which addresses the application of the tax to transactions involving leases of computer hardware and software.
Based on all of the foregoing, the outstanding assessment in the amount of***********(inclusive of accrued interest since the date of the assessment totalling ********** is now due and payable. This amount should be remitted to the department's Technical Services Section, office Services Division, at P. o . Box 6-L, Richmond, Virginia 23282.
Sincerely.
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner