Tax Type
Retail Sales and Use Tax
Description
Advertising business
Topic
Taxability of Persons and Transactions
Date Issued
05-07-1987
June 2, 1987
Re: Ruling Request/ Sales and Use Tax
Dear *****************
This will reply to your letter of March 16, 1987 seeking information on the correct application of the sales and use tax to a variety of transactions involving advertising businesses and their clients.
FACTS
Specifically, you ask whether the tax applies to certain charges by advertising businesses to their clients., to certain purchases by advertising businesses for use by their clients: and to certain purchases by advertising businesses for their own use and consumption.
RULING
Section 58.1-608(57) of the Code of Virginia provides an exemption from the sales and use tax for "advertising" which is defined in §58.1-602(23) of the Code as "the planning creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media, including without limitation, the providing of concept. writing, graphic design. mechanical art, photography and production supervision. Any person providing advertising as defined herein shall be deemed to be the user or consumer of all tangible personal property purchased for use in such advertising."
CHARGES FOR MEDIA ADVERTISING
To the extent that your letter indicates that charges by an advertising business to its clients in the planning, creating or placing of advertising in the media are not subject to the tax, it is correct. For example, charges by an advertising business for concept, writing, graphic design, (including illustration), mechanical art, photography and production supervision in the creation of media advertising are not subject to the tax whether the advertising business provides all of such components itself or purchases one or more of such components from outside sources.
In addition, charges by an advertising business to its client for typography, engraving services, printing, etc.. are not subject to the tax since such items must be purchased by the advertising business from suppliers subject to the tax. Charges by an advertising business for the provision of promotional or specialty items are similarly not subject to the tax since it must pay the tax on its purchases of such items from suppliers. Therefore, an advertising business should take the tax which must be paid on such purchases into consideration when setting its fees for the provision of advertising services to its clients.
Furthermore, since an advertising business is the user and consumer of all administrative items and supplies and stock file items purchased for use in connection with its provision of media advertising, it must pay the tax on all such items at the time of purchase from suppliers. Accordingly, an advertising business should not add the tax to its charges to its clients for the provision of such items.
PURCHASES FOR USE IN MEDIA ADVERTISING
Purchases by an advertising business of concept, writing, graphic design, mechanical art, photography and production supervision provided by another "advertising business", as defined in §630-10-3 of the Retail Sales and Use Tax Regulations, are not subject to the tax. However, based on the last sentence of § 58.1-602(23) of the Virginia Code, advertising business are deemed to be the users and consumers of all tangible personal property purchased for use in providing media advertising. Accordingly, all purchases by advertising businesses of printing, typography, engraving, promotional/ specialty items, administrative items and supplies, and stock file items are taxable, and may not be purchased pursuant to resale certificate of exemption.
PURCHASES FOR OWN USE OR CONSUMPTION
Your letter also correctly indicates that all purchases by an advertising business for its own use or consumption are taxable. For example, an advertising business must pay the tax on its purchases of a portfolio of photographs to be maintained in stock for possible use in some future ad campaign.
Please also find enclosed copies of recent rulings issued by the department in other cases involving the application of the sales and use tax to transactions involving advertising businesses. I hope that all of the foregoing has responded to your questions but please let me know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner