Sales tax on CAD software

[rlee53]

Does anyone know specifically in Virginia if I would need to pay sales tax on CAD software bought for my small engineering corporation? Is it considered a tool?

 

[MiketheEngineer]

I have no idea - as I live a 1,000 miles west of you - but do you guys pay sales tax on a hammer?? We do....and on software also!!!

 

[msquared48]

I think what you are wondering about is something similar to a prepared food, where the baker does not pay sales tax on the items included in the bread, but the end product containing the ingredients, the loaf of bread, is taxed. When the baker buys the ingredients, they are for resale, and hence not taxed.

I don't know the way it works in Virginia, as I am in Washington, 2000 miles further, but we do pay sales tax on oall our job related equipment here such as computers and software.

I do believe that contractors pay sales tax on their supplies here, but pass that cost on to the clients. They do pay sales tax on their equipment though. Professional service fees are not taxable in Washington though.

Mike McCann
MMC Engineering

 

[rlee53]

Below is a link to the form that is given to vendors when we buy parts or tools to build a machine that will be resold:

http://files.engineering.com/getfile.aspx?folder=ee20061b-abce-4d45-89a0-ae9917bdb0b6&file=ST-11.pdf

I'm curious if item 2 could include software as a tool used to produce a product?

I'm going to call the state to see what they say.

 

[bvanhiel]

Pretty sure the answer will be "no", but I wouldn't trust a bunch of engineers in other states/countries with tax questions.

-b

 

[DonPhillips]

I have always paid taxes on hardware and software. The tax is not on the buyer but the seller (in Ohio), hence it is called a sales tax, not a buyer's tax. Government entities are exempt from sales taxes in Ohio but typically, a form is submitted to the vendor that can be used if the business is audited.

Since I am only a day's drive from VA (and licensed there but not practicing), perhaps this is helpful.


Don Phillips

http://worthingtonengineering.com

 

[tygerdawg]

I resell CAD based software. I always indicate that the customer is liable for sales tax unless they can provide hard copy of their Tax Exempt status. My company must report and pay sales tax as necessary unless I have that form.

Typically a Tax Exempt status is granted to manufacturers by their state tax authority.

TygerDawg
Blue Technik LLC
Virtuoso Robotics Engineering

http://www.bluetechnik.com

 

[TheTick]

In most states w/ sales tax, CAD software would be a capital expenditure, which is not exempt.

 

[MechEng2005]

If you call and they won't apply the CAD software based on item 2 of your form, I'd try for item 9. Whenever there is something to be posted on the bulletin board or what-not, have somebody type it up in a drawing template with title block. Would that qualify as a publication, and hence the CAD software as equipment to produce a publication?

- MechEng2005

 

[MacGyverS2000]

Wouldn't that be like purchasing a hot tub and saying it's for client entertainment purposes?

Dan - Owner

http://www.Hi-TecDesigns.com

 

[rlee53]

No.

A hot tub is not a necessary tool used to produce a product.

A piece of software is a tool that may be necessary to produce a product.

 

[rlee53]

I spoke with someone at the state department of taxation. He seemed very confused about the whold thing.

 

[MacGyverS2000]

rlee, my comment was pointed towards TheTick. He suggested using the CAD software as a desktop publisher just to get the tax break (hopefully suggested tongue-in-cheek).

Dan - Owner

http://www.Hi-TecDesigns.com

 

[TheTick]

There was recently a case here in WI where a large company erroneously exempted sales tax on new MRP software. Custom software (i.e. hiring a developer to design & program) is exempt, but out-of-the-box software is not.

The company assumed that since the software allowed for custom configurations, it was "custom" software. A high court ruled that "configurable" is not "custom".

 

[rlee53]

Yes, I find reference to the distinction between custom and shrink-wrapped software here in Virginia also.

 

[MacGyverS2000]

Er, I meant to say my prior comment was pointed towards MechEng, not TheTick... sorry Tick!

Dan - Owner

http://www.Hi-TecDesigns.com

 

[MechEng2005]

Yes, my previous post was meant as tongue-in-cheek. I don't support tax evasion, as if it is implemented on a large scale it will certainly cause my taxes to rise to make-up for those evading. Unless, of course, I am also evading taxes, in which case maybe I can hope that taxes go up across the board, but with my (hypothetical) evasion techniques, I break even. However, then I'm left feeling less morally righteous, and then I can't flaunt how wonderful of a citizen I am over people, and my enjoyment is decreased. Therefore, I think maybe the best solution is for RLee (and everybody) to pay double taxes on everything! Well, maybe just those in the USA. I don't think tax burdens/benefits from other countries will have much effect for me here.

- MechEng2005

 

[bvanhiel]

Despite the fact that I agree with most of the advice here, I wouldn't act on it. Ask your accountant. If you don't have an accountant, get one. If your accountant doesn't know the answer, get a different accountant.

-b