Document Number
Tax Type
Retail Sales and Use Tax
Electronic Delivery of Software
Date Issued


June 8, 2018



Re:    § 58.1-1821 Application: Retail Sales and Use Tax


Dear *****:


This will reply to your letter in which you seek the correction of the retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period July 2012 through June 2015.  I apologize for the delay in responding to your appeal.




The Taxpayer provides IT solutions to government agencies.  The Taxpayer was audited and assessed use tax on the purchase of software and a maintenance agreement for the software.  The Taxpayer contends the software and the maintenance agreement were delivered electronically, and the purchases qualify for the sales and use tax exemption in Virginia Code § 58.1-609.5 1.




Virginia Code § 58.1-609.5 1 provides an exemption from the tax, in part, for “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.”  Public Document (P.D.) 05-44 (4/4/05) sets out the Department's minimum documentation requirements for confirming the electronic delivery of software products.  P.D. 05-44 provides that “at a minimum a sales invoice, contract or other sales agreement must expressly certify the electronic delivery of the software and that no tangible medium for that software has been furnished to the customer.”


The Taxpayer cites P.D. 16-124 (6/22/16) to support its claim that the purchase of the software and maintenance agreement qualify for exemption.  In P.D. 16-124, the Tax Commissioner ruled that a vendor's email statement was insufficient proof that software sold to the taxpayer was delivered electronically because the email did not reference the specific sales transaction that was assessed by the Department and appealed by the taxpayer.


The Taxpayer has provided copies of the vendor's quote, the purchase order, the sales invoice and correspondence from the vendor for the transaction at issue. The vendor's correspondence references the purchase order number for the contested transaction and states that the software and related maintenance were delivered electronically and were not physically delivered to the Taxpayer.  The Taxpayer maintains that the vendor's correspondence and the sales documentation provide the necessary evidence to prove that the software and maintenance agreement were delivered electronically.  Unlike P.D. 16-124 in which the documentation did not reference the specific transaction under appeal, the Taxpayer contends that the documentation provided identifies the contested purchase transaction.  As such, the purchase should qualify for exemption.


Virginia Code § 58.1-205 1 states that “[a]ny assessment of a tax by the Department shall be deemed prima facie correct.”  Thus, the burden is on taxpayers to prove that an assessment made by the Department is erroneous. While the Taxpayer has provided correspondence from the vendor that references the purchase order number for the contested transaction, this fact alone is insufficient evidence that electronic delivery was the only method available for delivery of the software.  The determination in P.D. 16-124 was not based solely on the fact that the email correspondence provided did not reference the specific transaction in the appeal.  For this reason, the Taxpayer cannot rely solely on the vendor's correspondence stating that the software and maintenance agreement were delivered electronically.  The Taxpayer has not provided any of the types of documentation, i.e., a sales invoice, contract or sales agreement, which contain the required certification language discussed in P.D. 05-44.  I also note that the vendor's sales invoice lists a ship to address and states that the delivery method is ground, which indicates the possibility that the software and maintenance agreement may have been delivered by a tangible medium.


P.D. 11-70 (5/11/11) discusses a similar situation in which a taxpayer contested an audit assessment on the purchase of software and provided email correspondence from the software vendor stating that there was no delivery of software via tangible media.  The Tax Commissioner ruled that the vendor's email correspondence alone was not sufficient evidence to support the removal of the purchase from the taxpayer's audit. P.D. 11-70 further states that documentation must be one of the types discussed in P.D. 05-44 in order to demonstrate that the sale of software qualifies for the exemption in Virginia Code § 58.1-609.5 1.  These forms of documentation establish the terms of delivery at or before the time of the sale, which is not the case with email correspondence received after the transaction takes place. The Department's position is further supported by P.D. 05-114 (7/18/05), which states that the Department looks to the underlying documents that support a transaction to determine the intent and the application of the tax to a transaction.


Based on the foregoing, the audit assessment issued to the Taxpayer on the untaxed purchase of the software and maintenance agreement is correct.  The Taxpayer will be issued updated versions of Bill numbers ***** and *****.  The bills will reflect accrued interest to date and should be paid within 30 days to avoid the accrual of additional interest.


The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at in the Laws, Rules and Decisions section of the Department's website.  If you should have any questions concerning this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.




Craig M. Burns
Tax Commissioner







Rulings of the Tax Commissioner

Last Updated 07/16/2018 10:59