Tax Type
Retail Sales and Use Tax
Description
Video tapes and signs; Advertising the sale of franchises
Topic
Property Subject to Tax
Date Issued
07-07-1994
July 7, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This is in reply to your letter in which************* (the "Taxpayer") contests the assessment of sales and use tax for the period July 1, 1989, through June 30, 1992.
FACTS
The Taxpayer is a corporation which sells furniture store franchises and advertises its furniture franchise through various trade publications. If a potential customer is interested in purchasing a franchise and makes an inquiry concerning the advertisement, the Taxpayer will send the customer an audio visual tape, which provides detailed information about the furniture store operations. The Taxpayer states that the purchase of an audio visual tape from an advertising business constitutes advertising, as provided in Virginia Regulation (VR) 630-10-3; therefore, the tape is exempt from the tax. Further, duplicates of these tapes should be considered exempt advertising.
In addition, the Taxpayer purchased vinyl letters from an out-of-state sign manufacturer. After fabricating letters to the Taxpayer's specifications, the manufacturer shipped the letters to the Taxpayer, who had a contractor arrange the letters into signs and attach them to the windows and walls on the interior of its stores. The Taxpayer states that since the letters were incorporated into real estate, the letters should be exempt of the tax. Further, the tax should be paid by the manufacturer who fabricates the signs, as provided in VR 630-10-100.
DETERMINATION
Advertising
Subdivision 5 of Va. Code §58.1-609.6, copy enclosed, exempts from taxation charges for "advertising," which is as defined in Va. Code §58.1-602, copy enclosed, as:
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- [T]he planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision. (Emphasis added.)
- [T]he planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision. (Emphasis added.)
As indicated in the department's letter to the Taxpayer dated February 23, 1993, audio visual tapes that are available only upon request by a particular customer do not provide advertising to the general public. Therefore, the tapes do not qualify as exempt advertising and are subject to the tax.
The additional duplication of audio visual tapes is not considered the provision of an advertising service within the meaning of VR 630-10-3. Instead, the sale of duplicate tapes is considered a sale of tangible personal property, and is subject to the tax. I have enclosed PD 88-245 (August 26, 1988) and PD 88-304 (October 31, 1994) which relate to this issue.
Signs
VR 630-10-100(A), in part, provides that:
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- Any person who constructs and installs signs, billboards, or similar items which, upon installation, becomes incorporated into realty is a contractor with respect to such items. No tax is applicable to the charge for constructing and installing a sign which becomes attached to realty, but the person constructing and installing the item must pay the tax all property used in the construction and installation. (Emphasis added.)
- Any person who constructs and installs signs, billboards, or similar items which, upon installation, becomes incorporated into realty is a contractor with respect to such items. No tax is applicable to the charge for constructing and installing a sign which becomes attached to realty, but the person constructing and installing the item must pay the tax all property used in the construction and installation. (Emphasis added.)
However, as further provided in this regulation:
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- The tax applies to the charge for the manufacture or fabrication of signs.... The tax applies to the total charge for the finished product including the labor involved in the construction or painting of the sign.... (Emphasis added.)
- The tax applies to the charge for the manufacture or fabrication of signs.... The tax applies to the total charge for the finished product including the labor involved in the construction or painting of the sign.... (Emphasis added.)
As the Taxpayer purchased the sign from a manufacturer without having the manufacturer perform the installation, the total sales price of the sign was taxable. If the manufacturer did not charge the tax, then the Taxpayer was liable for paying the tax directly to the department when filing monthly sales and use tax returns.
Based on this information, there is no basis for adjusting the audit. The balance of the assessment is ****which represents tax of****and interest of ***** updated to the date the appeal was received. If this balance is paid within the next 30 days, the accrued interest subsequent to that time will be abated.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/6891N
Rulings of the Tax Commissioner