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

February 23, 2021

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

Dear *****:

This will reply to your letter in which you seek the reconsideration of a prior appeal determination issued to ***** (the “Taxpayer”) for the period July 2012 through June 2015. I apologize for the delay in responding to your letter.


The Taxpayer was audited and assessed use tax on the purchase of software and a maintenance agreement for the software. The Taxpayer filed an administrative appeal of the assessment maintaining that the software and the maintenance agreement were delivered electronically and qualified for a sales and use tax exemption.

The Tax Commissioner responded to the Taxpayer’s appeal in Public Document (P.D.) 18-111 (6/8/2018) and concluded in the determination that the assessment issued to the Taxpayer on the untaxed purchase of the software and maintenance agreement were correct. In this request, the Taxpayer provides additional documentation that it claims demonstrates the electronic delivery of such purchases sufficient to qualify for the cited exemption.


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.”  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.”  P.D. 16-124 (6/22/2016), addressed in the prior determination states that supporting documentation, such as an email or statement from a vendor, must reference the transaction with specificity in order to be included with any other proof of the software delivery method.

In the request for reconsideration, the Taxpayer has provided copies of the vendor’s quote, the purchase order, the sales invoice, and email correspondence from the vendor regarding 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 service 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, the Taxpayer contends that the documentation provided identifies the contested purchase transaction. As such, the purchase should qualify for exemption. 

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 that was appealed. For this reason, the Taxpayer cannot rely solely on the vendor’s statement that the software and maintenance agreement were delivered electronically. The Taxpayer provided materials that meet the document requirements stated in P.D. 05-44; however the invoice states the address the Taxpayer provided for delivery, the shipping method is stated as ground, and the shipping term is stated as FOB (free on board). The Taxpayer did not submit a document indicating the software was delivered electronically, such as a confirmation email of such an electronic delivery. Consequently, the Taxpayer has failed to provide sufficient documentation to overcome its burden of proving the software was electronically delivered.  

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 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 decision in this case is consistent with more recent determinations issued by the Department in regard to the documentation requirements. P.D. 19-24 (4/8/2019) and P.D. 20-5 (1/21/2020) cite P.D. 15-53 (7/16/2015) in which the Tax Commissioner allowed the exemption at issue because the taxpayer in that instance provided vendor statements and sales invoices that confirmed electronic delivery of the software. The documents reviewed in conjunction with sales invoices reviewed during the audit met the minimum documentation requirements for exemption consistent with P.D. 05-44. The decision in this instance is further supported by P.D. 05-114 (7/18/2005), 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.

The Taxpayer has cited P.D. 95-49 (3/20/1995) in its request for reconsideration of the assessed taxes on its maintenance agreement purchased in conjunction with its purchase of software. Specifically, the Taxpayer requests the assessed taxes for its maintenance purchase be removed from the assessment due to the exemption of tax applied to the electronic delivery of software under Virginia Code § 58.1-609.5 1. Due to the determination that the Taxpayer did not receive the software at issue through an electronic delivery, the Taxpayer’s request for removal of the taxes assessed for the maintenance agreement cannot be granted

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 copies of bill #s 33322 and 33323. The bills will reflect accrued interest to date and should be paid within 60 days to avoid the accrual of additional interest.

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 should have any questions concerning this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.



Craig M. Burns
Tax Commissioner



Last Updated 04/09/2021 14:11