Virginia Rules Internet Video Streaming is Not Subject to Communications Sales and Use Tax

Thursday, February 14th, 2013


The Virginia Department of Taxation (DOT) has recently released a ruling determining that providing video content over the Internet is not subject to Virginia's communications services tax. Va. Rul. of the Tax Commr. No. 13-17 (Feb, 5 2013).

The taxpayer submitted a letter to the DOT requesting a correction of the communications sales and use tax assessments. The taxpayer provides an Internet-based service that allows its customers to search for, select, and view television and video content through the taxpayer's website. The taxpayer argued that the service it provides is not subject to the communications sales tax because it is not a communications service; rather, it is a "digital product, delivered electronically," which is expressly excluded from the communications tax. See Va. Code sec. 58.1-648(C)(viii).

The Commissioner agreed with the taxpayer and determined that the transactions at issue were, indeed, sales of digital products that were delivered electronically. Virginia specifically excludes "digital products, delivered electronically" from communications services on which communications tax is levied, and, therefore, the content provided by the taxpayer is not subject to this tax. See Va. Code sec. 58.1-648(C)(viii). Accordingly, the Commissioner granted the taxpayer's request for a correction of the communication sales and use tax assessments.

The Commissioner also addressed whether a previous ruling, Public Document No. 08-64, provides any basis for taxation of the service in question. See Va. Rul. of the Tax Commr. No. 08-64 (May 19, 2008). The Commissioner decided to overturn the portion of that earlier ruling that distinguished between digital products that are downloaded electronically and charged to customers on a monthly recurring basis and those digital products that are downloaded electronically and customers are charged a one-time fee. Now the DOT sees no distinction between digital products that are downloaded electronically based on the nature of the payments. Thus, the earlier ruling provides no basis for assessing tax on the taxpayer's sale of content to its customers.

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