On May 11 and again on June 20 the Virginia Department of Revenue issued rulings indicating that the burden of proof is on the seller of software to prove that it was electronically delivered. In a 2005 Ruling, the Tax Commissioner stated that invoices for the sale of electronically delivered software must contain language that “certifies” that the software was delivered electronically. If this language is not on the invoice, then the taxpayers face an uphill challenge to conclusively prove that the software was delivered electronically.
This is the most aggressive stance I’ve seen on this issue. Given the shortage of revenue in most states I’d expect to see more of this positon being taken. In working with software companies over the years, there has always been a challenge in providing conclusive proof that the software was delivered electronically.
If you sell software electronically and have Virginia customers be sure your invoice language is in accordance with the Virginia standard or that you can conclusively prove that the software was delivered. If not, your clients and you could be in for a surprise on your next sales tax audit.
Interstate Tax Strategies, P.C.