According to a recent ruling by the Tax Commissioner of Virginia, the purchase of licensed computer software qualifies for a sales and use tax exemption when it is purchased for use exclusively in research and development purposes, including if modified or improved with the intent to create and sell a new derivative product. The language of the software licensing contract should restrict its use to the development of a new software product. The language of the contract must prohibit any taxable use of the software. (Ruling of Commissioner, P.D. 06-35)