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A software maintenance agreement, or SMA, is a legal contract that obligates the software vendor to provide technical support and updates for an existing software product for their customers. It may also extend the expiration date of certain features, such as new releases or upgrades.
Optional maintenance contracts provide prepaid coverage for maintaining a vehicle. These contracts include taxable items and nontaxable repair labor for one price. Examples include: Oil changes.
The Virginia Department of Revenue has maintained a long-standing policy, which is referenced in Virginia Public Document Ruling No. 05-44 , that sales of software delivered electronically do not constitute the sale of tangible personal property and are not subject to sales tax.
The sale of an extended warranty which provides for the provision of labor only may be purchased exempt of the sales and use tax, because such sales are considered nontaxable sales of services in Virginia.
In the state of Virginia, any maintenance contracts that provide only repair labor are considered to be exempt. Any contracts that provide both parts and labor are definitely subject to tax on one-half the total charge for the contract. Contracts which provide only parts are considered to be taxable.
Fees for engineering services to produce an original or master plan and specifications for a particular project are not taxable. However, charges for additional copies of such plans and specifications are subject to the retail sales and use tax.
Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.
The Taxpayer is correct that the sale of software delivered electronically to customers does not constitute the sale of tangible personal property and is generally not subject to Virginia sales and use taxation.
Yes. Retail sales tax applies to a service contract or warranty sold to a consumer (WAC 458-20-257).