Keiter State and Local Tax team leader, Terry Barrett, shares her insights on Virginia’s retail sales and use tax exemption for certain types of software and the importance of retaining tax documents in the November/December 2018 issue of VSCPA’s Disclosures Magazine article, “Purchasing software? Document, document, document.”
Purchasing Software? Document, Document, Document Excerpt:
“Software is a routine purchase for most businesses. Fortunately,Virginia (and some other states) provide an exemption from retail sales and use tax for certain types of software. This can be a much-appreciated cost-saver, whether you are implementing a costly new enterprise resource planning system or just getting started with Quickbooks. However, unwary taxpayers may find themselves denied an exemption due to documentation issues.
Software Exemption Definitions
Exempt software falls into two categories: custom computer programs and prewritten software delivered electronically (or in other than tangible format). Custom programs are generally defined as those that are specifically designed and developed only for one customer. Virginia law goes further in its distinction between prewritten and custom software by including within the definition of “custom programs” the statements “[t]he combining of two or more prewritten programs does not constitute a custom computer program.”
Source: VSCPA Disclosures Magazine
Additional Sales and Use Tax Resources:
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.