Tax Type
Retail Sales and Use Tax
Description
Computer Maintenance Agreements
Topic
Taxability of Persons and Transactions
Date Issued
09-23-1991
September 23, 1991
Re: Request for Ruling: Retail Sales & Use Tax
Dear
This will reply to your letter of February 2, 1989 seeking information on the applicability of the sales and use tax to sales by*****************(the "Taxpayer") of three service plans offered to retail pharmacists located in Virginia. I regret the delay in providing you with this response.
FACTS
The Taxpayer, a drug company, provides its customers with three service plans described as a "Consumer Analysis Program" (CAP), a "Trading Area Analysis Program" (TAAP), and "Compuphase." For a one time fee, CAP subscribers receive a written report/analysis of their retail pharmaceutical patron's opinions and desires, based on the tabulation of the patron's responses to a survey questionnaire. Also for a one time fee, TAAP subscribers receive a detailed written report of the sales potential of the marketplace surrounding the customer's current or proposed business location.
Compuphase subscribers receive computer hardware and software, software maintenance services, including software enhancements and fixes. In addition, for a monthly fee these subscribers may receive price change information. The Taxpayer can provide this information through the telephone or by diskette, based on the customer's computer capabilities. Compuphase customers may also contract with the Taxpayer for computer hardware maintenance services which are subcontracted out by the Taxpayer to other hardware maintenance service providers.
The Taxpayer seeks a ruling on the applicability of the tax to the above described transactions.
RULING
Va. Code §58.1-608(A)(5)(a) exempts from the sales and use tax, "personal service transactions which involve sales as inconsequential elements for which no separate charges are made, nor services rendered by repairmen for which a separate charge is made."
Virginia Regulation (VR) 630-10-97.1 sets forth the "true object" test to determine whether a particular transaction involves the sale of tangible personal property or the provision of an exempt service, as follows:
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- if the object of the transaction is to secure a service and the tangible personal property which is 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.
I will address the applicability of the tax to the various plans individually below:
CAP & TAAP service plans: Based on the information provided, the total charge for these plans qualify for exemption from the tax as the provision of tax exempt services since the object of the transactions is the provision of information, and not the sale of tangible personal property.
Compuphase price change information: Charges for price changes provided by the Taxpayer over phone lines to its Compuphase subscribers are not taxable since no tangible personal property is conveyed in providing such information. However, if the price changes are instead conveyed via diskette or other tangible media, the total charge for such will be taxable because a "sale" of "tangible personal property" occurs within the meaning of Va. Code §58.1-602.
Compuphase software and hardware maintenance agreements, etc. Monthly charges for the software and hardware maintenance agreements provided to the Taxpayer's Compuphase subscribers are taxable maintenance contracts under VR 630-10-62.1 (copy attached to the enclosed ruling), whether the materials and services provided under such contracts are provided by the Taxpayer itself, as in the case of the software maintenance agreements, or by some unrelated third party, as in the case of the hardware maintenance contracts. The enclosed public document, P.D. 88-178 (6/29/88), provides more information on the application
The outright sale, license or lease by the Taxpayer of any prewritten computer software, or computer hardware for use by its customers in Virginia are subject to the tax as explained in P.D. 87-209 (9/15/87), copy enclosed. As indicated in Va. Code §§58.1-602 and 58.1-608(A)(5)(f) & (g), copies enclosed, only the design and development of "custom programs" specifically for a single customer and separately stated labor charges for the modification of prewritten programs qualify for exemption from the sales and use tax.
If you have any further questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner