Tax Type
Retail Sales and Use Tax
Description
Advertising; Website design; Video production
Topic
Taxability of Persons and Transactions
Date Issued
05-23-1997
May 23, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear********************
This is in reply to your letter of March 7, 1997, in which you (the "Taxpayer") requested a ruling on the applicability of the retail sales and use tax to several transactions.
FACTS
The Taxpayer is involved in the production and placement of web sites on internet services. The Taxpayer also constructs kiosks in which interactive video information can be accessed by potential customers. Such kiosks will be placed in hotels, airports, and other similar sites open to the general public. I will address the department's response in the manner in which the questions were posed.
DETERMINATION
Web site design/homepage artwork
The Taxpayer develops web site designs or artwork on its own computer system. The Taxpayer will meet the client at either the clients office or at the Taxpayer's office to review the potential site design. Any changes required by the client are initiated at the Taxpayer's office.
The costs associated with the foregoing web site/homepage production or design are not taxable, even in light of the fact that the design may be presented to the client in tangible form. Such tangible form, however, represents the review phase of the design process, and is not considered to be a sale of tangible personal property. As the transaction is considered to be a non taxable service transaction, the Taxpayer is deemed to be the user and consumer of all tangible personal property used in such transactions, and must pay the tax to their suppliers on such purchases. Once the client has approved the design, the Taxpayer registers the design with a site provider and transfers the design electronically.
Web site registration/placement
The Taxpayer, on behalf of the client registers the web site design or homepage on an internet service which charges the Taxpayer monthly or yearly site fees. The fees are marked up and, in turn, charged to the client. As there is no transfer of tangible personal property, there is no taxable transaction for retail sales and use tax purposes. For information purposes I have enclosed a copy of Title 23 Virginia Administrative Code (VAC) 10-210-4040 which further details the department's policy with respect to services under Code of Virginia § 58.1-609.5.
Kiosks/videos
The Taxpayer constructs kiosks for placement in hotels, airports, and other areas where the general public would have access to the kiosk. The kiosks will house a video which the Taxpayer will produce, and which will exhibit interactive video information pertaining to a specific client. The Taxpayer questions the applicability of tax to the kiosks.
The kiosks are considered tangible personal property constructed for the Taxpayer's own use and consumption. Accordingly, the materials used to construct the kiosks would be considered taxable
Charges for the design and production of an interactive video, however, are considered to be exempt charges as the interactive video is produced to educate clients' customers of the clients' sales or services. I have enclosed copies of previous rulings, P.D.'s 95-198 (07/31/95), and 95-227 (09/05/95), as well as a copy of Code of Virginia § 58.1-609.6 which will help to further explain the department's position. Subsection (6) was intended to expire June 30, 1997, however, by action of the 1997 Session of the General Assembly, the exemption was extended to June 30, 2002.
I trust that our responses have been satisfactory, and are of assistance to you. If, however, you should have any other questions regarding these issues, please contact*************of the department’s Office of Tax Policy at ******** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12300Q
Rulings of the Tax Commissioner