SALT Report 2531 – The Virginia Tax Commissioner issued a ruling regarding the taxability of video content delivered over the internet. The Taxpayer sells and rents videos which it delivers over the Internet to its customers’ high definition televisions or Blu-ray Disc Players. In order to access the video content, the customer’s equipment must be able to support the format the Taxpayer uses to deliver its video content which is streamed over the Internet.
When the video content is purchased, the content remains on a server owned and maintained by an independent third-party. The video content is streamed to the customer’s equipment as the customer views it. The customer does not own the video content; rather, the customer is purchasing a license to use the video content for an unlimited period of time and for an unlimited number of viewings.
When the video content is rented, the customer purchases a hybrid usage license. The license gives the customer 30 days to watch the video content before the license expires. However, once the video content is accessed, the customer only has 24 hours to watch the video content before it expires. The customer may view the video content as many times as they wish within that 24 hour period.
The Taxpayer requested guidance as to whether its sales of video content are exempt from the communications sales and use tax as digital products delivered electronically because the content is similar to exempt downloaded music and reading materials.
In its response, the Commissioner referred to the following tax laws and regulations:
- Virginia Code § 58.1-648 imposes a 5% communications sales and use tax on the customers of communications service providers,
- Virginia Code § 58.1-648 C provides that the communications service on which the tax is levied does not include “digital products delivered electronically, such as software, downloaded music, ring tones and reading materials,” and,
- Virginia Code § 58.1-647 which 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.”
Based on those regulations, the Commissioner determined that the communications sales tax does not apply to the Taxpayer’s sales of video content as they are deemed downloaded digital products. Furthermore, the type of license the Taxpayer offers to its customers, either with or without permanent use, does not affect the application of tax to the sale of the video content as determine by Commissioner ruling #P.D. 13-13.
Finally, the retail sales and use tax would not apply to sales of video content by the Taxpayer to its customers pursuant to Virginia Code §58.1-609.5(1) as the statute specifically exempts from sales and use tax “software, data, content, and other information services delivered electronically via the Internet.”
For Further Information