Tax Type
Retail Sales and Use Tax
Description
Computers, services and software
Topic
Taxability of Persons and Transactions
Date Issued
10-03-1997
October 2, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear**************
This is in reply to your letter of August 12, 1997 regarding the application of the Virginia retail sales and use tax to********* (the "Taxpayer").
FACTS
The Taxpayer is headquartered out-of-state and is registered for the collection of Virginia sales tax. The Taxpayer sells canned software to Virginia customers via its website on the Internet. The customer visits the Taxpayer's website and selects a software product. The customer completes an on-line questionnaire providing name and address information. Upon payment by credit card number, the customer is allowed access to the software product for downloading to their personal computer. The Taxpayer poses a number of questions regarding the tax application to its sales of software on the Internet. I will respond to the questions as presented.
RULING
Question 1: Is the sale of software to Virginia customers subject to the tax when delivery is made via the Internet?
No. Code of Virginia § 58.1-609.5(1) provides an exemption from the retail sales and use tax for professional, 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. In this instance, the software is provided by electronic means to the customer, and there is no exchange of tangible personal property. The transaction, therefore, constitutes a nontaxable service transaction and the Taxpayer is not required to collect the Virginia sales tax on the charges for such transactions.
Question 2: Does the location of the Taxpayer's server have any bearing on the taxability of the transactions?
No. The server maintains the Taxpayer's website location on the Internet. Because there is no exchange of tangible personal property, the provision of this service to the Taxpayer constitutes a nontaxable service transaction. Further, the maintenance of the website by the server for the Taxpayer constitutes a separate transaction from the Taxpayer's sale of software to customers via the website. Therefore, the location of the Taxpayer's server, in or outside Virginia, would not impact the taxability of the Taxpayer's sales of software by electronic means to Virginia customers.
Question 3: Would the Taxpayer's provision of a software manual included in the price of the software and downloaded by the customer along with the software ******* affect the taxability of the transaction?
No, both the manual and the software are provided by electronic means. As noted in Question 1, the transaction does not involve the exchange of tangible personal property and constitutes a nontaxable service.
Question 4: Would the Taxpayer's provision of a software manual included in the price of the canned software and provided in hard copy and delivered via U.S. ******** mail subject the entire charge to the Virginia sales tax.
Yes. The department has consistently held the provision of canned software to be taxable when the transaction involves the exchange of tangible personal property. In this instance, the provision of a hard copy manual in conjunction with the canned software constitutes the exchange of tangible personal property and the entire charge for the transaction is taxable.
In addition, "sales price" is defined in Code of Virginia § 58.1-602 to mean the "total amount for which tangible personal property or services are sold, including any services that are a part of the sale...without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever...." Emphasis added. Under this definition, the entire charge to the customer becomes subject to the tax since tangible personal property is provided and included in the transaction charge.
I have enclosed copies of the cited statutes and Public Document (P.D.) 97-117 (3/6/97) dealing with the application of the tax to sales transactions via electronic commerce. Also enclosed is a copy of P.D. 95-68 (3/30/95), with attachments, which explains the distinction between information provided in tangible form and that which is provided electronically.
I hope the foregoing has responded to your inquiry. If you have additional questions, you may contact ******** at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12892J
Rulings of the Tax Commissioner