In an opinion published on September 9, 2022, the Circuit Court of the City of Richmond held that a telecommunications equipment company was entitled to a sales tax refund on its sales of software, equipment, and related services sold to a telecommunications company.

Under Virginia law, software delivered electronically via the Internet is exempt from sales tax. The Commissioner argued that the software was not exempt because there was no invoice, contract, or other sales agreement certifying the delivery method “lack[ed] merit.” However, the court rejected this argument, concluding that there was no such requirement under the statute’s plain language.

The court further found that the taxpayer’s sales of equipment were exempt. Virginia law provides for two categories of exempt equipment: (i) broadcasting equipment and parts and accessories thereto, and (ii) amplification, transmission, and distribution equipment when used by certain entities. Among the qualifying entities are concerns that are under the regulation and supervision of the Federal Communications Commission. The court concluded that the equipment was broadcasting equipment and the purchaser was a concern regulated and supervised by the FCC. The equipment was also amplification equipment used by an open video system.  The court rejected the Commissioner’s argument that the purchaser had to be a retail internet service provider in order for the sales to qualify as exempt.  Rather, the Commissioner had “read[ ] words into the statute” and added limitations the legislature did not enact. Finally, the court noted that the Commissioner’s position was also wrong as a matter of fact—the purchaser was a retail ISP under another entity’s brand.

Alcatel-Lucent USA Inc. v. Virginia Department of Taxation, Case No. CL 20-3591 (Va. Cir. Ct. Richmond published Sept. 9, 2022).