Tax Type
Retail Sales and Use Tax
Description
Charges by graphic artists, printers, and advertising agencies
Topic
Taxability of Persons and Transactions
Date Issued
08-26-1987
August 26, 1987
Re: Ruling Request/ Sales and Use Tax
Dear **********************
This will reply to your letter of May 23, 1987 seeking information on the correct application of the tax to charges by graphic artists, printers, and advertising agencies.
FACTS
According to your letter, you would like to be better able to instruct your clients as to the proper actions they should take to conform to the new advertising exemption found in Virginia Code §58.1-608(57). Specifically, you request a ruling as to the application of the exemption to the following transactions:
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- 1. Must an advertising agency pay the sales tax on its purchases of supplies, photography, and printing or reproduction services for use or consumption in connection with its provision of an advertisement for placement in a magazine? In addition, must the advertising agency charge the tax in billing its client for the production of such an advertisement?
2. Must an advertising agency pay the tax on its purchases of supplies, photography, and printing or reproduction services purchased for use or consumption in connection with its creation of an in-house company policies and procedures manual for internal use only? or, may the advertising agency purchase such items exempt of the tax for resale pursuant to resale certificate of exemption Form ST-10 and then charge the sales tax on its total charge to its client for the creation of such a manual?
- 1. Must an advertising agency pay the sales tax on its purchases of supplies, photography, and printing or reproduction services for use or consumption in connection with its provision of an advertisement for placement in a magazine? In addition, must the advertising agency charge the tax in billing its client for the production of such an advertisement?
RULING
Effective July 1, 1986, the sales and use tax does not apply to "advertising" which is defined as the planning, creating or placing of advertising in newspapers, magazines, billboards, broadcasting and 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." (See, Virginia Code §§58.1-608(57) and 602(23))
As a consequence of this law change, the department has recently revised §630-10-3 of the Virginia Retail Sales and Use Tax Regulations, a copy of which is enclosed.
In accordance with the new exemption, subsection 2(B) of the regulation provides that advertising agencies are, "the users and consumers of all tangible personal property purchased for use in such businesses". Therefore, all of an agency's purchases of administrative items and supplies, such as paper, ink, pencils, layout boards, blank audio and video tapes, office furniture, supplies and similar equipment and supplies are taxable. Similarly, an advertising agency's purchases of printing and reproduction services in the form of non-custom mailing lists, handbills, brochures, flyers, posters, and similar items are taxable. However, subsection 2(A) of the regulation provides that an advertising agency's purchases of "photography", for use in the creation of media advertising, are not subject to the tax. This subsection of the regulation also makes clear that as the providers of professional services, all of an advertising agency's charges to clients for the provision of media advertising, are non-taxable.
Therefore, while an advertising agency must pay the tax on all of its purchases of supplies, including printing and reproduction services, for use in media advertising, its purchases of photographs for use in such media advertising are non-taxable. In addition, the total charge by an advertising agency to its client for the planning, creating, or placing of advertising in the media is not subject to the tax.
In response to your second question, on those infrequent occasions when an advertising agency purchases supplies, printing, etc., which it knows at the time of purchase will be used in providing a client with some non-media advertising related item, such as an in-house policies and procedures manual, the agency may purchase such items exempt of the tax for resale, pursuant to valid resale certificate of exemption (Form ST-10).
However, the agency must then collect and report the tax on the total charge to its client for providing such non-media advertising items.
Lastly, when an advertising agency makes a bulk purchase of supplies, some of which will be used and consumed by it in connection with the provision of exempt media advertising services and some of which will be resold to its clients subject to the tax in providing non-media advertising, the agency may purchase all of such supplies exempt of the tax for resale, pursuant to a valid resale certificate of exemption, (Form ST-10). However, whenever it withdraws any of such items from its inventory of supplies purchased for resale for use in providing media advertising services, it must report the use tax to the department based on the cost price of such items.
I hope that all of the foregoing has responded to your questions, but let me know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner