Tax Type
Retail Sales and Use Tax
Description
Newspaper advertising supplements
Topic
Taxability of Persons and Transactions
Date Issued
07-03-1984
- July 3, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear **************
This will reply to your letter of March 7, 1984 in which you submit an application for correction of sales and use tax assessed to the ***** as the result of an audit.
FACTS
***** (hereinafter *****) is engaged in the operation of twelve retail stores within Virginia. A recent audit of *******revealed the corporation's failure to remit the sales and use tax on its purchase of advertising supplements for distribution through newspapers.
***** contracted with the [x, out-of-state newspaper] to produce certain of the supplements; however, the [x] subcontracted this printing to an out-of--state concern. After production, the supplements were shipped to the [x], at a location within Virginia, for insertion into the [X] and distribution to the public. In addition, ***** contracts with the same out-of-state concern to print advertising supplements which are shipped by the printer to various Virginia newspapers for insertion and distribution to the public.
***** contests this assessment, alternatively asserting that it did not "use" the supplements within Virginia and that the supplements were an integral part of the [x] and other newspapers and thus exempt from lax under § 58-441.6(k) of the Code of Virginia.
DETERMINATION
§ 58-441.5 of the Code of Virginia imposes a tax "upon the use or consumption of tangible personal property in this State, or the storage of such property outside the State for use or consumption in this State." Virginia Code § 58-441.3(h) in turn defines "use" as "the exercise of any right or power over tangible personal property incident to the ownership thereof."
***** asserts that it did not "use" the advertising supplements in question within the meaning of the above statute. Such assertion is based upon two primary points, that ***** purchased a service and that ***** did not own the supplements.
With respect to the first point above, Virginia Code § 58-441.6(a) exempts professional and personal service transactions from the tax when such transactions involve sales as inconsequential elements for which no separate charges are made. It is asserted by ***** that the benefit contracted for was the potential advertising effect resulting from the distribution of supplements to the public and that the corporation merely purchased advertising services.
For purposes of the Virginia sales and use tax, cases involving a mixed transaction as is alleged here, i.e. a transaction involving both a sale of tangible personal property and the provision of personal or p]rofessional services, should be examined in light of the Virginia Supreme Court's ruling in WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.E. 2d 245 (1977). The court interpreted the provisions of Virginia Code § 58-441.6(a) in WTAR, adopting the following test:
if the "true object" sought by the buyer is the services per se, the exemption is available, but if the true object of the buyer is to obtain the property produced by the service, the exemption is not available. 217 Va. at 883.
We feel that the true object of ***** was to obtain tangible items -advertising supplements-rather than personal or professional services and that therefore, no exemption is available in this case.
In addition, ***** asserts that it did not "use" the supplements distributed by the [x] ***** because it did not own such supplements. ***** contends that it never received title to the [X] supplements inasmuch as the [x] contracted for their printing with an out-of-state printer who shipped the finished supplements to the [x] via common carrier. After delivery from the printer, the [X] then inserted the supplements into the newspapers printed at its own plant.
We disagree with ***** contention that it was not the owner of the supplements in question. ***** contracted with the ***** to produce certain of the supplements and the [x] merely subcontracted the production out to another printer. Such a transaction in no way changes ***** ownership of the final product. Furthermore, the fact that ***** did not take actual physical possession of the [x] supplements is not material. Virginia Code § 58-441.2(b) defines a "sale" as "any transfer of title or possession...in any manner or by any means whatsoever." With respect to an argument similar to that of the Virginia Supreme Court denied relief in WTAR, holding that "the showing of films over television was tantamount to a delivery of possession of tangible personal property to the buyer of the advertisement for which he paid a consideration" despite the fact that the customer never took possession of the films, 217 Va. at 877. We find the facts involved in WTAR to be analogous to this situation and must therefore deny relief based upon the argument that ***** did not own or take delivery of the [x] supplements within Virginia. Based upon the same premise, we must also deny relief based upon assertion that it did not take title within Virginia to supplements shipped by its out-of-state printer to other newspapers within Virginia.
Lastly, ***** asserts that its newspaper supplements were exempt from the sales and use tax under the provisions of Virginia Code § 58-441.6(k) which precludes the addition of tax to "any publication issued daily or regularly at average intervals not exceeding three months." As you likely know, this issue is presently in litigation in one of Virginia's lower state courts.
While this general issue may ultimately be examined by the courts, we must in the meantime hold that the publication exemption is not avail-able. The legal incidence of the Virginia sales and use tax is on the purchaser. United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), affirmed, 569 F. 2d 811 (4th Cir. 1978). Therefore, the legal incidence of tax exemptions is upon the purchaser. Having previously found that was the owner of the supplements in question and notwithstanding the fact that the [x] supplements were printed along with that newspaper's comic supplement, we must conclude that the [x] and other newspapers were not the owners of the supplements and that consequently no exemption is available. Furthermore, the 1983 session of the Virginia General Assembly enacted legislation, effective July l, 1984, exempting newspaper advertising supplements from the sales and use tax. This legislation will include "advertising supplements...ultimately distributed or as part of...publications" within the exemption provided under Virginia Code § 58-441.6(k). We do not concur that this change strengthens ***** position inasmuch as a change in law is normally presumed when new provisions are added to prior legislation by amendatory act. Boyd v. Commonwealth, 215 Va. 16 (1975).
Therefore, based upon the foregoing, I find no basis for relief of the assessment issued to *****. However, I will entertain the filing of a protective claim for refund by ***** inasmuch as this issue is presently in litigation. Subsequent to the filing such a claim under the provisions of Virginia Code § 58-1119.1, I will hold this matter in abeyance until the rendering of a decision in K-Mart Corporation v. Commonwealth in the Circuit Court of the City of Richmond, Part 1.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner