This month, we continue our blog series with a contrast of a couple of mid-Atlantic states – Virginia and West Virginia – specifically their treatment of technology items for sales tax purposes.

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Software as a Service (SaaS) in Virginia vs. SaaS in West Virginia

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country.  Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states differ regarding their treatment of sales tax.

SaaS is exempt in Virginia

Software delivered electronically via the internet is exempt from tax. In Virgina, services are generally exempt from tax, including computer services, unless specifically identified as being taxable.

SaaS is taxable in West Virginia

Software delivered electronically is subject to sales tax in West Virginia because it is included in the definitions of “tangible personal property”. While the tax treatment of computer services varies depending on the type of transaction. For example, there is an exemption related to electronic data processing equipment (which means the processing of another’s data) however it is limited to services performed for a person who is not a part of the entity performing the services and if the charge does not include charges for other activities. It is nuanced and is necessary to determine the nature of the product and to determine the proper documentation needed to claim the exemption.

For a comparison between Virginia, West Virginia and other states as to the taxability of SaaS, check out our interactive map here:  https://milesconsultinggroup.com/saas-sales-tax-by-state-map/

Software in Virginia vs. Software in West Virginia

Virginia does impose sales and use tax on prewritten computer software, depending on delivery.
Prewritten computer software is subject to tax, unless it is delivered electronically to customers. A “prewritten program” means a computer program that is prepared, held or existing for general or repeated sale or lease, including a computer program developed for in-house use and subsequently sold or leased to unrelated third parties.

In general, prewritten computer software is subject to tax in West Virginia.

However, specific exemptions may apply for certain education software, software directly used in communications or incorporated into a manufactured product, or software used to provide data processing services.

The sale of custom computer software delivered electronically is not subject to tax in Virginia.

The transaction is exempt as long as the transaction does not include the transfer of any tangible personal property.

The sale of custom computer software delivered electronically is subject to tax in West Virginia.

Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video.  Some states consider all these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Virginia, digital products are not taxable.

In West Virginia, digital products are also not taxable.

Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how Virginia and West Virginia shake out.

Virginia had a sales tax holiday from August 1 to 3rd. It started the first Friday in August and went until the following Sunday). Items that were on sale were school supplies, clothing, footwear, hurricane and emergency preparedness items, and Energy Star and WaterSense products.

West Virginia had a sales tax holiday from August 1 to 4th. It started the first Friday in August and went until the following Monday). Items that were on sale included clothing that was $125 or less, computers that were $500 or less, school instruction material that was $20 or less, school supplies that was $50 or less and sports equipment that was $150 or less.

For more information on sales tax holidays, click here. (https://taxadmin.org/sales-tax-holidays/)

Economy

Virginia’s economy has many sectors: agriculture in the Shenandoah Valley, federal agencies in the northern part of the state, including the headquarters of the US Department of Defense and the Central Intelligence Agency (CIA), and military facilities in Hampton Roads, the site of the region’s main seaport. The state’s economy changed primarily from agricultural to industrial during the 1960s and 1970s. And in 2002, computer chips became the state’s leading export by monetary value.

Virginia has the highest concentration of technology workers of any state after California, Texas and New York. Computer chips became the state’s highest grossing export in 2006, surpassing its traditional top exports of coal and tobacco combined, reaching a total export value of $717 million in 2015. Northern Virginia, once considered the state’s dairy capital, now hosts software, communication technology and defense contracting companies, particularly in the Dulles Technology Corridor.

Despite the move toward technology, coal mining is still an important part of Virginia’s economic structure. Over 62 million tons of other non-fuel resources, such as slate, kyanite, sand or gravel, were also mined in 2012. The state’s carbonate rock is filled with more than 4,000 caves which are open for tourism.

Agriculture occupies 32% of the land in Virginia. As of 2012, about 357,000 Virginian jobs were in agriculture, with over 47,000 farms. Though agriculture has declined significantly since 1960 when there were twice as many farms, it remains the largest single industry in the state. Tomatoes surpassed soy as the most profitable crop in Virginia in 2006, with peanuts and hay as other agricultural products. Although it is no longer the primary crop, Virginia is still the fifth-largest producer of tobacco nationwide.

West Virginia is known for its mining industries. One of the major resources in West Virginia’s economy is coal. The state is one of the top coal producers in the country, second to Wyoming. West Virginia also produces large amounts of natural gas and oil. The state is in the heart of the Marcellus Shale Natural Gas Bed, which stretches from Tennessee north to New York. Logging is also popular in the state due to the overpopulation of deciduous forests in the state. Oak, cherry, poplar, maple and pine are just a few of the various trees often harvested.

Farming is also practiced in West Virginia, but on a limited basis due to the mountainous terrain over much of the state.

Tourism contributed 4.27 billion dollars to the state’s economy and employed 44,400 people in 2010, making it one of the state’s largest industries. Seneca Rocks is one of the premier rock-climbing destinations in the eastern U.S. Canaan Valley is a popular winter sports destination.

Virginia Fun Facts:

  • Virginia’s border with Tennessee was disputed at the Supreme Court Level in 1893.
  • The Virginia general assembly is the oldest continuous law-making body in the New World.
  • The Chesapeake Bay separates the contiguous portion of the Commonwealth from the two county peninsula of Virginia’s Eastern Shore.
  • Virginia is nicknamed, “Mother of Presidents,” as eight Virginians have served as President of the United States, including four of the first five.
  • Virginia has the fifth highest number of wineries in the nation.

West Virginia Fun Facts:

  • West Virginia is the 41st largest state by area, the 38th most populous state, and has the 2nd lowest household income of the fifty states.
  • The average elevation of West Virginia is approximately 1,500 feet above sea level, which is the highest of any U.S. state east of the Mississippi River.
  • The Greenbrier hotel and resort, originally built in 1778, has long been considered a premier hotel frequented by numerous world leaders and U.S. Presidents over the years.
  • The Jones Diamond, at 34.48 carats, discovered in 1928 in the state, is one of the largest diamonds ever discovered in North America.
  • The state motto is Montani Semper Liberi, which means “Mountaineers are always free”

We invite you to further explore Virginia and West Virginia in these earlier blogs we crafted over the years. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Virginia, West Virginia, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.

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