Document Number
Tax Type
Retail Sales and Use Tax
Exemption: Software - Electronic Delivery Requirements
Date Issued

September 7, 2021

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

Dear *****:

This is in response to your letter in which you seek correction of the retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period January 2011 through April 2017. I apologize for the delay in responding to your appeal. 


The Taxpayer, a medical services group, contracted with two vendors for the purchase of software and maintenance for the software. As a result of the Department’s audit, the Taxpayer was assessed use tax on its purchases the software and maintenance agreements. The Taxpayer appeals, contending the software and maintenance agreements were delivered electronically, and the purchases qualify for the sales and use tax exemption provided in Virginia Code § 58.1-648 C (viii). In support of this contention, the Taxpayer has furnished a letter and emails from the vendors stating the software and maintenance agreements were delivered electronically.


The Taxpayer erroneously relies on Virginia Code § 58.1-648 C (viii) as the basis for the request that the software and maintenance agreement purchases be removed from the audit. This statute is applicable only to the Communications Sales and Use Tax, which is not at issue here. Virginia Code § 58.1-609.5 1 sets forth an exemption from the retail sales and use 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 (4/4/2005) 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.”  Without such proof, the Department will assume that the software is conveyed in tangible form and consider the software to be a taxable sale of tangible personal property. This is especially true when an invoice shows a Virginia ship-to address. 

P.D. 11-70 (5/11/2011) 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 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.

P.D. 16-124 (6/22/2016) further clarified the Department’s position regarding a vendor’s email in stating that such an email is 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. 

***** (Vendor 1)
The Taxpayer has provided two letters and several emails from Vendor 1. The letters indicate that the software and services were delivered to the Taxpayer in electronic form only. Vendor 1 also states, however, that sales tax had occasionally been applied to invoices for software and services in error. The Taxpayer did not provide sales invoices, contract or an agreement as required by P.D. 05-44. Further, the correspondence provided from Vendor 1 does not specify the sales transaction in which it is referring, but instead speaks generally to the business relationship between itself and the Taxpayer. 

***** (Vendor 2)

Similar to Vendor 1, the Taxpayer has provided several emails from Vendor 2 indicating that delivery of their software products was done through electronic means only. However, invoices provided during the audit show a shipping address as well as sales tax charged, which serves as evidence for the transfer of tangible personal property. The Taxpayer has not provided the contractual agreement or other document expressly certifying the electronic delivery of the software being purchased. 


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 Vendor 1 and 2 which reference the electronic nature of the delivery, this fact alone is insufficient evidence that electronic delivery was the method of delivery of the software and the maintenance agreements. Further, 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 Vendor 2’s sales invoice includes a shipping address, which indicates the possibility that the software and maintenance agreement may have been delivered by a tangible medium. 

Based on the foregoing, the audit assessments issued to the Taxpayer on the untaxed purchases of software and maintenance agreements are correct. Updated bills, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessments are paid within 60 days of the date of this letter.

The Code of Virginia sections and public documents cited are available on-line at in the Laws, Rules, and Decisions section of the Department’s website. If you have any questions about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.



Craig M. Burns
Tax Commissioner



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Last Updated 03/04/2022 06:35