Ezel / Tax Rulings / VA
VA P.D. 10-264 Retail Sales and Use Tax 2010-12-15

Were subscriptions to an online commercial-information database, upgraded data packages, and web workflow tools taxable in Virginia?

Short answer: No. The core online database, upgraded electronic data packages, and web-based workflow add-ons were nontaxable service transactions because customers received no tangible personal property or software on a physical medium. The provider still owed sales or use tax on equipment and other property it used in Virginia, and separately supplied tangible reports or copies were taxable sales.

Apply this to your situation

This page answers the general question as of 2010. Ezel answers yours, under current Virginia tax law, with citations.

Currency note: this ruling is from 2010
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official published Ruling of the Virginia Tax Commissioner (Virginia Department of Taxation), issued as a redacted public document. It is based on the specific facts the taxpayer presented and the law in effect when issued; different facts or later changes in the law can change the result, and another taxpayer should not assume it applies to their situation. Virginia's retail sales and use tax is administered by the Department, but many Virginia local taxes, including the business license (BPOL) tax, business tangible personal property tax, and machinery and tools tax, are administered by local commissioners of the revenue. This summary is informational only and is not legal or tax advice. Consult a licensed Virginia tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Subject

Company providing commercial information about financial condition of businesses.

Plain-English summary

The online subscription and add-ons were nontaxable service transactions. Subscribers accessed business-credit and financial information through the Internet, generated customized reports online, and received no software or other tangible property.

The same result applied to separately priced upgraded data packages and web-based workflow tools. Electronically delivered software, data, content, and information were treated as services under the cited Virginia law; software sold on a tangible medium would be taxable.

The provider was still the taxable consumer of computers and other tangible property used in Virginia to deliver the service. Charges for duplicate tangible reports or other physical property were retail sales subject to tax.

What this means for you

  • Online access without tangible delivery was nontaxable under the ruling's facts.
  • Separate invoicing of an electronic add-on did not change that result.
  • Physical media or tangible report copies could create taxable sales.
  • The service provider owed tax on its own Virginia equipment and supplies.

Common questions

Were electronically delivered prewritten programs taxable?

No under the ruling; a program sold on tape, disk, or another tangible medium was taxable.

Did the exemption cover the provider's computers?

No. The provider owed sales or use tax on property used to provide the database services.

Citations and references

  • Va. Code § 58.1-609.5(1).
  • 23 VAC 10-210-4040(E).
  • P.D. 97-425, P.D. 97-405, P.D. 91-190, and P.D. 05-44, cited in the ruling.

Source

Original ruling text

December 15, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request a ruling on the application of the retail sales and use tax to a new service offered by your client, * (the "Taxpayer").

FACTS

The Taxpayer is engaged in providing commercial information about the financial condition of businesses. The Taxpayer maintains a database for customers to access firmographic and financial information to evaluate credit and supplier risk. For the new service offering, a paying subscriber will be able to access a global database via the Internet to perform searches and create customized reports of summary trade data, basic credit scores, legal filings, and general company information. The subscriber may also purchase upgraded data packages and workflow add-ons. For an additional fees, the Taxpayer offers six upgraded data packages that provide access to various additional data for viewing online or using to generate a report. The additional fee for an upgraded data package is included in the total annual subscription fee if purchased simultaneously with the core service offering. If purchased at a later date, the upgraded data package is invoiced separately. In addition to upgraded data packages, the Taxpayer offers workflow add-ons for an additional fee that is separately invoiced. The workflow add-ons are web based tools providing a variety of functionalities for customers. Customers receive no software.

RULING

Virginia Code § 58.1-609.5 1 provides an exemption from the sales and use tax for "[p]rofessional . . . or personal service transactions which involve sales as inconsequential elements for which no separate charges are made; and 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."

The Department has traditionally held that transactions involving data accessed on-line by personal computers are nontaxable service transactions under Va. Code § 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. See Public Document (P.D.) 97-425 (10/21/97). The Department has also long held that the sale of prewritten computer software that is electronically delivered via the Internet is a nontaxable service transaction. See P.D. 97-405 (10/2/97). In addition, the Department has held that electronically transmitted information for determining an applicant's credit worthiness is an exempt service transaction. See P.D. 91-190 (8/30/91). Thus, the downloading of electronic information whether as a computer program or compiled data does not constitute the transfer of tangible personal property.

Based on these authorities, I find that the charge for the Taxpayer's core service offering is a nontaxable service transaction because there is no transfer of tangible personal property. I also find that the Taxpayer's upgraded data packages and workflow add-ons are nontaxable service transactions. The sale of a prewritten program electronically transferred, copied, downloaded or delivered directly from one computer to another via the Internet constitutes an exempt service. By contrast, a prewritten program that is sold on a tangible medium ( e.g. , tape or disk) is taxable. See P.D. 05-44 (4/4/05).

The Taxpayer is liable for the Virginia sales or use tax on the cost price of computer equipment and any other tangible personal property used in Virginia in providing its database services to its customers. See Title 23 of the Virginia Administrative Code 10-210-4040 E. Furthermore, any charges that it makes for duplicate copies of tangible reports or other tangible personal property would constitute the sale of tangible personal property and would be subject to sales tax. See P.D. 91-190.

This response is based on the facts provided as, summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia section, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-4550106632.R

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