Tax Type
Retail Sales and Use Tax
Description
Mailing and printing services
Topic
Collection of Tax
Taxability of Persons and Transactions
Date Issued
01-03-1986
January 3, 1986
Re: §58.1-1821 Application/Sales and Use Tax
Dear ******************
This will reply to your letter of June 12, 1985, in which you submit an application for correction of sales and use tax assessed to **************** Corporation as the result of a recent audit.
FACTS
*************** ("Taxpayer") is engaged in the operation of a mailing service, in which materials furnished by customers are folded, labeled, inserted into envelopes, and delivered to the U.S. Post Office. In addition, the Taxpayer operates a printing shop from which materials are produced, some of which will later be handled by the Taxpayer's mailing service. The Taxpayer has collected the sales tax from customers on the price of materials produced in its printing shop, but has not collected the tax on mailing service charges which ordinarily have been deemed nontaxable. In instances where the Taxpayer both prints and mails materials for a customer, the tax has been collected on the charge made for printing, but not on the charge for mailing services, even though the charges are billed together on the same invoice.
A recent audit of the Taxpayer produced an assessment for its failure to collect the tax based upon the total charge made to a customer when materials are both printed and mailed by the Taxpayer. The Taxpayer contests the assessment of additional tax on the mailing service portion of such charges, stating that had its customers been billed separately for printing and mailing services no additional tax would have been due. The Taxpayer's printing and mailing operations are located in separate facilities and are under separate management and the Taxpayer states that customers were billed for printing and mailing services on a single invoice merely for convenience. Lastly, the Taxpayer asserts that the object of customers in using its mailing service was to secure a service, thus charges for mailing services are not taxable.
DETERMINATION
Under the provisions of Section 58.1-603 of the Code of Virginia, the sales tax is computed upon the "sales price" of tangible personal property. The term "sales price" is defined in Section 630-10-95 of the Virginia Retail Sales and Use Tax Regulations as "the total amount for which tangible personal property or taxable services are sold and includes any services in connection with such sale."
While mailing services alone are often provided to customers who furnish their own printed materials and no tax is due from such customers for the services provided, this case involves mailing services provided in connection with the taxable sale of printed materials. Based upon the above definition of "sales price," which parallels the statutory definition found at Virginia Code Section 58.1-602.17, the charges for such services must be included in the base for computing the sales tax.
As noted in your letter, Section 630-10-97.1 of the Virginia Retail Sales and Use Tax Regulations states that "if the object of. . . (a) transaction is to secure a service and the tangible personal property transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service." In this case, however, the object of the Taxpayer's customers is to obtain printed materials produced by the taxpayer. As the tangible printed materials produced by the Taxpayer are indeed critical to the transactions at issue here, the exception noted in Regulation 630-10-97.1 is not applicable.
Based upon the foregoing, the assessment issued to the Taxpayer is correct and payable. It should be noted that the reinvoicing of mailing charges by the Taxpayer will not affect this assessment as the assessment reflected the Taxpayer's business practices during the audit period. It should also be noted, however, that all or a portion of such printing will likely be exempted from the sales and use tax under a law change effective July 1, 1986. Enacted by the 1985 session of the General Assembly, the change will exempt the following items from the tax through June 30, 1990:
-
- letters, brochures, reports, and similar printed materials except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, and paper furnished to a printer for fabrication into such printed materials, when stored for twelve months or less in the Commonwealth and distributed for use outside the Commonwealth.
- letters, brochures, reports, and similar printed materials except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, and paper furnished to a printer for fabrication into such printed materials, when stored for twelve months or less in the Commonwealth and distributed for use outside the Commonwealth.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner