November 6, 2024
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter on behalf of your client, a Virginia-based business, in which you request a ruling on the application of the retail sales and use tax, and the communications sales and use tax on the taxability of cloud-based services.
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.
FACTS
The business, a provider of practice management services to healthcare providers, offers three types of web-based applications to its customers: billing and claims, records manager, and transmission services.
The billing and claims application is a practice management and revenue cycle service application that offers administrative and billing-related functions for physician practices. These functions include tracking insurance claims, managing patient billing, posting payments, and accessing a payer-specific reimbursement database.
The records manager application offers managed and automated medical record and patient workflow-related services. Customers can configure the product to determine what information is shared with patients and third parties. Depending on the scope of the subscription, the business may also render services such as coordination between its customers and third-party providers, maintenance of patient records, and support for new customers during the onboarding process.
The transmission application offers on-demand interaction between patients and provider practices, including a patient portal. The three facets of this application include messaging, access to live operators, and a patient portal. Depending on the scope of the subscription, live agent operators can provide certain services, including scheduling patient appointments, collecting payments, and relaying patient messages.
The business does not provide any equipment, media, or any other items of tangible personal property in the provision of the products or performance of these services. Individual products may be purchased on a recurring monthly charge separately or bundled together. All the products are provided on a cloud-based platform and accessed by customers through their own equipment and internet service provider. The Taxpayer requests a ruling on the applicability of Virginia sales and use tax and Virginia communications tax for each facet of their products and services offered to customers.
RULING
Retail Sales and Use Tax
Virginia Code § 58.1-609.5 1 provides an exemption from the retail sales and use tax for:
Professional, insurance, or personal service transactions which involve 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.
Generally, cloud-computing services are treated in the same manner as the electronic download and transfer of software products. There is typically no transfer or provision of tangible personal provided to customers of cloud-computing services. See Public Document (P.D.) 12-191 (11/29/2012) and P.D. 16-135 (6/24/2016).
Based on the facts presented in the ruling request, the service and product transactions between the business and its customers are not subject to the Virginia sales and use tax.
While the transactions with its customers may be exempt, the business would generally be liable for the Virginia retail sales or use tax on the cost price of computer equipment, software, hardware, and any other tangible personal property used in Virginia in providing services to its customers. See Title 23 of the Virginia Administrative Code 10-210-4040 E and P.D. 13-182 (10/18/2013).
Communications Tax
The Virginia Communications Sales and Use Tax Act is applicable to specific communications services defined in Virginia Code § 58.1-648. The descriptions of the products at issue does not meet the criteria described in the statute. Virginia Code § 58.1-651 provides “[t]he tax levied by § 58.1-648 shall be collectible by all persons who are communications services providers, who have sufficient contact with the Commonwealth to qualify under subsection B, and who are required to be registered under § 58.1-653.” Virginia Code § 58.1-647 defines a communications services provider as “every person who provides communications services to customers in the Commonwealth and is or should be registered with the Department as a provider.” In this case, the business is not the provider of communications services. Rather, they are offering a cloud-based platform for their customers, who access this service through their own communications service provider.
Based on the facts presented in the ruling request, the service and product transactions between the business and its customers set forth in this ruling are not subject to the Virginia Communications Sales and Use Tax.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****@tax.virginia.gov.
Sincerely,
Kristin Collins
Deputy Commissioner for Tax Policy
Commonwealth of Virginia