Virginia does not generally charge sales tax on digital products. Downloaded prewritten software, SaaS, and eBooks, music, and video delivered over the internet are generally exempt, because Virginia taxes sales of tangible personal property and exempts software, data, and content delivered electronically.
This quick reference covers what is taxable, what isn't, and the details that trip sellers up. This article is educational information, not tax advice.
Quick answer: does Virginia tax digital products?
Generally, no. Virginia's retail sales tax applies to tangible personal property: property that can be seen, weighed, measured, felt, or touched. The Code of Virginia also exempts services that provide access to or use of the internet, "including software, data, content and other information services delivered electronically via the Internet," as long as no tangible personal property changes hands.
Things change when a physical item is involved. Software on a disc or USB drive, or software sold as part of a hardware system, is generally taxable.
Taxable vs. not taxable at a glance
Generally not taxable in Virginia:
- Prewritten (canned) software delivered electronically, with no disc, tape, or other tangible medium
- Cloud-computing services and SaaS, which Virginia treats the same way as electronically delivered software
- Video, eBooks, and music delivered over the internet, whether streamed or downloaded
- Digital audiobooks delivered electronically
- Custom software written for one customer
- Separately stated charges for modifying prewritten software
Generally taxable in Virginia:
- Prewritten software delivered on a disc, tape, USB drive, or other tangible medium
- Software sold and installed as part of a taxable hardware sale, even when delivered electronically
- Video games sold on physical media
- Computer hardware and consumer electronics
Why delivery method matters
For software, the question is whether the customer gets a tangible medium. Virginia Tax has said prewritten software delivered electronically is not a sale of tangible personal property. That treatment depends on no disc, tape, or other tangible item being provided to the customer before or after the download.
Paperwork matters too. Virginia Tax tells sellers to keep an invoice, contract, or other sales agreement that states the software was delivered electronically and that no tangible medium was or will be provided. Without that documentation, the Department may treat the software as sold in tangible form, which makes it taxable.
Bundled transactions and the true object test
Bundles are where the digital exemption most often breaks down.
Software sold with hardware. In Ruling 14-178, Virginia Tax held that prewritten software was taxable "regardless of the method of delivery" because it was an integral part of the sale of a taxable system that included equipment. When a vendor sells and installs software in connection with a taxable hardware sale, the software charge is part of the taxable sale.
Service vs. property. For mixed transactions, Virginia's regulations use a true object test. If the customer is buying a service and any tangible property transferred isn't critical to the deal, the transaction may be an exempt service. If the customer is buying the property the service produces, the entire charge is taxable.
If you sell hardware and software together, review how the software is sold and invoiced before assuming the electronic delivery exemption applies.
Did Virginia recently start taxing digital goods?
No. Virginia's 2024 Appropriation Act asked the legislature's Joint Subcommittee on Tax Policy to study several ideas, and one of its listed goals was "applying sales and use tax to digital goods and services." A study is not a tax. Virginia Tax's 2025 and 2026 legislative summaries list no enacted law that adds digital products to the sales tax base. In the 2026 session, HB 900 and SB 730 proposed extending the sales tax to digital products starting January 1, 2027. Neither passed; both were continued to the 2027 session, so watch for changes next year.
The 2026 summary does list one change worth knowing: starting July 1, 2026, every Virginia county and city can adopt an extra local sales tax of up to 1% for school construction, subject to a referendum. (Northern Virginia localities may also use it for public transportation.) That affects rates on taxable sales, not which digital products are taxable.
Virginia sales tax rates for taxable sales
If you sell taxable items into Virginia, such as software on physical media or hardware, the general combined rate is 5.3%: a 4.3% state rate plus a 1% local rate. Virginia Tax lists higher combined rates in some areas:
- 6% in Northern Virginia, Hampton Roads, and Central Virginia
- 6.3% in Charlotte, Gloucester, Halifax, Henry, Northampton, Patrick, and Pittsylvania counties and Danville
- 7% in James City County, Williamsburg, and York County
Check Virginia Tax's retail sales and use tax page for current rates, since local taxes can change.
