Tax Type
Retail Sales and Use Tax
Description
Computer software and equipment
Topic
Taxability of Persons and Transactions
Date Issued
04-10-1989
April 10, 1989
Re: Ruling Request/ Sales and Use Tax
Dear******************
This will reply to your letter of February 17, l 989 seeking a ruling and requesting a refund on behalf of****************(taxpayer), for the period July, 1985 to May, 1988.
FACTS
The taxpayer, a Virginia based corporation, provides a real estate information listing service to brokers, agents and Multiple Listing Services across the United States. This service enables subscribers to access information as to listings of residential, commercial, industrial and other real property. Components of the service provided by the taxpayer include loaned computer hardware; a continually updated data base regarding properties sold or available for sale; the software necessary to access this data base; real estate listing books; and the servicing/repair of equipment.
Sales and use tax has been paid on all hardware located and used by the taxpayer in Virginia and on hardware loaned to its customers located outside the state. The taxpayer seeks a refund of sales tax paid on that hardware and related software temporarily stored for testing by the taxpayer in Virginia before shipment for use outside the state by its customers.
In support of its refund request, the taxpayer contends that no tax was due on such equipment for shipment outside the state since: ( 1 ) it is providing a nontaxable service; (2) ultimate delivery and use of the equipment occurred entirely outside the state and should therefore be exempt as having been made in interstate commerce; and, (3) its testing of the equipment constituted exempt "processing" as defined in Virginia Code §58. 1-602(9).
RULING
I cannot agree that because the taxpayer is providing a service its storage and testing of equipment in Virginia should thereby qualify for tax exemption. On the contrary, it is precisely because it is providing such a service, and not holding the equipment for resale, that the equipment becomes subject to sales and use tax in Virginia.
Virginia Code §58.1-604 imposes the use tax on "the use or consumption of tangible personal property in this State.." The term "use" is then defined in §58.1-602(20) as, "the exercise of any right or power over tangible personal property incident to the ownership thereof.." Furthermore, Virginia Retail Sales and Use Tax Regulation (VR) 630-10-109(A) provides that. "[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." (Emphasis added) The term "storage" is then defined in Virginia Code §58.1-602(18) as, "any keeping or retention of tangible personal property for use, consumption or distribution in this State, or for any Purpose other than sale at retail in the regular course of business. "
Unlike the taxpayer in the department's June 23, 1988 ruling, (P.D. 88- 159), the taxpayer in this case was not holding equipment for sale at retail in the regular course of business. Instead, this taxpayer was storing equipment for its own use and consumption in providing a nontaxable service to customers located both within and outside the state. Therefore, the moment the taxpayer took delivery in Virginia of the equipment to be used in providing its service, it exercised a right or power over the equipment incident to the ownership thereof, sufficient to render it taxable on the equipment.
The equipment is also not exempt under the interstate commerce exemption. VR 630-10-51 states that "[t]he [sales and use] tax does not apply to sales of tangible personal property in interstate or foreign commerce." However, the regulation provides further that "a sale in interstate or foreign commerce occurs only when title or possession to the property being sold Passes to the Purchaser outside of Virginia and no use of the property is made within Virginia." (Emphasis added)
The taxpayer in this case took title to and possession of the computer equipment in Virginia. Accordingly, the subsequent transfer of such equipment to its customers located outside the state, could not immunize its initial purchase of the equipment within Virginia from sales and use taxation. Further, the fact that tangible personal property may be intended for delivery outside the state has never precluded the imposition of the sales and use tax on such property, when it is held in Virginia prior to such delivery outside the state. See, Commonwealth v. Miller-Morton, 220 Va. 852, at 858, 263 S.E. 2d 413, (1980).
Moreover taxpayer cannot be said to be "processing" for sale or resale, since it purchases the computer equipment for its own use and consumption in providing a nontaxable service. The fact that the taxpayer "lends" the equipment to its customers does not obscure the fact that at all times before and after the "loan", the equipment is owned by the taxpayer, and is used in connection with its provision of a nontaxable service to its customers. Therefore, I see no basis for extending the processing exemption to the taxpayer's business.
Based on all of the foregoing, I find no basis for the refund requested.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner