Tax Type
Retail Sales and Use Tax
Description
Direct mailing services
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
05-22-1989
May 22, 1989
Re: Ruling Request/ Sales and Use Tax
Dear******************
This will reply to your letter of September 9, l 988 seeking a ruling on the application of the sales and use tax to the direct mail service provided by***************(taxpayer).
FACTS
The taxpayer recently opened a new division at its out-of-state location known as **********for the provision of direct mail services to customers from across the country, including Virginia. The vast bulk of the direct mail services provided by the taxpayer serve some promotional or advertising purpose of its customers. Orders for direct mail packages are received by the taxpayer at its out-of-state production facility from its sales representatives. The taxpayer then designs the direct mail package and either itself produces the forms, inserts, envelopes, etc., to be included in the package, or contracts with an unrelated third party to print the components of the package.
Using a computer list provided by its customer, the taxpayer then addresses the direct mail package, sorts the package by zip code, affixes postage and mails the package either to its customers, or directly to addressees indicated on the finished package.
You ask how the tax applies to the taxpayer's above described direct mail business in a variety of circumstances based on where the taxpayer's sales representatives are located when they receive orders from Virginia customers, and based on how and where the direct mail packages produced and designed by the taxpayer are to be distributed.
RULING
Effective July 1, 1986, the tax does not apply in Virginia to the sale of "advertising", which is defined in Virginia Code §58.1-602(23) 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." (Emphasis added).
Consistent with the foregoing, the department recently promulgated Virginia Retail Sales and Use Tax Regulation (VR) 630-10-3: Advertising, copy enclosed, which provides in pertinent part that the term "media", "means and includes newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." (Emphasis added).
When the taxpayer in this case designs and either itself produces, or contracts with some third party for the print production of a direct mail package, and in connection therewith provides mailing services, for some media advertising purpose of its customer, the total charge for the package, including related mailing services, will qualify for the above tax exemption. Therefore, the tax will not apply to the total charge for such a direct mail package, regardless of the location of the taxpayer's sales representatives at the time the order was received, and whether or not the package is intended for distribution entirely within or outside of Virginia. The tax will also not apply to such a direct mail package whether it is mailed directly by the taxpayer to Virginia addressees, or whether the packages are instead sent in bulk to the taxpayer's customer in Virginia for subsequent individual mailing to the addressees by the customer.
Conversely, when the taxpayer creates a direct mail package for some non-media advertising purpose of its customer, such as for internal corporate or employee use, the tax will apply to the total charge for such a package, including the charge for mailing services. (See the enclosed January 3, 1986, ruling of the department on this same issue). However, the tax will not apply to the total charge for such a package if the taxpayer receives a validly completed certificate of exemption from a Virginia customer indicating that it qualifies for one or more of the exemptions available for printed materials. (See, for example, VR's 630-10-18.1 and 630-10-86 enclosed). It should be noted further that 1989 Senate Bill 521 makes permanent the sales and use tax exemption for letters, brochures, reports and similar printed materials stored in Virginia for 12 months or less and distributed for use outside of Virginia, which was set to expire on June 30, 1990.
Virginia Code §58.1-603 imposes the sales tax on the gross sales price of each item of tangible personal property sold at retail or distributed within the state. However, Virginia Code §58.1-602(17) excludes from the term "sales price, separately stated transportation charges". (Emphasis added). Therefore, separately stated transportation charges, including postage charges, for direct mail packages sent by the taxpayer to its customers, will not be subject to the tax. However, if no other exemption applies, any other handling charges or charges for folding, key punching, data processing, sorting, etc., provided by the taxpayer for such packages will be subject to the tax. (See also VR 630-10-107, enclosed).
Notwithstanding the foregoing, it is unclear from the information submitted whether the taxpayer meets the definition of a "dealer" for sales and use tax registration and reporting purposes. (See Virginia Code §58.1-612, copy enclosed). If, based on the foregoing analysis, the taxpayer anticipates that it will be making taxable sales to Virginia customers, it should seek further advice from the department.
I hope that this 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