Tax Type
Retail Sales and Use Tax
Description
Catalogs and printed materials; Advertising
Topic
Taxability of Persons and Transactions
Date Issued
04-06-1988
April 6, 1988
Re: Ruling Request/ Sales and Use Tax
Dear *****************
This will reply to your letter of September 30, 1987 on behalf of the *************seeking clarification of the recently adopted Retail Sales and Use Tax Regulation (VR) 630-10-3, concerning advertising. This also has reference to additional information submitted in your letter dated October 22, 1987 and in a meeting held at the department on March 28, 1988.
FACTS
In your letter, you state that a May 13, 1987 ruling of the department, (copy enclosed), interpreting the advertising regulation, creates practical problems for the advertising industry which were not apparent to the industry at the time the regulation was being drafted. In that ruling, the department held that the exemption in Virginia Code § 58 .1-608(30) for certain catalogs and other printed materials did not apply to purchases by as advertising agency.
While you agree that the purpose of the advertising exemption was to place advertising agencies on the same basis as other professional service businesses, that is, taxable on their purchases but not on their charges to clients, you are unaware of any other professional businesses which have been denied the benefit of exemptions otherwise generally available in making purchases.
In, addition, you state that the department's interpretation of the regulation suffers the problem of elevating form over substance. For example, you state that the availability of the exemption should not depend on whether a retail merchant purchases his catalogs directly from a printer for storage in state and subsequent distribution out of state, or whether such catalogs are purchased by an advertising agency on behalf of the merchant.
Furthermore, you note that the regulation, as promulgated recognizes that advertising agencies may purchase certain items of tangible personal property, such as photographs, exempt of the tax, when they are for use in a media ad campaign. You contend that most of the printing purchased by an advertising agency will similarly be used in a media campaign, and therefore should also qualify for exemption.
Accordingly, you seek a revision of the department's May 13, 1987 ruling to allow advertising agencies to purchase exempt of tax, on behalf of their clients, catalogs and other printed materials where stored for twelve months or less in Virginia for distribution outside the state.
RULING
Since July 1, 1986, Virginian Codes § 58.1-608(57) has provided an exemption from the sales and use tax for "advertising" which is defined is § 58.1-602(23) of the Code as "the planning, creating, or placing of advertising is 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 is such advertising." (Emphasis added).
The last sentence of this definitional section leaves little doubt that the General Assembly intended that advertising agencies be required to pay the tax on all of their purchases of tangible personal property for use in the planning, creating or placing of advertising is the media. In accord with this intent, the department adopted VR 630-10-3 which provides in pertinent part that "the tax applies to all purchases by an advertising business including, without limitation, the following items: . . . [p]rinting, including direct mail items, non-customized or stock mailing lists, handbills, brochures, flyers, bumper stickers, posters and similar printed materials whether or not for use in the development of a specific advertising campaign, and whether or not any of such materials are intended for distribution out of state." (See subdivision 2 of section 2(B) of the regulation) (Emphasis added)
Therefore, ad agencies make a taxable use of any catalogs or other printed materials which they purchase on behalf, of clients, regardless of how long such materials may be stored in the state and distributed for use outside Virginia by their clients, and regardless of the existence of any exemptions which may be enjoyed by their clients.
Moreover, while other professional businesses do enjoy the benefit of generally available exemptions in making certain purchases in their own behalf, the statute is this case specifically requires the payment of the tax on all purchases of tangible personal property by an advertising business.
In addition, the fact that an advertising agency's retail merchant client could purchase directly from a printer, certain catalogs and other printed materials exempt of the tax, does not preclude the application of the tax to such a purchase when it is instead made by the ad agency on behalf of its client. The application of the tax under these circumstances is similar to the application of the tax to purchases by contractors on behalf of the government or other exempt entities.
Furthermore, I find no inconsistency in the department's regulation regarding the application of the tax to an advertising agency's purchases of photographs and its purchases of printing for use in media advertising. While the provision of "photography" for use in media advertising is specifically exempted in the statutory definition of "advertising" stated above, the provision of printing for use in such advertising is not so exempted. Accordingly the department's regulation provide that an advertising agency may purchase photographs exempt of the tax from another "advertising business", as defined in the regulation, if at the time of making such purchase, it furnishes the other business with a certificate of exemption, Form ST-10A, indicating that the photographs are for use in media advertising.
Accordingly, I cannot agree that the legislature intended to allow the industry an exemption on their purchases of catalogs and other printed materials in providing media advertising services to clients particularly in view of the statutory language at § 58.1-602(23) which specifically, states that any, person providing advertising is the user and consumer of all tangible personal property used is such advertising.
I hope that the foregoing has responded to your questions but let the department know if you have further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner