Tax Type
Retail Sales and Use Tax
Description
Trade show exhibits; Interstate commerce and "first use"
Topic
Taxability of Persons and Transactions
Date Issued
02-27-1987
February 26, 1987
Re: Virginia Code §58.1-1821 Application
Sales and Use Tax
Dear *********************
This is in reply to your letter of November 7, 1985 in which you make application for correction of the sales and use tax assessment issued to your client, ********** and to the subsequent conversations between yourself and *************of the department's Tax Policy Division staff.
FACTS
************** (Taxpayer) is principally a designer of exhibits used in trade shows, product information centers, etc. The Taxpayer designs the exhibit for a client and then subcontracts with either a sister firm or another similar firm for the fabrication of the exhibit. In addition to designing and having an exhibit fabricated for its clients, the Taxpayer also provides additional services, at the request of their clients. At the request of the client, the Taxpayer may provide some or all of the following services: shipping the exhibit to the site of the show, setting-up the exhibit, taking down the exhibit after the show, shipping the exhibit back to their offices and storing the exhibit for the client until it is needed for another show.
The department assessed tax to the Taxpayer based upon the total charge for the exhibit in the following circumstances:
1. Exhibits were delivered to clients in Virginia.
2. Taxpayer shipped exhibits to a site out-of-state, set-up the exhibit for the client, dismantled the exhibit after the show and returned it to Virginia for storage.
No tax was assessed when the exhibits were shipped to the client or to the show out-of-state and the exhibit remained outside of Virginia. No tax was assessed on the charge for set-up, takedown and shipping if these items were separately stated on the invoice.
You contest the portion of the assessment that resulted from the charge for exhibits that were shipped to a site out-of-state, set-up for the client, dismantled after the show and returned to Virginia for storage.
DETERMINATION
Virginia Code §58.1-608.20 and Virginia Retail Sales and Use Tax Regulation §630-10-51 provide an exemption from the tax for sales of tangible personal property in interstate or foreign commerce. The Regulation states:
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- A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. (Emphasis added.)
- A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. (Emphasis added.)
In addition to the requirement that title or possession of the property pass to the purchaser outside of Virginia for the sale to be exempt under the above exemption, a further requirement is that there can be no use of the property within Virginia.
"Use" is defined under Virginia Code §58.1-602 as:
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- ...the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business.
- ...the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business.
It is not necessary that the client take physical possession of the property in Virginia for the client to exercise rights inherent in the ownership of the property. A similar situation was addressed by the Virginia Supreme Court in WTAR Radio-TV v. Commonwealth of Virginia, 217 Va. 877, 234 S. E. 2d 245 (1977), which found that the airing of an advertisement over the television airwaves to be "tantamount to delivery" of the property to the purchaser even though the purchaser never took actual physical possession of the property. Furthermore, the fact that the property will ultimately be delivered outside of Virginia is of no bearing as the Virginia Supreme Court, in Commonwealth of Virginia, Department of Taxation v. Miller-Morton, 220 Va. 852, 263 S. E. 2d 413 (1980), held that "[i]f a taxable event occurs in Virginia, subsequent delivery of the property outside this State does not immunize the taxable event." In this case, the clients exercised rights incident to the ownership of the property while it was still in Virginia; therefore, the sales tax applies to such transactions.
To the extent that there were no instructions from the client to the Taxpayer at the time the order was completed, other than instructions indicating where to ship the display, and the display was shipped by common carrier to a location out of this State, then no taxable use of the property occurred in Virginia. However, if the contract or the order from the client required more of the Taxpayer, then the first use and thus the taxable transaction occurred within Virginia.
In the conversations between yourself and ************** you also indicated that there appeared to be factual errors in the audit and you requested that the transactions be reexamined to determine which category of sales (taxable or exempt) each transaction falls into. Our Field Services Division will contact the Taxpayer and discuss any necessary adjustments, based upon a reexamination of the factual issues and this determination.
You also requested that the department provide guidance in the five areas identified in your letter of November 7, 1985. In view of the information contained in this letter and the determination reached in this case, I feel that it is unnecessary to answer each of those questions specifically.
If you have any questions after the factual issues are resolved and the adjustments are made in accordance with this determination, please do not hesitate to contact this office.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner