93-47 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Advertising; In-house advertising by religious group

Topic

Taxability of Persons and Transactions

Date Issued

03-04-1993

March 4, 1993

Re: §58.1-1821 Application: Retail Sales & Use Tax

Dear***********

This will reply to your letter of March 25, 1992 in which you seek correction of a retail sales and use tax assessment against **********(the "Taxpayer").

FACTS

The Taxpayer is a nonprofit religious organization engaged in the production of media broadcasting, sales of religious materials and production of fundraising and promotional literature. An audit for the period September 1986 through August 1989 produced an assessment for various items which are contested by the Taxpayer. These items include (1) the production of printed material by an in-house advertising operation, (2) the sale of lighting equipment, and (3) donations of books and other reading materials.

DETERMINATION

Advertising Purchases

The primary focus of Virginia Regulation (VR) 630-10-3 is upon "advertising businesses," i.e., agencies or other businesses that contract external clients for the creation of media advertising; however, in-house advertising is addressed in §4 of VR 630-10-3, which states:

- Materials and supplies and other tangible personal property used in "in-house" advertising, that is, advertising produced by any entity to advertise, promote or display its own products or services, are subject to the tax at the time of purchase. (Emphasis added.)

This section specifically addresses the in-house advertising which an entity uses to promote its own products or services. The in-house production of informational brochures, fundraising literature and similar printed materials to advertise or promote the religious beliefs of the Taxpayer to contributors and members of the general public falls within this category.

However, the in-house advertising section of the regulation does not specify that all material and supply purchases are taxable. Reading §4 of this regulation in conjunction with §2 B 2 of this regulation, which describes taxable purchases of printing by an "advertising business," the department assessed tax on all purchases of printed materials, the layout, and artwork which was originally created by the Taxpayer's in-house advertising staff. When an in-house staff creates media advertising specifically for their employer, it does not constitute an "advertising business." As such, the provisions of §2 B 2 of this regulation do not apply in that situation.

Therefore, applying this policy clarification to the current situation, printed materials resulting from in-house advertising activities are exempt pursuant to Va. Code §58.1-608(A)(6)(d) when they are stored in Virginia for twelve months or less and distributed for use outside of Virginia and are for the Taxpayer's own use. Thus, the audit will need to be adjusted with respect to this area. However, when the Taxpayer's in-house advertising staff provides services for external clients, including affiliated corporations, the rule set out in §2 B 2 of the regulation applies as the Taxpayer would be deemed an advertising business. As such, in those cases, all purchases of printing will be fully taxable, even if the printing will be shipped out-of-state.

Sale of Used Lighting Equipment

Va. Code §58.1-608{A)(10)(b) exempts from the sales and use tax occasional sales of tangible personal property. In interpreting this code section, VR 630-10-75 defines an occasional sale, in part, to mean:

- A sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration. The words "not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration " mean that a registered dealer is not entitled to an occasion sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise he/she regularly sells.

While the Taxpayer is a dealer which holds a certificate of registration for sales of books, tapes, videos, and other educational products, it is not required to hold a certificate of registration for its activities in broadcasting. Therefore, the Taxpayer's one-time only sale of the lighting equipment used in broadcasting activities be exempt from the tax as an occasional sale and will be removed from the audit.

Donation of Reading Material

The Taxpayer indicates it qualifies for exemption as a noncommercial educational telecommunications entity (ETV) as set forth in Va. Code §58.1-608(A)(4)(b). To qualify for this exemption, an organization must (i) be nonprofit, (ii) not accept commercial advertising, and (iii) have its programming serve an educational purpose. Many ETVs have substantially expanded their programming to include the Public Broadcasting System program schedule as well as locally-produced general interest and education programming. Since the Taxpayer is not an ETV, it does not qualify for this exemption.

Additionally, the Taxpayer contends it qualifies for exemption under Va. Code §58.1-608(A)(4)(e) for:

- Books and other reading materials for use by nonprofit organizations organized solely to distribute such books and reading materials to school-age children. (Emphasis added.)

In that the Taxpayer is not organized solely to distribute books but is involved in other activities, it does not qualify for this exemption.

However, the Taxpayer may qualify for the exemption for property withdrawn and donated to certain nonprofit organizations or the Commonwealth. Va. Code §58.1-608(A)(8)(e) exempts:

- Tangible personal property withdrawn from inventory and donated to (i) an organization exempt from taxation under §501(c)(3) of the Internal Revenue Code, or (ii) the Commonwealth, any political subdivisions of the Commonwealth, or any school, agency or instrumentally thereof.

Therefore reading materials regularly held in inventory which are subsequently withdrawn and given to the entities stipulated in the statute above are exempt from the tax and will be removed from the audit. However, reading material withdrawn from inventory and donated to individuals, companies, or organizations not specifically exempt, are taxable on the cost price at the time withdrawn and will remain in the audit.

Accordingly, the audit will be revised by the**************District Office as set forth above. However, additional information will need to be provided By the Taxpayer regarding the donated property within 30 days so that the necessary revisions can be made. Once the revisions are completed, a corrected Notice of Assessment will be issued, which will be immediately due and payable.

Sincerely,

W. H. Forst
Tax Commissioner

OTP/6069N

Rulings of the Tax Commissioner