Remote sellers and marketplace facilitators collect at the combined rate for the customer's Virginia delivery location. Virginia Tax gives remote sellers at least 30 days' notice before a local rate change takes effect.
Worked example
A software company ships an order to a business customer in Fairfax County, which is in Northern Virginia (6%). The invoice includes:
- A one-year subscription to a hosted project-management app: $1,200
- A downloadable license for prewritten design software, with the invoice certifying electronic delivery and no tangible medium: $400
- A boxed edition of the same design software on a USB drive for a second office: $150
Only the USB edition is taxable: $150 × 6% = $9.00. The customer pays $1,750 plus $9.00 in tax, for a total of $1,759.00.
Now suppose the invoice didn't certify electronic delivery for the $400 license. Virginia Tax could treat that software as sold in tangible form, making the taxable amount $550. At 6%, the tax becomes $33.00. The difference comes entirely from the paperwork.
If the same order shipped to a locality with the general 5.3% rate, tax on the USB edition would be $150 × 5.3% = $7.95.
Economic nexus and registration
A remote seller has economic nexus in Virginia if it has more than $100,000 in annual gross retail sales, or 200 or more separate transactions, to Virginia customers in the previous or current calendar year. Physical presence isn't required. A dealer that establishes nexus must register to collect Virginia sales and use tax within 30 days.
You can register online with Virginia Tax as an in-state or out-of-state dealer.
Filing and recordkeeping
Virginia Tax assigns each dealer a monthly or quarterly filing frequency based on its tax liability and reviews it every year. For periods beginning April 1, 2025, all sales tax filers use Form ST-1, filed electronically. Returns are due on the 20th of the month after the filing period ends, even if you had no sales to report.
Late returns carry a penalty of 6% per month, up to 30%, with a $10 minimum.
For digital sellers, the most important records are the ones that prove a sale was nontaxable:
- Invoices or contracts that state electronic delivery and that no tangible medium was provided
- Separate line items for software, hardware, and services, so each charge can be classified correctly
- Exemption certificates for exempt purchasers, such as Form ST-10 from dealers buying tangible personal property for resale
FAQ
Is SaaS taxable in Virginia?
Generally, no. Virginia Tax treats cloud-computing services the same way as electronically downloaded software, since no tangible personal property is typically provided to the customer.
Are eBooks and streaming video taxable in Virginia?
Generally, no. In Ruling 13-59, Virginia Tax concluded that video delivered over the internet, whether streamed or downloaded, was not subject to the retail sales and use tax, and that the type of license (permanent or temporary) did not change the result. eBooks and music delivered electronically fall under the same statutory exemption for content delivered via the internet.
Is software on a CD or USB drive taxable in Virginia?
Yes. Prewritten software sold on a disc, tape, or other tangible medium is generally taxable as a sale of tangible personal property.
Is custom software taxable in Virginia?
No. The Code of Virginia exempts custom programs, meaning programs designed and developed for only one customer.
Is software bundled with hardware taxable in Virginia?
Yes, when the software is an integral part of a taxable hardware sale. Virginia Tax has held that such software is taxable regardless of how it is delivered.
Do I need to register in Virginia if I sell software?
It depends on what you sell. Electronically delivered software is generally not taxable, but if you sell taxable items such as physical media or hardware and meet the economic nexus threshold, you must register within 30 days.
What is Virginia's economic nexus threshold?
A remote seller has economic nexus if it has more than $100,000 in annual gross retail sales, or 200 or more separate transactions, to Virginia customers in the previous or current calendar year. A seller that meets the threshold must register within 30 days.
How Kintsugi helps
Digital catalogs rarely stay purely digital. Sellers add boxed editions, hardware bundles, or new states where the same product is taxed differently. Kintsugi maps each product to the right taxability rules, tracks economic nexus as sales grow, and calculates tax only where it applies, so you don't over-collect on exempt downloads or miss the taxable physical items.
Related resource: For current rates, nexus thresholds, filing deadlines, and FAQs, see Kintsugi's Virginia Sales Tax Guide.
