Tax Type
Retail Sales and Use Tax
Description
Delivery charges and packing costs; Postage and handling charges
Topic
Basis of Tax
Date Issued
06-13-1997
June 13, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letter in which you seek correction of an assessment issued to your client, *********(the "Taxpayer") for the period July 1993 through December 1995.
FACTS
The Taxpayer prints, packages, and direct mails retailer coupons, marketing materials and advertising materials for retail and service businesses through a franchise operation. The Taxpayer's franchisees assist customers in the creation and design of the coupons and orders are sent to the Taxpayer to be printed and mailed. An audit assessment was issued to the Taxpayer for untaxed sales of the coupons to its franchisees. The Taxpayer seeks an adjustment to the audit for professional art services provided in connection with its sales of the coupons. The Taxpayer also contests the inclusion of separately stated mailing costs in the assessment.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-40 defines "advertising" as "the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media ..." The term "media", as used in this regulation, includes direct mail advertising. An "advertising business" is defined as "any person or group of persons providing "advertising" as defined herein." Title 23 VAC 10-210-41(B) (copy enclosed) contains a list of purchases that are taxable to advertising businesses, including "[p]rinting, including direct mail items ... whether or not for use in the development of a specific advertising campaign...." (Emphasis added). Based on the above, the Taxpayer's franchisees are considered advertising businesses and the Taxpayer's sales of printed coupons to the franchisees are taxable sales of tangible personal property.
Professional Art Services
Code of Virginia § 58.1-602 defines "sales price" as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale ... without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever." The department has traditionally held that services provided in connection with the sale of tangible personal property are properly included in the "sales price" of tangible personal property for purposes of computing sales tax. Absent a statutory exemption for other separately stated charges on the Taxpayer's invoices, any charges made in connection with the sale of the coupons are subject to the tax.
The Taxpayer cites Title 23 VAC 10-210-430 which states that retailers' coupons have no value and are considered an intangible advertisement of a discount to support its argument that sales of tangible personal property have not taken place. The context in which this cite is used in the regulation compares retailer coupons with manufacturer coupons, which a retailer can redeem for cash from the manufacturer. In contrast, a retailer cannot redeem its own coupons for cash. The cite used by the Taxpayer is not applicable to the facts of this particular case.
Based on the above, the charges for professional art services were properly included in the sales price of the Taxpayer's printing charges to its franchisees.
Mailing Costs
The Taxpayer maintains that sales tax was erroneously assessed on separately stated mailing costs for direct mailing the coupons. Title 23 VAC 10-210-6000(A) states that "[t]he tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer." Paragraph B of this regulation states that "transportation" and "delivery charges" include postage charges but do not include handling charges.
I understand that the auditor did not include postage or delivery charges in the audit if the charges were separately stated on the Taxpayer's invoices. Other charges for collating and inserting, envelopes and addressing, and handling charges were included in the audit. It is not clear if the Taxpayer contends that the other charges should be considered postage and mailing costs but the regulation is clear that only separately stated transportation and delivery charges are exempt from the tax. The auditor has provided a sample invoice which clearly shows a postage charge on it and the auditor states that such charges were not included in the audit. If the Taxpayer can provide documentation that separately stated mailing costs were held in the audit, the assessment will be adjusted. A copy of P.D. 89-168 (5/22/89) is enclosed to illustrate our longstanding policy on this issue.
The Taxpayer may contact the department's****** District Office at ****** if it can provide documentation showing the that mailing costs were improperly included in the audit. I will allow the Taxpayer sixty days to provide this documentation. An updated notice of assessment with interest accrued through the date of the Taxpayer's letter (June 27, 1996) will be sent to the Taxpayer. If the bill is not paid within sixty days, interest will begin to accrue on the outstanding balance.
If you have any questions concerning this matter, you may contact ***** in the Office of Tax Policy at*******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11388S
Rulings of the Tax Commissioner