By Derek Takehara and Timothy Gustafson
The Virginia Tax Commissioner ruled that a taxpayer’s provision of electronic document and programming services in conjunction with its delivery of printed materials was not subject to sales and use tax. In addition to its sales of printed materials, the taxpayer provides electronic document services that allow customers and third parties to view electronic documents and transfer them to PDF format via the Internet and provides custom programming services to help customers make their data compatible with the taxpayer’s processing software. Under Virginia law, service charges are generally taxable when billed in connection with the sale of tangible personal property. However, the Commissioner determined the taxpayer’s electronic document services were exempt as nontaxable qualified information services since they were not integral to the taxpayer’s provision of printed materials, were optional and were billed separately. With regard to the programming services, the Commissioner applied Virginia’s “true object” test, noting the customers’ primary goal in paying for the services was for the unique services themselves and not the printed materials. Accordingly, the Commissioner ruled to the extent the taxpayer’s programming services were actually customized for a specific customer, the services qualified for Virginia’s statutory exemptions for custom programs and modifications to prewritten programs. Virginia Rulings of the Tax Commissioner, Document No. 14-14 (Jan. 30, 2014).