Tax Type
Retail Sales and Use Tax
Description
Advertising business; Camera ready artwork for non-media labels
Topic
Property Subject to Tax
Date Issued
06-24-1994
June 24, 1994
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear***********
This will reply to your letter seeking correction of sales and use tax assessments to********** (the "Taxpayers") for the periods November 1987 through September 1989 and November 1987 through October 1990, respectively.
FACTS
The Taxpayers, two advertising companies which were merged in late 1989, were audited individually and held liable for the tax on camera-ready artwork for labels which is sold to clients. The Taxpayers design and typeset the artwork for a client in the medical industry. The client subsequently takes the artwork to a third-party printer who produces the labels which are adhered to or silk-screened on cases or boxes of the client's products. The labels are used by the client's customers to identify the products.
In addition, the labeled packaging may appear in the client's sales catalogs. The Taxpayers maintain that the labels represent exempt media advertising and that it had previously been informed by the department that such sales were nontaxable.
DETERMINATION
The department has previously addressed the tax status of the provision of graphic design for product packaging in P.D. 90-60 (4/12/90), copy enclosed. As that letter indicates, the provision of concept and graphic design for packaging intended to convey promotional information to the public generally is exempt from the tax. However, creative and design services resulting in a tangible product in connection with some non-media or nonpromotional administrative purposes, is taxable.
Notwithstanding the fact that the labeled packaging may be used in the client's catalogs, from a review of the labels produced by the Taxpayers, it appears that the labels are not promotional in nature. Rather, while the labels identify the client and thus distinguish its products from its competitors', the primary use of the labels is for product identification or administrative purposes. Accordingly, the Taxpayers' charges for the camera-ready artwork were appropriately held taxable in the assessment.
With respect to the internal procedures manual previously reviewed and approved by the department, we cannot find therein any specific reference to or description stating that the above-type labels were considered exempt advertising. While there is a reference to "1B-4 Labels", the sample invoice indicates this as a tax-exempt (T/E) transaction (e.g., a sale to a tax-exempt entity or to a dealer for resale) as opposed to a nontaxable (N/A) advertising transaction. Thus, it appears the Taxpayers held sales of these types of labels as taxable transactions.
Accordingly, the department can find no basis to revise the assessments issued to the Taxpayers. However, upon payment of the assessments totalling***********, accrued interest will be waived.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/6267H
Rulings of the Tax Commissioner