Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 210 - RETAIL SALES AND USE TAX › Section 23VAC10-210-763 - Innovative high technology industries; sales

Current through Register Vol. 40, No. 24, July 15, 2024
The sale, lease or rental of tangible personal property by a
				  high technology business is generally subject to the sales tax unless the
				  purchaser or lessee furnishes the seller or lessor with a valid certificate of
				  exemption as explained in
				  23VAC10-210-320. Pursuant to
				  § 58.1-602 of the Code of Virginia, a "sale" is "any transfer of title or
				  possession, or both, exchange, barter, lease or rental, conditional or
				  otherwise, in any manner or by any means whatsoever, of "tangible personal
				  property'." The term "lease or rental" is defined in § 58.1-602 of the
				  Code of Virginia as "the leasing or renting of tangible personal property and
				  the possession or use thereof by the lessee or renter for a consideration,
				  without transfer of the title to such property."
"Custom programs"(custom computer software) are specifically
				  excluded from the definition of "tangible personal property" found at §
				  58.1-602 of the Code of Virginia; therefore, the sale, lease or rental of such
				  programs is not subject to the sales and use tax. "Custom program" is defined
				  in § 58.1-602 of the Code of Virginia as "a computer program which is
				  specifically designed and developed only for one customer. The combining of two
				  or more prewritten programs does not constitute a custom computer program. A
				  prewritten program that is modified to any degree remains a prewritten program
				  and does not become custom."
As provided in
				  23VAC10-210-840 and
				  23VAC10-210-4000, the tax is
				  applicable to the total charge made to the purchaser or lessee by the vendor,
				  including charges made for any services in connection with the sale, rental or
				  lease. Service and labor charges in connection with a sale, rental or lease are
				  taxable because they are specifically included in the statutory definitions of
				  "sales price" (§ 58.1-602 of the Code of Virginia) and "gross proceeds"
				  (§ 58.1-602 of the Code of Virginia), upon which the tax is computed.
				  Those statutes permit, however, the deduction of separately stated installation
				  and repair labor charges from the base used for computing the tax. Effective
				  July 1, 1986, those statutes also permit the deduction of "an amount separately
				  charged for labor or services rendered in connection with the modification of
				  prewritten programs." "Prewritten program" is defined in § 58.1-602 of the
				  Code of Virginia as a "computer program that is prepared, held or existing for
				  general or repeated sale or lease, including a computer program developed for
				  in-house use and subsequently sold or leased to unrelated third
				  parties."
Purely service transactions in which no tangible personal
				  property passes to the customer are not subject to the tax. Tangible personal
				  property used or consumed in the provision of such services is subject to the
				  tax at the time of purchase.
As explained in
				  23VAC10-210-764, certain
				  transactions which involve the sale of tangible personal property as an
				  inconsequential element of a personal service transaction are not subject to
				  the tax.
Statutory Authority
§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of
					 the Code of Virginia.