Tax Type
Retail Sales and Use Tax
Description
Royalty based pricing
Topic
Taxability of Persons and Transactions
Date Issued
03-06-1997
March 6, 1997
Re: Retail Sales and Use Tax: Request for Ruling
Dear********************
This is in reply to your letter in which you request a ruling on the application of the Virginia retail sales and use tax to an on-line service provided by *************(the "Taxpayer"), via the Internet.
FACTS
The Taxpayer provides a map service to customers through electronic transmission via the Internet. End users visit the website of the Taxpayer's customer to determine the nearest location of the customer's business establishment to the visitor's location. Upon accessing the website, a new web page appears displaying a map and proximity data. Additional maps are displayed as the end user inputs location information.
Pricing is royalty based and depends on the number of end users who access the maps each month. A monthly minimum fee is set for the first one hundred thousand maps accessed. Additional maps are priced on a per map basis. The Taxpayer questions the application of the sales and use tax to the map service provided to its customers.
RULING
Code of Virginia § 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...."
The department traditionally has held that transactions involving data accessed on-line by personal computers are nontaxable service transactions under Code of Virginia § 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.
According to the Taxpayer, the maps are provided for on-line viewing and are not downloaded into tangible form by either the customer or the end user. Because there is no exchange of tangible personal property, the transaction constitutes a nontaxable service transaction and the Taxpayer is not required to collect the Virginia tax on such transactions.
If in the future, the maps are provided via diskette or in another tangible form, a "sale" of tangible personal property would occur. "Sale" is defined in Code of Virginia § 58.1-602 as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property...." The provision of the maps in tangible form would represent the sale of tangible personal property and would be subject to the tax. See P.D. 91-224 (9/23/91) and P.D. 95-68 (3/30/95) which both explain the distinction between information provided in tangible form and that which is provided electronically.
In this instance, the royalties charged by the Taxpayer are not subject to the tax because such charges are made in connection with the provision of a nontaxable service transaction. If, however, the maps were provided in tangible form and subject to the tax as explained above, royalties charged in connection with the taxable product would also become subject to the tax. The tax would apply to the initial royalty charge for the first one hundred thousand maps and would also apply to the individual royalty charge for each additional map provided. See P.D. 91-29 (3/11/91) which discusses the department's policy regarding royalty charges.
I hope the foregoing has responded to your inquiry. I have enclosed copies of the cited statutes and public documents for your information. If you have additional questions, you may contact ********** at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11517J
Rulings of the Tax Commissioner