Tax Type
Retail Sales and Use Tax
Description
Taxpayer is the user and consumer of the printed materials purchased from its printer
Topic
Exemptions
Tangible Personal Property
Date Issued
11-21-2007
November 21, 2007
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period February 2002 through December 2004. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is an advertising agency. The Taxpayer raises two issues in which it maintains that it was incorrectly assessed tax on purchases in the audit.
In its first issue, the Taxpayer hires a vendor for the purpose of purchasing tangible personal property of a photographic nature. The invoice given to the Taxpayer by the vendor includes separately stated charges for labor associated with the production of the tangible personal property and charges for the finished product. The Taxpayer maintains that it should not have been assessed tax on charges for labor, contending that these charges are for exempt services.
In its second issue, the Taxpayer utilizes a printer to print brochures for a specific advertising campaign that will ultimately be mailed to the general public. The Taxpayer maintains that it should not have been assessed tax on charges for printing performed by a printer.
DETERMINATION
Issue 1
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- Title 23 of the Virginia Administrative Code (VAC) 10-210-4040 A states:
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- Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with the sale of tangible personal property are taxable. Transactions involving both the sale of tangible personal property and the provision of services generally are either taxable or exempt on the full amount charged, regardless or whether the charges for the service and property components are separately stated.
Title 23 VAC 10-210-4040 B provides that charges made for "[a]ny services included in connection with the sale of tangible personal property" are taxable.
Pursuant to Title 23 VAC 10-210-4040 D, the true object of a transaction must be examined in order to determine whether a transaction that involves the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale. The regulation further provides that:
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- If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.
In Public Document (P.D.) 93-87 (3/29/93), the taxpayer was a full service video production company that specialized in the production of videotapes. The video production involved engineering and technical consulting, professional narration, music dubbing, camera operation and a host of other services. Pursuant to Title 23 VAC 10-210-4040 (former Virginia Regulation 630-10-97.1), the Tax Commissioner determined that although the production of the tapes included personal services, the true object of the transaction was for the sale of the videotapes. The Tax Commissioner further stated that the images and information contained on the tapes would not be useful without possessing the actual tape.
In this instance, the labor at issue (photo retouching and computer time) is provided directly in connection with the purchase of the photo image or print. Pursuant to P.D. 93-87, although the transaction includes services, the true object of the transaction is to secure the tangible personal property produced, the photo image or print. Without the photo image or print, there would be no need for the services provided. Pursuant to Title 23 VAC 10-210-4040, the entire charge for the transaction is taxable, despite the fact that the charges for the labor and property are separately stated on the invoice. Accordingly, the tax was correctly assessed in the audit.
Issue 2
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- Title 23 VAC 10-210-40 B provides that:
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- Advertising businesses are engaged in providing professional services and are the users and consumers of all tangible personal property purchased for use in such businesses. Therefore, the tax applies to all purchases by an advertising business including, without limitation, the following items: . . . [p]rinting, including direct mail items, non-customized or stock mailing lists, handbills, brochures, flyers, bumper stickers, posters and similar printed materials whether or nor for use in the development of a specific advertising campaign, and whether or not any of such materials are intended for distribution out of state. [Emphasis added.]
In P.D. 93-113 (4/29/93), the taxpayer was an advertising agency that purchased brochures on behalf of its client, a local government. The taxpayer requested a ruling regarding the application of the retail sales and use tax on these purchases. Pursuant to Va. Code § 58.1-609.6(6) (former Va. Code § 608(A)(6)(e)), Va. Code § 58.1-602, and Title 23 VAC 10-210-40 (former Virginia Regulation 630-10-3), the Tax Commissioner ruled that the taxpayer was the user and consumer of the purchased materials because, as an advertising agency, it purchased the printed materials for use in an advertising project for its client.
Similar to the taxpayer in P.D. 93-113, the Taxpayer is an advertising business that purchased brochures on behalf of its client for a specific advertising campaign. As such, the Taxpayer is deemed the user and consumer of the printed materials purchased from its printer. In this instance, the Taxpayer's printer cannot be considered an advertising business because the printer did not provide advertising as defined in Va. Code § 58.1-602. Pursuant to Title 23 VAC 10-210-40, the printing at issue is subject to the retail sales and use tax. Accordingly, the tax was correctly assessed in the audit.
CONCLUSION
Based on this determination, the assessment is correct. A consolidated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit your payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The regulations and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Janie E. Bowen
Tax Commissioner
AR/1-636869749P
Rulings of the Tax Commissioner