Tax Type
Retail Sales and Use Tax
Description
Prepaid Internet access cards
Topic
Taxability of Persons and Transactions
Date Issued
03-26-2003
See 2007 updated Tax Code 58.1- 602
Re: Request for Ruling: Retail Sales Tax
Dear *******************:
This is in reply to your letter of November 6, 2002, in which you request a ruling regarding the application of the retail sales tax to sales of prepaid cards that allow for timed access to the Internet.
Prepaid Internet Service
The consumer purchases a prepaid card that holds a specified amount of Internet access time. Included with the prepaid card is a start-up CD that the consumer must use to gain access to the Internet Service Provider's (ISP) web site. Once logged onto the Internet, the consumer may access the service for the limited amount of time represented by the prepaid card.
Prepaid Internet Service Refill Card
A consumer may purchase a refill card to add additional minutes to an already established prepaid Internet service. This product is essentially identical to the prepaid card with the exception that there is no start-up CD included.
Prepaid Internet Service
Va. Code § 58.1-609.5(1) provides an exemption from the retail sales and use tax for professional, insurance, or personal service transactions that involve sales as inconsequential elements for which no separate charges are made.
The Department traditionally has held that transactions involving data accessed on line by personal computers are nontaxable service transactions pursuant to Va. Code § 58.1-609.5(1). In this instance, the prepaid card allows for the purchase of time to be used in accessing the Internet. Included with the prepaid card is a start-up CD for which no separate charges are made. The start-up CD when loaded into a consumer's personal computer allows for the consumer to access the Internet for the amount of time specified by the card.
The Department has previously ruled in Public Document 93-105 (4/19/93) that transactions involving the retail sale of prepaid phone cards for long distance telephone service are not subject to sales tax. The "true object" of purchasing a phone card is to secure the telephone service. The card serves as the medium for securing the service. Similarly, the "true object" of the transaction at issue is to secure the Internet access service. Therefore, the sales of the prepaid cards, inclusive of the start-up CD, are not subject to the sales tax.
Prepaid Internet Service Refill Card
The same application of the tax also applies to the sales of the prepaid Internet service refill cards. The Taxpayer is not required to collect the Virginia retail sales tax on such sales.
Copies of the Code of Virginia sections and public documents cited, along with other reference documents, are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this matter, please contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
AR/43691Q
March 26, 2003
Re: Request for Ruling: Retail Sales Tax
Dear *******************:
This is in reply to your letter of November 6, 2002, in which you request a ruling regarding the application of the retail sales tax to sales of prepaid cards that allow for timed access to the Internet.
FACTS
Prepaid Internet Service
The consumer purchases a prepaid card that holds a specified amount of Internet access time. Included with the prepaid card is a start-up CD that the consumer must use to gain access to the Internet Service Provider's (ISP) web site. Once logged onto the Internet, the consumer may access the service for the limited amount of time represented by the prepaid card.
Prepaid Internet Service Refill Card
A consumer may purchase a refill card to add additional minutes to an already established prepaid Internet service. This product is essentially identical to the prepaid card with the exception that there is no start-up CD included.
RULING
Prepaid Internet Service
Va. Code § 58.1-609.5(1) provides an exemption from the retail sales and use tax for professional, insurance, or personal service transactions that involve sales as inconsequential elements for which no separate charges are made.
The Department traditionally has held that transactions involving data accessed on line by personal computers are nontaxable service transactions pursuant to Va. Code § 58.1-609.5(1). In this instance, the prepaid card allows for the purchase of time to be used in accessing the Internet. Included with the prepaid card is a start-up CD for which no separate charges are made. The start-up CD when loaded into a consumer's personal computer allows for the consumer to access the Internet for the amount of time specified by the card.
The Department has previously ruled in Public Document 93-105 (4/19/93) that transactions involving the retail sale of prepaid phone cards for long distance telephone service are not subject to sales tax. The "true object" of purchasing a phone card is to secure the telephone service. The card serves as the medium for securing the service. Similarly, the "true object" of the transaction at issue is to secure the Internet access service. Therefore, the sales of the prepaid cards, inclusive of the start-up CD, are not subject to the sales tax.
Prepaid Internet Service Refill Card
The same application of the tax also applies to the sales of the prepaid Internet service refill cards. The Taxpayer is not required to collect the Virginia retail sales tax on such sales.
Copies of the Code of Virginia sections and public documents cited, along with other reference documents, are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this matter, please contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
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Kenneth W. Thorson
Tax Commissioner
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AR/43691Q
Rulings of the Tax Commissioner