Tax Type
Retail Sales and Use Tax
Description
Graphic design; Promotional material
Topic
Taxability of Persons and Transactions
Date Issued
05-22-1989
May 22, 1989
Re: Request for Ruling: Sales and Use Tax
Dear****************
This will reply to your letter dated October 14, 1988, in which you requested a ruling on the application of the Virginia Retail Sales and Use Tax to your business.
FACTS
********* ("The Taxpayer") designs promotional materials using a personal computer for businesses and individuals. The Taxpayer enters into two basic transactions. In the first transaction, the Taxpayer designs the promotional design piece ("the design"), transfers it onto a floppy disk ("the disk"), and then sends the disk to another company ("the photo-lab") which produces a photographic quality print ("the print") which can be mass produced if desired.
Before the disk is sent to the photo-lab, a draft copy of the design is sent to the client for his approval. The client must return the design to the Taxpayer whether or not it is approved for photographic printing.
The Taxpayer bills the client in a separate statement for the cost of design and is presently not collecting the tax on his design fee. The photo-lab also separately bills the client for the print but does collect the tax on the sales price of the print. The majority of the designs are used in non-media advertising.
The Taxpayer occasionally enters into a second transaction in which a design is produced but the client does not require a photographic quality print. Here, the Taxpayer provides the client with copies of the design produced by a low resolution printer. In this transaction, the Taxpayer is collecting the tax on the total sales price of the transaction.
RULING
Based upon the information you have presented, the design fee in the first transaction represents a taxable sale unless the design is intended for use in "media advertising." See Commissioner's Ruling dated May l O, l 988, copy enclosed. When the design is used in media advertising, the Taxpayer should not charge the tax to customers but must pay the tax on purchases of tangible personal property used in the production of the design.
If the design is used in non-media advertising, then the Taxpayer must charge the tax based on the sales price of the transaction. Sales price is defined in Virginia Regulation 630-10-95, copy enclosed, as the "total amount for which tangible personal property or taxable services are sold and includes any services in connection with such sale [i.e.] design feel." However, the Taxpayer can purchase exempt from the tax, pursuant to a resale certificate of exemption (Form ST-10, copy enclosed), any tangible personal property which will be a component part of the designs sold to customers (paper, dry ink, etc.).
In the second transaction, the tax should be collected based upon the "sales price", unless the design is for use in media advertising in which case the Taxpayer must pay the tax on supplies at the time of purchase.
Since a major portion of the Taxpayer's business is for use in non-media advertising, the Taxpayer may purchase all of its supplies exempt of the tax with a resale certificate of exemption. However, whenever it withdraws any of such items from its inventory of supplies purchased for resale for use in providing media advertising, it must report the use tax to the department based on the cost price of such items. See Commissioner's Ruling dated August 26, 1987, and attached advertising regulation and Virginia Regulation 630-10-3, copies enclosed.
If you have any further questions, please contact us.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner