Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 210 - RETAIL SALES AND USE TAX › Section 23VAC10-210-765 - Innovative high technology industries; specific activities

Current through Register Vol. 40, No. 24, July 15, 2024
A. Computer
				software. The production of computer software in tangible form for sale or
				resale generally constitutes industrial manufacturing. Therefore, the
				industrial manufacturing exemptions set forth in
				23VAC10-210-920 are generally
				applicable to such production. However, the exemptions are not available for
				persons who produce computer software for purposes other than for sale or
				resale or computer software that does not constitute tangible personal
				property. However, as explained in
				23VAC10-210-920, the industrial
				manufacturing exemptions do not apply when the tangible personal property
				produced is not for sale or resale, such as the production of computer software
				for in-house use. The industrial manufacturing exemptions also do not apply to
				the production of computer software that does not constitute tangible personal
				property, i.e., custom computer programs.
Examples of exempt tangible personal property used directly
				  in the production of computer software for sale or resale include, but are not
				  limited to, computer hardware and software used to encode magnetic tapes or
				  other storage medium or to otherwise produce finished software products. Also
				  exempt is the tangible medium that the finished products will take (tapes,
				  disks, etc.).
Tangible personal property used directly and exclusively in
				  computer software research and development activities is generally exempt from
				  the tax. Exempt research and development activities are those that have as
				  their ultimate goal the advancement of computer software technology, the
				  development of new computer software products, the improvement of existing
				  computer software products, or the development of new uses for existing
				  computer software products. An example of exempt tangible personal property
				  used in a research and development activity is computer hardware and software
				  used in programming and other developmental activities with respect to new
				  computer software products, including the testing of such new products.
B. Information technology. Persons
				engaged in research and development in the fields of computer hardware and
				software engineering, operations research and decision sciences, systems
				engineering and analysis, and human-computer interface with the ultimate goal
				of advancing information technology or developing new products, technology or
				processes or improving or finding new uses for existing products, technology or
				processes are generally entitled to the exemption explained in
				23VAC10-210-3070 through
				23VAC10-210-3074.
Research and development activities entitled to the research
				  exemption include, but are not limited to, (i) developing the theory and design
				  of digital or analog computer hardware along with the integrated design of
				  software and firmware, (ii) developing the theory, modeling, and design of
				  management information systems, (iii) the design and analysis of information
				  systems as physical entities with a focus on the system life-cycle, and (iv)
				  human factors engineering for the design, testing, and evaluation of the
				  human-computer interface.
Persons engaged in the production of products for sale or
				  resale resulting from research and development in the information technology
				  fields are generally deemed to be industrial manufacturers entitled to the
				  exemptions set forth in
				  23VAC10-210-920.
C. Biotechnology. Persons engaged in research
				and development in the fields of biotechnology and genetic engineering with the
				ultimate goal of advancing knowledge or technology in those fields, developing
				new products, technology or processes, developing new uses for existing
				products, technology or processes, or improving existing products, technology
				or processes are generally entitled to the research exemption set forth in
				23VAC10-210-3070 through
				23VAC10-210-3074.
Research and development activities entitled to the
				  exemption include, but are not limited to, the application of recombinant DNA
				  techniques to the development and improvement of agricultural and biomedical
				  products, technology or processes, the development of monoclonal antibodies
				  using hybridoma technology, and the development of instrumentation for use in
				  scientific research.
Generally, persons engaged in the production of products
				  resulting from biotechnological research are industrial manufacturers entitled
				  to the exemptions set forth in
				  23VAC10-210-920.
D. Computer aided engineering. Persons
				engaged in research and development in the field of computer aided engineering
				are generally entitled to the research exemptions set forth in
				23VAC10-210-3070 through
				23VAC10-210-3074 when such
				research has as its goal the advancement of technology, the development of new
				products, technology or processes, the development of new uses for existing
				products, technology or processes, or the improvement of existing products,
				technology or processes.
Exempt research activities include, but are not limited to,
				  research and development into advanced automation (including artificial
				  intelligence and computer vision), integrated manufacturing systems (robotics
				  and computer vision), and structural dynamics.
Generally, persons engaged in the production of products
				  resulting from research and development into computer aided engineering are
				  industrial manufacturers entitled to the exemptions set forth in
				  23VAC10-210-920.
E. Materials science. Persons engaged in
				research and development in the field of materials science with the ultimate
				goal of advancing technology, developing new products, technology or processes,
				or new uses for existing products, technology or processes, or improving
				existing products, technology or processes are generally entitled to the
				research exemption found at
				23VAC10-210-3070 through
				23VAC10-210-3074.
Examples of exempt research activities include, but are not
				  limited to, research and development into the making and use of composite
				  materials, high performance alloys, and semiconductor materials.
Persons engaged in the production of products resulting from
				  materials science research are generally entitled to the industrial
				  manufacturing exemptions set forth in
				  23VAC10-210-920.
F. Other high technology activities. To
				determine the correct application of the tax to high technology activities
				other than the five set forth above, a request for a ruling should be addressed
				to the Tax Commissioner as suggested in
				23VAC10-210-760.
Statutory Authority
§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of
					 the Code of Virginia.