How did Virginia's communications tax apply to long-distance service, cellular content, permanent digital downloads, and qualifying prepaid calling services?

Subject

The sale or recharge of prepaid calling services are exempted

Plain-English summary

Virginia treated the provider's traditional long-distance service and per-minute cellular audio-visual content as communications services subject to the Communications Sales and Use Tax unless a specific exclusion or exemption applied. The statutory definition broadly covered electronic transmission of voice, data, audio, video, and other information.

Two exceptions mattered. A downloaded digital product could be excluded if the purchaser received permanent use without continuing payments. Separately, the sale or recharge of a prepaid calling service was exempt if it gave access exclusively to communications services, was paid in advance, used an access number or authorization code, and was sold in predetermined units or dollars that decreased with use.

The formal ruling did not classify every proposed content item conclusively. It stated conditional results based on whether the download or prepaid arrangement met the statutory definition. The official source also says to consult P.D. 13-17 for further clarification.

What this means for you

• Long-distance and streamed or per-minute mobile content started within the broad communications-service definition used in the ruling.
• Permanent digital downloads could be excluded, but continuing payments or lack of permanent-use rights could defeat that treatment.
• Paying in advance was not enough by itself; every element of the prepaid-calling-service definition had to be met.
• Technology and communications-tax guidance change, so confirm the later clarification and current rules.

Common questions

Q: Were all prepaid services exempt?
A: No. The exemption applied only when the arrangement met the full statutory definition of prepaid calling service.

Q: Were downloaded songs or ring tones taxed?
A: A qualifying digital product downloaded for permanent use without continuing payments was excluded from this tax under the ruling.

Q: Did the ruling give a final answer for every content service?
A: No. Its conclusions were conditional, and the source points to P.D. 13-17 for further clarification.

Citations and references

• Va. Code §§ 58.1-647 and 58.1-648 A, B, and C.
• House Bill 568, Acts of Assembly 2006, Chapter 780.
• Virginia Guidelines and Rules for the Virginia Communications Taxes (November 1, 2006).
• P.D. 13-17 is identified in the source as further clarification.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-64

Original ruling text

May 19, 2008

Re: Ruling Request: Communications Sales and Use Tax

Dear *:

This is in response to your letter requesting a ruling on the application of the Communications Sales and Use Tax to the content services provided by * (the "Taxpayer") to customers via cellular telephones and to the long distance telecommunication services offered by the Taxpayer.

FACTS

The Taxpayer provides traditional long distance telecommunication services to its customers. The services are sold on a per minute basis and may be paid for on either a prepaid or post paid basis.

The Taxpayer also plans to offer its customers access to audio-visual content ("content services") via cellular telephones. The content services include news, songs, ring-tones, sports live video, sports scores, astrology, stock information, recipes, travelogue, short stories, exam results, reality shows, and humorous content. The customer will dial a toll free number and enter an authentication code to access the content services. The customer will be charged on a per minute basis for listening to or viewing the content services. There will also be an additional fixed charge to download the content services for future use and reuse. The content services may be paid for on either a prepaid or post paid basis.

The Taxpayer requests a ruling regarding the application of the Communications Sales and Use Tax to these transactions.

DETERMINATION

Effective January 1, 2007, House Bill 568 (Acts of Assembly 2006, Chapter 780) replaced many of the state and local communications taxes and fees with a centrally administered Communications Sales and Use Tax. On November 1, 2006, the Department of Taxation ("TAX") issued Guidelines and Rules for the Virginia Communications Taxes ("Guidelines") to provide guidance to taxpayers and local governments regarding the new law.

Va. Code § 58.1-648(A) imposes "a sales or use tax on the customers of "communications services." Va. Code § 58.1-647 broadly defines "communications services" as:

the electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals, including cable services, to a point or between or among points, by or through any electronic, radio, satellite, cable, optical, microwave, or other medium or method now in existence or hereafter devised, regardless of the protocol used for the transmission or conveyance.

The Guidelines set forth a non-exclusive list of communications services meeting this definition that includes landline, wireless and satellite telephone services, and access (excluding Internet access service charges) and line charges. Additionally, the Guidelines list cable television, satellite television and satellite radio as communications services.

As the long distance telecommunications services provided by the Taxpayer meet the definition of communications services set forth in Va. Code § 58.1-647, they would be subject to the Communications Sales and Use Tax unless a specific exemption or exclusion applies.

As the content services offered by the Taxpayer also meet the definition of communications services set forth in Va. Code § 58.1-647, they would also be subject to the Communications Sales and Use Tax unless a specific exemption or exclusion applies.

Digital products delivered electronically, such as software, downloaded music, ring tones and reading materials are specifically excluded from the Communications Sales and Use Tax under Va. Code § 58.1-648(C). Digital products delivered electronically do not include any products that require continued payments from the purchaser or products that are sold without the right of permanent use granted by the seller. If the content services offered by the Taxpayer that are downloaded by the consumer for future use and reuse constitute digital property delivered electronically, they would not be subject to the Communications Sales and Use Tax.

The sale or recharge of prepaid calling services are exempted from the Communications Sales and Use Tax pursuant to Va. Code § 58.1-648(B). Va. Code 58.1-647 defines "prepaid calling service" as the right to access exclusively communications services, which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars that decrease in number with use. Accordingly, any of the communications services discussed above would be exempt from the Communications Sales and Use Tax if it meets the definition of a prepaid calling service.

CONCLUSION

The Va. Code sections and regulations cited, along with other reference documents, are available on-line in the Tax Policy Library section of TAX's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact * in the Office of Tax Policy, Policy Development Division, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

Note: See P.D. 13-17 for further clarification.

PD/1-1450160178

Related Documents

13-17