Were subscription access to a web portal, third-party billing, and text-messaging packages taxable in Virginia?

Plain-English summary

Virginia found the web-portal subscription and third-party billing service exempt, but left the text-messaging issue unresolved. The portal let pharmacies manage inventory and patient information, monitor prescriptions, and facilitate remote consultations. It was delivered through the Internet without tangible personal property.

Va. Code § 58.1-609.5(1) exempted services providing Internet access or use and related electronically delivered software, data, content, and information. The monthly portal subscription therefore was not subject to retail sales and use tax. Because it was exempt, the location of the server, reseller, pharmacy, or patient did not affect the Virginia result.

The taxpayer also bought third-party processing and billing unique to each customer. The true object was the billing service, so it remained exempt even when the provider sent paper bills. Location likewise did not change that result.

The Department made several attempts to obtain more information about the text packages. With no additional facts, it could not determine either retail sales and use tax or communications sales and use tax treatment.

Common questions

Q: Was the monthly portal fee taxable?
A: No, on the stated Internet-only facts.

Q: Did paper bills make the billing service taxable?
A: No. The true object remained a customer-specific service.

Q: Were text-messaging packages exempt?
A: The ruling did not decide; the taxpayer supplied insufficient information.

Citations and references

• Va. Code § 58.1-609.5(1).
• 23 VAC 10-210-4040.
• Virginia Public Documents 08-128 (July 29, 2008), 97-65 (February 13, 1997), and 96-88 (May 14, 1996).

Subject

Web-Based Portal; Text Messaging; Billing Services

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-191

Original ruling text

November 29, 2012

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This reply is in response to your correspondence submitted on behalf of * (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to charges for access to a web-based portal, third-party billing services and text messaging.

FACTS

The Taxpayer plans to provide access to a web-based portal that it refers to as cloud computing services. The Taxpayer will provide such access to a reseller of the services. The portal would allow the reseller to maintain a database of its pharmaceutical inventory. The reseller would sell access to the web-based portal to pharmacies. The pharmacies would use the portal to keep track of their patients' prescriptions and doctors' visits, as well as to facilitate remote consultations with the patient.

When the patient visits they pharmacy, the pharmacy would use the web-based portal to verify the patient's information from the primary physician's database. The pharmacy would order the patient's medicine based on the information provided in the database. The pharmacy would also be able to use the portal to monitor the patient's prescription on a periodic basis and make changes to the order as needed.

According to the Taxpayer, it also plans to provide text messaging packages to the reseller for resale to the pharmacies. The text messaging packages would allow the pharmacies to notify its patients via text when prescriptions have been filled.

The Taxpayer also plans to use a third party billing service to bill its customers a monthly fee for access to the portal.

The Taxpayer requests a ruling regarding the taxability of the monthly subscription fee it plans to charge the reseller for access to the web-based portal. The Taxpayer also requests guidance as to the taxability of the billing services and text messaging packages. Additionally, the Taxpayer asks if the application of the tax is based on the location of the computer server, the reseller, the pharmacies or its patients.

RULING

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 sales 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.

Web-Based Portal

The Taxpayer states that it plans to provide access to a web-based portal via the Internet. Based on Taxpayer statements, no tangible personal property will be provided with the access services. Therefore, in accordance with the foregoing statute, the monthly subscription fee for access to the web-based portal is not subject to the tax. As the subscription fee is exempt, the location of the Taxpayer's computer server, the reseller, the pharmacies or its patients does riot affect the taxability of these fees in Virginia.

Billing Services

The Taxpayer will use a third-party biller to process the Taxpayer's billing information and submit monthly bills to the reseller. The billing provider may submit bills to the reseller as paper bills or via the Internet. Although paper bills may be issued, pursuant to Title 23 of the Virginia Administrative Code 10-210-4040, the true object of the Taxpayer's purchase is to obtain services that produce bills that are unique to each customer. Based on the facts presented, I find such services to be exempt of the tax. As these services are exempt, the location of the Taxpayer's computer server, the reseller, the pharmacies or its patients does not affect the taxability of these services in Virginia. See Public Documents 08-128 (7/29/08), 97-65 (2/13/97) and 96-88 (5/14/88).

Text Messaging

The Taxpayer also requests a ruling on the application of the tax to the text messaging packages it will provide to the resellers. Several attempts have been made by a member of my staff to obtain additional information from the Taxpayer regarding this issue. Because no additional information has been provided, I am unable to issue a ruling regarding the application of the retail sales and use tax or the communication sales and use tax to such transactions.

The Code of Virginia section, regulation and public documents are available on­line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions about this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4947026267.M