News and Insights

Picture Mail Service Subject to Virginia Communications Sales Tax

Tax Development Dec 02, 2016

The Virginia Department of Taxation released a ruling determining that picture messaging services are subject to the Virginia Communications Sales Tax (CST). A cellular services provider offered a service that allowed users to take digital pictures and instantly send them to service-capable phones or e-mail addresses while on the taxpayer’s network. The tax commissioner denied the taxpayer’s argument that the fees at issue were for a service that is incidental to the taxpayer’s provision of Internet access and, therefore, fall under the protection of the Internet Tax Freedom Act [47 USC 151 § 1105 C and E (“The Act”)]. The Commissioner reasoned that the fees were not monthly charges that subscribers pay for Internet access or incidental services as described in the Act. In fact, it was necessary for customers to have Internet access prior to using the service.

The taxpayer also argued that its service was exempt from the Virginia CST on the basis that the services were a form of e-mail or instant messaging with video capability and, therefore, were “incidental to Internet access” pursuant to P.D. 06-138. However, the Commissioner ruled that the services fit the definition of picture messaging, which is explicitly listed as a service subject to the Virginia CST pursuant to P.D. 06-138. Likewise, the Commissioner rejected the taxpayer’s interpretation that the voicemail, picture messaging services, and other messaging services were incidental to Internet access as these items are not included in the provisions of the statute or department guidelines.