Tax Type
Retail Sales and Use Tax
Description
Software maintenance agreements
Topic
Taxability of Persons and Transactions
Date Issued
10-23-1991
October 23, 1991
Re: Ruling Request: Retail Sales and Use Tax
Dear****************
This will reply to your letter of September 10, 1991 on behalf of your client, the Company, seeking information on the application of the Virginia sales and use tax to software maintenance agreements.
FACTS
The Company retails computer software products which are used in the development and maintenance of custom software to its customers under a licensing agreement which further provides maintenance agreements to include: (1) telephone support service; (2) user group conferences; (3) software upgrades; and (4) a program fix service.
The Company request a ruling on the application of the sales and use tax to its software maintenance agreements.
RULING
Virginia Regulation (VR) 630-10-62.1 (copy enclosed) defines the term "maintenance contract" to mean, "any agreement whereby a person agrees to maintain and/or repair an item of tangible personal property over a specified period of time for a fee which is determined at the time the agreement is entered into."
Since the Company's software maintenance agreements provide, in part, for the provision of a tangible enhancement - software upgrades - the tax applies to the total charge for the agreement under the regulation. (See subdivision (D) of the enclosed regulation).
The department has consistently held in the above cited regulation and numerous public documents, see enclosed PD 86-147 (7/31/86) and PD 91-20 (2/22/91), the provision of tangible enhancements or other tangible personal property to licensees under computer software maintenance support agreements as taxable. As the Company's maintenance agreements call for the provision of tangible enhancements, such agreements are subject to the tax.
I hope the foregoing has responded to your inquiry. If you have further questions please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5629J
Rulings of the Tax Commissioner