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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department Of Taxation
Chapter 210. Retail Sales and Use Tax
2/25/2021

23VAC10-210-765. Innovative high technology industries; specific activities.

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.

Historical Notes

Derived from VR630-10-49.2 § 6, eff. March 15, 1987, retroactive to December 1, 1986.

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