Tax Type
Retail Sales and Use Tax
Description
Software service agreements
Topic
Taxability of Persons and Transactions
Date Issued
07-09-1991
July 9, 1991
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear********************
This will reply to your letter of February 15, 1991 in which you contest a portion of a recent sales and use tax assessment for the period of July 1987 through June 1990 for***************** (the "Taxpayer").
FACTS
The Taxpayer which produces and sells electric instrumentation panels, monitors and controls, protests the tax assessed in the recent audit on computer software service agreements which entitle it to receive telephone support for resolving software problems and periodic software updates and enhancements on magnetic tape. It maintains that the same agreements were in effect during a prior audit and were not held taxable.
DETERMINATION
The department has consistently held the provision of tangible enhancements or other tangible personal property to licensees under computer software maintenance support agreements as taxable under Virginia Regulation (VR) 630-10-62.1 (copy attached to P.D. 91-20, enclosed). For your review, I have enclosed a few rulings on this issue and the tax treatment of computer software in general.
You maintain that during a prior audit the software service contract held taxable in the most recent audit was in effect but not held taxable. However, the department has no documentation supporting your contention. A review of the audit reports reveals in the prior audit the Taxpayer was assessed tax on software maintenance agreements found in the 1985 sample year. The software service agreement contested in the current audit was found in the 1989 sample year and was not with the same company as the agreement picked up in the prior audit.
Accordingly, the assessment is correct and is now due and payable.
The department's position on this issue has been made public through our distribution of public documents and the publication of such in various national tax services. While I would be happy to meet with you to discuss this matter, I want to reiterate that our position with respect to this issue has been consistent over the years.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner