Tax Type
Retail Sales and Use Tax
Description
Services; Lease of Computer Equipment by Credit Reporting Service
Topic
Taxability of Persons and Transactions
Date Issued
08-30-1991
August 30, 1991
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
This will reply to your letter of August 6, 1991 in which you request a ruling on the applicability of sales and use tax to*****************(the Taxpayer).
FACTS
The Taxpayer, an affiliate of a major credit reporting service, provides database information via computer terminals leased to its clients. The Taxpayer was informed during a recent department audit that the leasing of the computer equipment in conjunction with the provision of its credit reporting service is not subject to the sales tax. The Taxpayer requests clarification on the application of the tax with regard to this transaction.
RULING
Virginia Regulation (VR) 630-10-97.1(B)(2) (copy enclosed) applies the true object test to determine whether a transaction qualifies as an exempt service or a taxable sale. In the instant case, the object of the transaction is to obtain electronically transmitted information for purposes of determining an applicant's credit worthiness. Even though equipment is leased or a hard copy of the accessed information may be provided to clients, the true object of the transaction is to provide an exempt service, and thus, the total charge is exempt from the tax.
Accordingly, when the Taxpayer leases computer equipment to its clients in connection with the provision of its database information service, it should not charge the tax to its clients. Instead, the Taxpayer is liable for the Virginia use tax on the cost price of the computer equipment and any other tangible personal property used in providing its database service to its clients. However, any charges for duplicate copies of reports or other tangible personal property would constitute the sale of tangible personal property and therefore be subject to the sales tax, since the true object of the transaction is the provision of tangible personal property and not a service.
I hope the foregoing has responded to your inquiry. If you have additional questions please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner