Were Internet-delivered call-tracking services exempt from Virginia sales tax or taxable as communications services?

Plain-English summary

Virginia exempted the call-tracking information service from retail sales tax but treated the call routing as taxable communications service. Customers called toll-free numbers, out-of-state servers captured caller information, routed the calls to retailers or dealers, and made the data available online.

Because the information service was delivered electronically without tangible personal property, it qualified for the retail sales-and-use-tax exemption in Va. Code § 58.1-609.5(1).

The toll-free routing also met the broad communications-service definition, which covered electronic transmission or routing of voice, data, and other signals. It was therefore subject to the communications sales and use tax unless a specific exclusion applied.

For one nonitemized charge combining taxable and nontaxable components, the nontaxable portion remained taxable unless the provider could reasonably identify it using books and records maintained in the ordinary course of business rather than created for tax purposes.

What this means for you

• Analyze retail sales tax and communications tax separately.
• Electronic information delivery can be retail-sales-tax exempt while call routing remains communications-taxable.
• Preserve billing systems, ledgers, financial statements, and other regular records supporting allocation.
• An unsupported bundled price can make the full charge taxable.

Citations and references

• Va. Code §§ 58.1-609.5(1), 58.1-647, 58.1-648(A), and 58.1-650.
• 2006 Va. Acts ch. 780 (House Bill 568).
• Virginia Public Document 06-138 (November 1, 2006).

Subject

Communications call tracking services

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-185

Original ruling text

November 9, 2011

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter in which you request a ruling regarding the application of the Virginia retail sales and use tax to call tracking services. I apologize for the delay in responding.

FACTS

Company A offers call tracking services to retailers and dealers. Call tracking collects information about the calling customers through toll free numbers. Company A secures the toll free numbers from Company B, which is an out-of-state company. After Company A sells the call tracking services to the retailers and dealers, any calls that are received through the toll free numbers are connected to Company B's servers in another state. These servers take certain information about the caller before the caller is routed to the retailer or dealer. All of the information taken is then made available to the retailer or dealer through the Internet.

RULING

Retail Sales and Use Tax

Virginia Code § 58.1-609.5 1 provides an exemption from the retail sales and use tax for services not involving an exchange of tangible personal property which provides 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. Based on the information provided, the call tracking services qualify for the exemption provided in Va. Code § 58.1-609.5 1, and any charge for such services is not subject to the retail sales and use tax.

Communications Sales and Use Tax

Effective January 1, 2007, House Bill 568 ( Acts of Assembly 2006, Chapter 780) replaced many of the state and local communications taxes and fees with a centrally administered Communications Sales and Use Tax. On November 1, 2006, the Department of Taxation issued Guidelines and Rules for the Virginia Communications Taxes to provide guidance to taxpayers and local governments regarding the new law.

Virginia Code § 58.1-648 A imposes a sales or use tax on the customers of "communications services." Virginia Code § 58.1-647 broadly 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.

The Guidelines (Public Document 06-138) set forth a non-exclusive list of communications services meeting this definition that includes 800 services. As the call tracking services offered by Company A meet the definition of communications services set forth in Va. Code § 58.1-647, they would be subject to the Communications Sales and Use Tax unless a specific exemption or exclusion applies.

Bundled Transactions ( Va. Code § 58.1-650)

A bundled transaction is a transaction that includes communications services subject to the communications sales tax and consists of distinct and identifiable properties, services, or both, sold for one nonitemized charge for which the tax treatment of the distinct properties and services is different. If the charge is attributable to services that are taxable and services that are nontaxable, the portion of the charge attributable to the nontaxable services will be subject to tax unless the provider can reasonably identify the nontaxable portion from its books and records kept in the regular course of business and not created and maintained for tax purposes.

Books and records will be considered to be maintained for tax purposes when such books and records identify taxable and nontaxable portions of the price while other books and records are maintained that identify different prices attributable to the distinct products included in same bundled transaction. For purposes of example only, books and records kept in the regular course of business that are acceptable include financial statements, general ledgers, invoicing and billing systems and reports and tariffs and other regulatory reports.

This ruling is based on the facts presented by the Taxpayer as summarized in this letter. Any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4262537172.M