Tax Type
Retail Sales and Use Tax
Description
Taxability of e-Learning services: invoices contain both taxable and nontaxable components
Topic
Exemptions
Records/Returns/Payments
Taxable Transactions
Date Issued
09-22-2008
September 22, 2008
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter of December 10, 2007, requesting a ruling on behalf of ***** (the Taxpayer). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer licenses interactive web-based training and educational services (e-Learning). In connection with the e-Learning services, you ask for assistance in determining whether the Taxpayer has a responsibility to collect and remit sales tax as a result of doing business in Virginia. The Taxpayer's ruling request does not address nexus because the Taxpayer is registered to collect sales tax in Virginia.
RULING
You present a number of questions, which are presented below along with the responses.
1. Are sales of licenses to access e-Learning courses offered via the Internet subject to sales tax?
Response:
Virginia Code § 58.1-609.5 1 provides an exemption from the retail sales and use tax for "services not involving an exchange of tangible personal property which provide access to or use of the international network of computer systems commonly known as the Internet and any other related electronic communication service, including software, data, content and other information services delivered electronically via the Internet."
Thus, as long as there is no provision of tangible personal property such as eLearning software conveyed in a tangible format (via tape, diskette, etc.), the transaction is not taxable pursuant to the above exemption. See Public Document (P. D.) 02-111 (7/25/02).
2. Is access to an on-line mentoring service and reference library via the Internet subject to the tax?
Response:
-
- No. See response to Question #1.
3. If the sale of licenses to access e-Learning courses offered via the Internet is not a taxable transaction, would the subsequent delivery of the e-Learning course on CD-ROM create a taxable transaction? If yes, would the basis of the sales tax liability include the total fee or a pro-rata fee based on the percentage of time remaining in the user agreement?
Response:
Yes. Because the customer receives a tangible copy of the course software, the entire transaction constitutes the sale of tangible personal property and is taxable based on the total fee charged. See P.D. 02-94 (6/17/02) and P.D. 05-44 (4/4/05).
4. Are the sales of food safety courses accessed through the Internet and downloaded directly to the customer's computers subject to sales tax?
Response:
No. However, if the course software is subsequently provided to the customer via tangible media resulting from the initial electronic downloading, the transaction is taxable.
5. Are training needs analysis and development services subject to sales tax?
Response:
Generally, no. Virginia Code § 58.1-609.5 1 provides an exemption from the retail sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made." This exemption is interpreted by the regulation in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040. If no tangible personal property is provided, the transaction is exempt. For example, if a service report or analysis is conveyed to customers via Internet viewing or downloading only, no tax applies.
If both a service and tangible personal property are provided, the true object of the transaction must be determined in accordance with the rules set out in Section D of Title 23 VAC 10-210-4040. For instance, if the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable. In instances where both the services rendered and the property transferred are critical elements of a transaction, the degree of customization, uniqueness or specific services provided in connection with the product must be considered in determining its appropriate tax status.
6. If invoices contain both taxable and nontaxable components, will the entire sales transaction be taxable if the components are separately stated on the invoice?
Response:
Virginia Code § 58.1-602 defines sales pricey to mean "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever." [Emphasis added.] Accordingly, services provided in connection with the sale of tangible personal property are taxable even if separately stated unless the service charge is statutorily exempt from the tax. For example, a separately stated charge for installation labor is exempt pursuant to Va. Code § 58.1-609.5 2. Further, a separately stated transportation charge is exempt pursuant to Va. Code § 58.1-609.5 3. For further details on the transportation exemption, see Title 23 VAC 10-210-6000.
CONCLUSION
This response is based one the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
-
-
-
-
-
-
AR/1-2013719256.R
Rulings of the Tax Commissioner