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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 210. Retail Sales and Use Tax

23VAC10-210-763. Innovative high technology industries; sales.

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.

Historical Notes

Derived from VR630-10-49.2 § 4, eff. March 15, 1987, retroactive to December 1, 1986.

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