Disk Or No Disk - Cloud Computing Services Not Taxable In Virginia

If you are located in Virginia and use a cloud computing service, and you (or your cloud provider) received a disk, manual, or other incidental tangible property in connection with your purchase of the service, you may have been spooked by a ruling that the Virginia Department of Taxation issued late in December.¹

The ruling (P.D. 12-215) concludes that the cloud computing services purchased by the taxpayer were not subject to Virginia sales or use tax under the following situation: (1) the taxpayer was located in Virginia; (2) the taxpayer purchased a license to use software developed by Company A (located outside of Virginia); (3) the taxpayer contracted separately with Company B, a cloud computing provider located outside of Virginia, to host the software purchased from Company A; (4) Company A shipped the software directly to Company B on a disk rather than by electronic delivery. So far so good, right? Cloud services provided from a location outside of Virginia