Tax Type
Retail Sales and Use Tax
Description
Computerized form letters; Personalized document production
Topic
Taxability of Persons and Transactions
Date Issued
09-08-1988
September 8, 1988
Re: Ruling Request/ Sales and Use Tax
Dear****************
This will reply to your letter of April 8, 1988, on behalf of *********** (taxpayer) seeking information on the application of the sales and use tax to the taxpayer's business. This also refers to additional information provided to a member of my staff by telephone and in a letter dated July 28. 1988.
FACTS
The taxpayer prepares personalized letters, cards, forms, envelopes and other printed direct mail matter, for use by its clients primarily in fundraising activities. Typically, a client will provide the taxpayer with a computerized mailing list of the intended recipients of a particular mailing and the generic textual information to be sent to each recipient. In some instances a client will provide the taxpayer with preprinted cards or forms, already containing certain generic information, onto which the taxpayer merely inserts the recipients names and addresses.
In other instances, through the use of a data processing program known as "merging", the taxpayer combines the generic information, such as a form letter, and personal information, such as names, addresses, and prior contribution history, provided by a client to produce a personalized direct mail package for its client. The taxpayer does not produce portions of the direct mail package which do not need to be personalized, such as second and third pages of a letter, which are instead either furnished by its client or contracted for by the taxpayer from an outside printer.
The taxpayer may also be requested to create highly personalized or customized letters for its clients or to make extensive modifications to standard or generic information provided by its clients in creating a direct mail package. For example, based on a library of paragraphs containing standard language provided by its client, the taxpayer may delete certain paragraphs or include certain other paragraphs in producing particular letters to be sent to specific individuals designated by its client.
The taxpayer may also address the envelopes provided by its client to be used in the actual mailing of the finished direct mail material. However, the stuffing and mailing of the envelopes is performed either by the taxpayer's client, or by an unrelated third party contracted for by its client.
When billing clients, the taxpayer makes a per piece charge which includes the cost of its services, the cost of supplies used in providing such services, and its costs for printing and other services purchased from third parties, including sales tax paid by the taxpayer on such purchases.
Based on the foregoing, the taxpayer asks whether its data processing business qualifies as the provision of a nontaxable service within the meaning of Virginia Code §58.1-608(2).
RULING
Section 58.1-608(2) of the Virginia Code provides an exemption from the sales and use tax for ... "personal service transactions which involve sales as inconsequential elements for which no separate charges are made, . . . "
By ruling letter dated August 4, 1986, copy enclosed, the department determined that the charge for the production of an original letter or document by a word processing business was not subject to the tax, since the true object of such a transaction was the provision of a personal service and not the sale of tangible personal property.
However, this letter also stated that, "charges for the production of multiple copies of a letter or document are subject to the tax. Such a transaction might entail the production of form letters using a slight variation to individualize essentially the same letter." The letter stated further that " [w]hen producing multiple copies of a letter or document, a firm such as yours is providing much the same service as a printer and must collect the tax based upon the total charge for the products, including charges for setting up the machine. keyboarding, assembling the material, and any other charges for services in connection with the sale."
Therefore, when the taxpayer provides its clients with form letters which are produced with slight variations which personalize essentially the same letter, the tax applies to the total charge for the provision of such letters.
If in connection with providing such form letters the taxpayer also purchases printing on behalf of its client from a third party printer, such as second or third pages of documents, such printing may be purchased exclusive of the tax, (under resale certificate of exemption Form ST-10, copy enclosed), since the taxpayer will be required to collect and report the tax based on the total charge to its client for such third party printing.
The provision by the taxpayer of highly customized form letters for its client, using personal information and a particular combination of paragraphs provided by its client, will also generally be subject to the tax even though the modifications to each such letter made by the taxpayer might be substantial. For example, if the taxpayer provides its client with several different versions of a letter to be sent to different classes of individuals sharing certain demographic, income or other characteristics, the tax will apply to the total charge for such letters.
It should be noted however that from "July 1, 1986 to June 30, 1989, letters, brochures, reports, and similar printed materials (except "administrative supplies" as defined in §I ) are exempt from the tax when stored for twelve months or less in Virginia and mailed to or distributed outside of Virginia." See, enclosed Virginia Regulation (VR) 630-10-86. Therefore, if any of the letters produced by the, taxpayer are for storage in Virginia for twelve months or less for distribution outside the State, they will not be subject to the tax through June 30, 1989.
Further, if each letter provided by the taxpayer is individually created, using a separate set of unique instructions either provided by its client or developed by the taxpayer, the total charge for the production of each such individually created letter will qualify for tax exemption as the provision of a personal service.
Finally, whenever the taxpayer merely inserts names and addresses on pre-printed envelopes, forms or cards already containing generic information provided by its clients, the tax will not apply to the charge for such service. However, charges for these services will be subject to the tax when provided in conjunction with the sale of taxable documents by the taxpayer. (See, definition of "sales price" in Virginia Code §58.1-602.17, enclosed.)
I hope that 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