Tax Type
Retail Sales and Use Tax
Description
Mailing labels
Topic
Taxability of Persons and Transactions
Date Issued
11-04-1987
November 4, 1987
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ***************
This will reply to your letters of July 31, and September 18, 1987 seeking correction of an assessment issued in the above referenced case for the period January, 1982 through June, 1984. This also has reference to the taxpayer's remittance of ********** on October 28, 1987.
FACTS
*********(taxpayer) provides market research and consulting services to clients for the promotion of various products and services. In this connection the taxpayer purchases mailing lists and labels for use in performing its market research, or for use by its client in distributing product or service information to potential customers. The taxpayer was audited and held liable for its untaxed purchases of such mailing lists and labels. The taxpayer contends that such purchases represented purchases of nontaxable "customized" mailing lists and labels, (in accordance with e prior ruling of the department), which were tailored to its clients unique demographic, geographic, financial, political and other marketing needs.
The taxpayer also contends that the assessment is overstated since it includes: (1) items purchased prior to the relocation of its business to Virginia in the spring of 1982, ( 2) an invoice which it claims was never Paid, (3) certain amounts which it claims represent credits or discounts from its suppliers, and (4) an amount representing the payment of a security deposit.
The taxpayer has also recently remitted several invoices showing that some of the items identified in the audit as purchases of mailing lists and labels, only represented the taxpayer's purchases of lists. Conversely, the taxpayer contends that some of the items identified in the audit as purchases of lists, also involved purchases of mailing labels.
Notwithstanding the foregoing, the taxpayer contends that if its purchases of customized mailing labels are deemed to be taxable, any separately stated charges for services provided by its suppliers in connection with the provision of such labels should be deemed tax exempt.
DETERMINATION
Section 58.1-608(2) of the Virginia Code provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made." In addition, Virginia Regulation 630-10-97.1(C) provides that:
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- In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. 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 services provided, will be taxable.
- In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. 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 services provided, will be taxable.
Based on all of the information provided, I find basis for concluding that the mailing lists purchased by the taxpayer in this case were "customized" in accordance with the department's May 28, 1985 ruling. Accordingly, such purchases will be removed from the assessment.
However, unlike the taxpayer's purchases of customized mailing lists, the true object sought by the taxpayer in purchasing the mailing labels in this case was the acquisition of the tangible labels themselves. A state Supreme Court made this same distinction in a case involving issues identical to those raised in this case. Fingerhut Products Company, et. al., v. Commissioner, 258 N. W. 2d 606, (1977), involved a use tax assessment on a direct mail merchandiser's purchases of mailing lists and labels. In holding that the tax did not apply to the taxpayer's purchases of mailing lists, the court stated that "the use of typed mailing lists [was] merely incidental to the use of the incorporeal information contained in the lists." However, in upholding the assessment on the taxpayer's purchases of mailing labels, the court stated that there was a "use of tangible personal property distinct from the use of typed mailing lists, in that the labels were physically separated and attached to envelopes." In such a case, the court concluded, "the physical manifestation of the property is itself used not merely the intangible information." See also, Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E. 2d 619 (1973), which upholds the strict construction of all exempting statutes.
In addition, Virginia Code §58.1-607 provides that "[t]he use tax shall not apply to tangible personal property purchased outside this State for use outside this State by a then nonresident... business entity not actually doing business within this State, who later brings such tangible personal property into this State in connection with his establishment of a ... business in this State, provided that such property was purchased more than six months prior to ... the establishment of such ... business..."
Since the items which taxpayer contends were purchased out of state were purchased within six months of the relocation of the taxpayer's business to this State, they were properly held taxable in the audit. Accordingly, except for any customized mailing lists purchased out of state which will be removed from the assessment, I find no basis for any further correction of the assessment on this issue. However, if the taxpayer is able to provide documentation showing that the items Purchased out of state were never brought into Virginia, I will consider removing such items from the assessment. Alternatively, if the taxpayer can provide proof of proper payment of the other states sales or use tax when it made such purchases, a credit will be granted for such tax paid not to exceed the amount of Virginia's use tax.
Furthermore, Virginia Code §58.1-602(17) defines the term "sales price" to mean, "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether Paid in money or otherwise, and includes any amount for which credit is given to the purchaser... by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used. labor or service costs, losses or any other expenses whatsoever." (Emphasis added)
Accordingly, any charges made by the taxpayer's suppliers for services performed by them in connection with the provision of mailing labels to the taxpayer whether or not such service charges were separately stated, were correctly held subject to the tax in the audit. In addition, the total charge on any invoice to the taxpayer from its suppliers for the provision of both mailing lists and labels was properly held taxable in the audit, since the charge represents the "sales price" of the tangible personal property (mailing labels) being purchased by the taxpayer.
Furthermore, in the absence of the actual purchase invoices themselves and/or other explanatory documentation from its vendors in support of its contentions, I find no basis for the removal from the assessment of the invoice which the taxpayer claims was never paid, nor for any amounts identified by the taxpayer as credits or discounts on the invoices, nor for the amount which it claims represented the payment of a security deposit.
The taxpayer should send any documentation requested above to the department's Technical Services Section, office Services Division, within thirty days of the date of this letter. Receipt is hereby acknowledged of the taxpayer's payment of, ********** subject to a protective claim for refund under §58.1-1824 of the Virginia Code. After final revision of the assessment in accordance with the foregoing, and based on any additional information received within thirty days, the department will issue any refund which may be due to the taxpayer under separate cover. If no further information is received, the amount remitted will be deemed payment in full of the assessment.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner