Electronically-Delivered Prewritten Software Not Taxable in Virginia

The Tax Commissioner of Virginia has reversed a sales and use tax auditor’s determination that tax was due on a software developer’s charges for prewritten software that was electronically delivered to the customer. Virginia code provides an exemption for electronically-delivered prewritten software, provided that at a minimum, the sales invoice, contract, or other sales agreement expressly certifies the electronic delivery of the software and that no tangible medium for that software has been or is to be furnished to the customer. The Statement of Work of the contract entered into by the software developer and its customer expressly stated that the software would be delivered electronically. Further, the software developer furnished an email that was sent to the customer stating that the software files were uploaded to a public file transfer protocol (FTP) server for download, which is a common method for downloading or transferring data from one computer to another over the internet. Although the software maintenance and support terms set out in a schedule attached to the contract stated that supported methods of electronic transfer include CD-ROMS or diskettes, this language does not apply to the software at issue because these maintenance terms were not integrated into the contract’s Statement of Work. Therefore, the Statement of Work was sufficient to establish that the software was intended for electronic delivery, and the furnished email shows that this intention was carried out. (Ruling of Commissioner, P.D. 09-83, Virginia Department of Taxation, May 28, 2009)

Posted on August 5, 2009