In Alcatel-Lucent USA Inc. v. Virginia Department of Taxation, Case No. CL20-3591-7, the Circuit Court of the City of Richmond reversed the Virginia Tax Commissioner’s Determination that sales of wireless internet access equipment and electronically delivered software were subject to Virginia sales and use tax.
Alcatel-Lucent sold wireless internet access equipment, software, and related services to wireless telecommunications providers during the time period of the refund claim. As part of its operations, Alcatel-Lucent sold equipment, software, and services to a regional provider of wireless telecommunications services (“Customer”) for its wireless telecommunications network operations in Virginia. During the refund period, Customer operated a wireless telecommunications network through an affiliate agreement with a national wireless telecommunications provider. Alcatel-Lucent, on behalf of Customer, filed for a refund of sales tax collected on wireless internet access equipment, software, and services pursuant to Virginia Code § 58.1-609.5(1) and Virginia Code § 58.1-609.6(2), which exempts from tax “broadcasting equipment and parts and accessories thereto and towers used or to be used by commercial radio and television companies, wired or land based wireless cable television systems, common carriers or video programmers using and open video system or other video platform by telephone common carriers, or concerns which are under the regulation and supervision of the Federal Communications Commission and amplification, transmission and distribution equipment used or to be used by wired or land based wireless cable television systems, or open video systems or other video systems provided by telephone common carriers.”
The Virginia Tax Commissioner’s Determination of Alcatel-Lucent’s refund claim concluded that the wireless internet access equipment sold to Customer was not exempt because the Commissioner did not believe Customer was a “retail ISP [Internet services provider].” The Commissioner also determined that the software at issue was not exempt because there was no “sales invoice, contract or other sales agreement” that certified the software was indeed transferred electronically and not through a tangible medium. Alcatel-Lucent subsequently appealed the Commissioner’s decision to the City of Richmond Circuit Court.
At trial, Alcatel-Lucent and Customer established that the wireless internet access equipment, software, and services were not subject to Virginia sales and use tax, regardless of Customer’s affiliate relationship with the national provider. The two parties also established through alternative documentation that software was delivered electronically, even though there was not a written document explicitly stating delivery methodology. The Circuit Court ruled in Alcatel-Lucent’s favor on all contested items, reversing the Tax Commissioner’s Determination. The Virginia Department of Taxation did not appeal the Circuit Court’s Order, and it became final on January 21, 2022.
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