Tax Type
Retail Sales and Use Tax
Description
Advertising; Bags for packaging prescription drugs
Topic
Taxability of Persons and Transactions
Date Issued
10-09-1990
October 9, 1990
Re: Ruling Request: Sales and Use Tax
Dear***************
This will reply to your letter of December 27, 1989 seeking a ruling on the application of the sales and use tax to your client, who is engaged in advertising sales. This also has reference to information provided to a member of my Tax Policy Division staff by telephone.
FACTS
Y our client supplies druggists with the bags used to package prescription drugs. at no cost to the druggists. In order to provide these bags free of charge. your client sells space on the outside of the bags to other businesses that would like to advertise their products or services on the bags. The businesses seeking to advertise on the bags generally provide your client with business cards which are then provided to an unrelated third party printer for use in producing the bags. Your client provides no creative or design work in connection with its advertising sales.
You ask whether the tax applies to the purchase by your client of the bags from the third party printer for free distribution to its druggist customers. If it is determined that such purchases by your client are taxable, you ask whether the tax would still apply if the druggists were charged a fee for the bags. You also ask whether the tax applies to the advertising sales charges made by your client to the businesses seeking to place their ads on the prescription drug bags.
RULING
Bags Purchased for Free Distribution
The printing purchased by your client in this case represents "custom printing" under §3(A) of VR 630-10-86, copy enclosed, which is defined as, "the production...of printed matter in accordance with a customer's order of copy for the customers use or consumption." Under this regulation, the total invoice charge for custom printing represents the taxable sale of tangible personal property. Your client in this case is the using and consuming customer under this regulation provision notwithstanding the ultimate use of the bags by its druggist customers. Thus, if your client provides the prescription drug bags at no charge to its druggist customers. it will be subject to the tax on the total charge for the printing.
Bags Purchased for Resale
Virginia Code §58.1-602. defines the term "retail sale" to mean. a sale to any person for any purpose other than for resale in the form of tangible personal property.." (Emphasis added) Thus. if your client purchases the bags for resale to the druggists rather than for free distribution to them, your client may give the printer a resale certificate of exemption (Form ST-10) at the time of making such purchases. (See §10 of VR 630-10-86)
Furthermore. the purchase by the druggists of the prescription drug bags would qualify for tax exemption under Virginia Code §58.1-608(3)(b)(iv), since they are marketed with the product being sold by t he druggists, and become the property of the druggists customers.
Advertising Space Charges
Last, the advertising sales charges made by your client to businesses seeking to place their ads on the prescription drug bags are analogous to nontaxable charges made by publishers of newspapers or magazines for advertising space, and are therefore also nontaxable. (See also, §3 of VR 630-10-3, enclosed)
The department is currently in the process of revising Retail Sales and Use Tax Regulation (VR) 630-10-3: Advertising. We will include you on our mailing list to receive information concerning any proposed changes to the regulation during the regulation revision process.
Please let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner