Virginia Ruling Explains Documentation Requirement for Electronic Delivery of Software

May 27, 2021

Courier holding cardboard box for delivery

By: Jess Johannesen, SALT Senior Manager

At a glance:

  • The main takeaway: A new sales tax ruling out of Virginia addresses in-depth documentation requirements for electronically delivered software purchases.
  • Impact on your business: If your business does not have sufficient documentation to support a sales tax exemption, your tax bill could take a hit.
  • Next steps: Aprio’s State and Local Tax (SALT) team can help your business understand appropriate documentation requirements, so you don’t run into liabilities or penalties.

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The full story:

In a recent Virginia sales tax ruling, the Virginia Tax Commissioner (Commissioner) determined that sales tax was due on the purchase of electronically delivered software.[1] Virginia provides a sales tax exemption for services that do not involve an exchange of tangible personal property, which includes software delivered electronically via the internet.[2]

However, the taxpayer in this ruling failed to provide sufficient documentation to prove the software was electronically downloaded — so the Commissioner held that the sale of software was taxable.

A breakdown of the case

When making this decision, the Commissioner cited a sales tax ruling from 2005, which set forth the Virginia Department of Taxation (Department)’s documentation requirements to support the electronic delivery of software.[3]

That ruling details that, “at a minimum, a sales invoice, contract or other sales agreement must expressly certify the electronic delivery of the software and that no tangible medium for that software has been or is to be furnished to the customer.” Without such proof, the Department will assume that the software was conveyed in a tangible form and would be taxable as a sale of tangible personal property. A purchase order or similar request, by itself, is not sufficient to establish that the vendor electronically delivered the software.

In the ruling at issue, the taxpayer provided copies of the vendor’s quote, the purchase order, the sales invoice and email correspondence from the vendor regarding the electronically delivered software. The email correspondence references the purchase order number and states that the software and related maintenance service were delivered electronically and were not physically delivered to the taxpayer.

The Commissioner noted that the correspondence referenced the purchase order number for the specific contested transaction, but nonetheless concluded that this fact alone was insufficient evidence that electronic delivery was the only delivery method available. The sales invoice provided that the shipping method was “ground,” and the shipping term was free on board (FOB). The taxpayer did not submit documentation indicating that the software was delivered electronically, such as a confirmation email of the electronic delivery.

Finally, the Commissioner referenced a similar situation from a 2011 ruling in which a taxpayer provided email correspondence from the vendor stating that there was no delivery of software via tangible media. Again, it was determined that the email correspondence alone was insufficient to support the exemption. This ruling cites the same minimum documentation requirements from the 2005 ruling, with the sales invoice, contract or other sales agreement establishing the terms of delivery at or before the time of sale (which is not the case with email correspondence received after the transaction takes place).

The bottom line

This ruling serves as a valuable reminder that businesses must be cognizant of documentation requirements when claiming an exemption or supporting the nontaxable nature of a transaction. Given that the sales tax nexus landscape has evolved — with the Wayfair ruling paving the way for states to assert economic nexus and sales tax collection obligations on businesses without any physical presence in the state — proper recordkeeping and documentation of exemptions should be paramount now more than ever.

Does your business have sufficient documentation to support a sales tax exemption should you be audited? Aprio’s SALT team has experience with sales tax exemption documentation requirements. We can assist businesses with understanding those requirements, incorporating them into the sales process and maintaining the appropriate documentation, so that you do not incur unexpected liabilities and penalties.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jess Johannesen, SALT Senior Manager, SALT Associate at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

[1] Virginia Public Document Ruling No. 21-19, 02/23/2021

[2] VA Code Ann. §58.1-609.5(1)

[3] Virginia Public Document Ruling No. 05-44, 04/04/2005


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.