Tax Type
Communications Sales and Use Tax
Description
Application of communications tax to the sale of video content delivered via Internet
Topic
Communications Sales and Use Tax
Documents Subject to Tax
Subtractions and Exclusions
Taxable Transactions
Date Issued
05-02-2013
May 2, 2013
Re: Request for Ruling: Communications Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of your client (the "Taxpayer"), in which you request a ruling on the application of the communications sales and use tax (the "communications tax") to the sale of video content delivered to the Taxpayer's customers via the Internet. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer is engaged in the business of selling or renting video content delivered over the Internet to its customers' high definition television or Blu-ray Disc Player (the "equipment"). The Taxpayer does not provide the Internet access service over which the video content is delivered. In order to access the video content, the customer's equipment must be able to support the protocol by which the Taxpayer delivers its video content. The content available includes a large library of video contents and television shows.
The Taxpayer does not charge a monthly subscription fee for this service. Rather, its customers are charged a per-program fee. The fees vary depending upon whether the content is purchased or rented and upon the type of content being purchased or rented. In order to access the video content, the customer must first activate a billing account with the Taxpayer.
The content is streamed over the Internet connection through a buffering mechanism. When the video content is purchased, the content remains on a server owned and maintained by a third-party in a contractual relationship with the Taxpayer. 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 purchases a license to use the video content for an unlimited period of time and an unlimited number of viewings.
When the video content is rented, the customer purchases a hybrid usage license. The license gives the customer a 30 day period within which to watch the video content before the license expires. Once the video content is accessed through the Internet and the "play" mechanism is activated on the customer's equipment, the customer has a 24 hour period within which to watch the video content. The customer may view the video content an unlimited amount of times within the 24 hour period. The license expires at the conclusion of the 24 hour period, regardless of whether there are remaining days in the 30 day license and whether the customer has actually viewed the content.
Based upon the capability of the customer's equipment, the customer may store the video content on an electronic storing device for future viewing. When the customer purchases the video content, the customer has the option of downloading, rather than streaming the video content for future viewing. In the case of downloaded rentals, the same hybrid usage license applies.
The Taxpayer presents three questions to be addressed:
- 1. Is the sale of video content streamed over the Internet to a customer's viewing device subject to the communications tax?
The Taxpayer maintains that the video content is best characterized as a digital product delivered electronically. The Taxpayer further contends that the video content falls within the statutory exclusion from the communications tax, as the content is similar to downloaded music and reading materials as considered in Public Document (P.D.) 08-64 (5/19/08).
RULING
Virginia Code § 58.1-648 A imposes the 5 percent communications sales and use tax on the customers of communications service providers. Virginia Code § 58.1648 C provides, in pertinent part, that the communications services on which the tax is hereby levied shall not include "digital products delivered electronically, such as software, downloaded music, ring tones and reading materials."
Virginia Code § 58.1-647 defines communications services, in pertinent part, 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.
In P.D. 08-64, the taxpayer requested a ruling regarding the application of the communications sales tax to sales of audio-visual content ("content services") transferred to its customers via cellular telephones. The content services included 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 would be charged on a per minute basis for listening to or viewing the content services. There would also be an additional fixed fee charge to download the content services for future use and reuse. The content services would be paid for on either a prepaid or post paid basis. It was ruled that digital products delivered electronically do not include any products that require continued payments from the purchaser or products that are without the right of permanent use granted by the seller. It was further ruled that content services downloaded by a consumer for future use and reuse constitute digital property delivered electronically and would not be subject to the communications sales tax.
P.D. 13-13 (2/5/13) overturns the portion of P.D. 08-64 that makes a distinction 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.
Based upon the information provided and in accordance with P.D. 13-13, the video content at issue is deemed a digital product downloaded electronically to the Taxpayer's customers. In accordance with Va. Code §§ 58.1-647 and 58.1-648, the communications sales tax does not apply to the sale of the Taxpayer's video content to its customers. The type of license granted to the customers (with or without permanent use) does not affect the application of the tax to the sale of the video content by the Taxpayer to its customers. The other types of digital content (books and music) delivered by the Taxpayer to its customers over the Internet are excluded from the communications sales and use tax in accordance with Va. Code § 58.1-648 C.
Additionally, pursuant to Va. Code § 58.1-609.5 1, the Virginia retail sales and use tax would not apply to sales of video content by the Taxpayer to its customers. The statute exempts from the tax "software, data, content and other information services delivered electronically via the Internet."
I hope this responds to your inquiry. This response is based upon 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 sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions 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,
Craig M. Burns
Tax Commissioner
AR/1-4617822806.P
Rulings of the Tax Commissioner