10-264 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Company providing commercial information about financial condition of businesses.

Topic

Exemptions

Property Subject to Tax

Tangible Personal Property

Date Issued

12-15-2010

December 15, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you request a ruling on the application of the retail sales and use tax to a new service offered by your client, ***** (the "Taxpayer").

FACTS

The Taxpayer is engaged in providing commercial information about the financial condition of businesses. The Taxpayer maintains a database for customers to access firmographic and financial information to evaluate credit and supplier risk. For the new service offering, a paying subscriber will be able to access a global database via the Internet to perform searches and create customized reports of summary trade data, basic credit scores, legal filings, and general company information. The subscriber may also purchase upgraded data packages and workflow add-ons. For an additional fees, the Taxpayer offers six upgraded data packages that provide access to various additional data for viewing online or using to generate a report. The additional fee for an upgraded data package is included in the total annual subscription fee if purchased simultaneously with the core service offering. If purchased at a later date, the upgraded data package is invoiced separately. In addition to upgraded data packages, the Taxpayer offers workflow add-ons for an additional fee that is separately invoiced. The workflow add-ons are web based tools providing a variety of functionalities for customers. Customers receive no software.

RULING

Virginia Code § 58.1-609.5 1 provides an exemption from the sales and use tax for "[p]rofessional . . . or personal service transactions which involve sales as inconsequential elements for which no separate charges are made; and services not involving an exchange of tangible personal property which provide access to or use of the Internet and any other related electronic communication service, including software, data, content and other information services delivered electronically via the Internet."

The Department has traditionally held that transactions involving data accessed on-line by personal computers are nontaxable service transactions under Va. Code § 58.1-609.5(1). This is also true of information sent via fax, Internet, or other electronic means. Intangible property or services generally are Exempt from the tax unless provided in connection with the sale of tangible personal property. See Public Document (P.D.) 97-425 (10/21/97). The Department has also long held that the sale of prewritten computer software that is electronically delivered via the Internet is a nontaxable service transaction. See P.D. 97-405 (10/2/97). In addition, the Department has held that electronically transmitted information for determining an applicant's credit worthiness is an exempt service transaction. See P.D. 91-190 (8/30/91). Thus, the downloading of electronic information whether as a computer program or compiled data does not constitute the transfer of tangible personal property.

Based on these authorities, I find that the charge for the Taxpayer's core service offering is a nontaxable service transaction because there is no transfer of tangible personal property. I also find that the Taxpayer's upgraded data packages and workflow add-ons are nontaxable service transactions. The sale of a prewritten program electronically transferred, copied, downloaded or delivered directly from one computer to another via the Internet constitutes an exempt service. By contrast, a prewritten program that is sold on a tangible medium (e.g., tape or disk) is taxable. See P.D. 05-44 (4/4/05).

The Taxpayer is liable for the Virginia sales or use tax on the cost price of computer equipment and any other tangible personal property used in Virginia in providing its database services to its customers. See Title 23 of the Virginia Administrative Code 10-210-4040 E. Furthermore, any charges that it makes for duplicate copies of tangible reports or other tangible personal property would constitute the sale of tangible personal property and would be subject to sales tax. See P.D. 91-190.

This response is based on 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 section, regulation 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 response, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- Linda D. Foster
  Deputy Tax Commissioner

AR/1-4550106632.R

Rulings of the Tax Commissioner