Tax Type
Retail Sales and Use Tax
Description
Advertising; Media advertising
Topic
Taxability of Persons and Transactions
Date Issued
02-23-1998
February 23, 1998
Dear*****:
This will reply to your letter in which you request correction of the retail sales and use tax assessment of your client, ***** (the "Taxpayer'), for the period of January 1993 through December 1995.
FACTS
The Taxpayer is an advertising agency. The Taxpayer was audited and assessed tax on the purchase of laser personalization services, the sale of advertising services, the purchase of stock photographs, and the purchase of vinyl embossed cards. These issues will be addressed separately below.
DETERMINATION
Laser Personalization Services
Code of Virginia Sec. 58.1-609.5(1) provides a sales and use tax exemption for the "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made' and for services rendered by repairmen for which a separate charge is made. In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object' of the transaction must be examined. See 23 Virginia Administrative Code (VAC) 10-210-4040 (copy enclosed, previously VR 630-10-97.1).
Based on a recent ruling of the department, see P.D. 97-387 (9/25/97) enclosed, the taxable status of laser personalization services depends on the facts and circumstances surrounding the provisions of printed material to customers. In P.D. 97-387, the laser personalization printing was performed on customer provided letterhead or paper stock. Based on the facts in that case, the department determined the true object of the transaction was the provision of an exempt service. The Taxpayer did not provide any tangible personal property to the customer. The ruling noted that if the person performing the laser personalization provides the actual letterhead or paper stock in addition to the printing services, they would be considered to be selling tangible personal property and would be required to charge the tax on the total charge, including any services provided. An auditor from our District Office will contact the Taxpayer and review your records to determine the Taxpayer's status based on this ruling.
Sales - Media Advertising Services
Code of Virginia Sec. 58.1-609.6(5) provides that the tax does not apply to charges for the provision of "advertising' which is defined in Code of Virginia Sec. 58.1-602 as "the planning, creating, or placing of advertising in newspapers. magazines. billboards. broadcasting and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision.' (Emphasis added).
The term "media' is defined in VAC 10-210-40 to include "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communications.' To determine if a particular mode of communication developed by an advertising business qualifies for tax exemption as "media advertising', it is necessary to determine whether the communication is intended to provide promotional information to the public generally. Based on the above, I will address three transactions at issue separately below.
**************
The Taxpayer produces calendars for *****. These calendars are sent to property owners and are also distributed to "walk-ins' and other interested persons at sales office. In light of the fact that the ***** sales office is open to the general public, and the purpose of the calendars is to promote the property for sale, the department finds that those calendars distributed through the sales office do qualify as media advertising. The audit will be revised to remove these calendars.
***************
The Taxpayer designed and produced newsletters for this company. The Taxpayer's billing invoices to ***** referred to the newsletters as "Customer Newsletters'. This being the case, the department cannot make the assumption that a company's customer base constitutes the "general public' for purposes of the media advertising exemption. Absent additional information as to the distribution of the newsletter, the department finds that the newsletter does not qualify as "media' advertising and is therefore taxable.
********************
The Taxpayer designed and printed a number of informational mailings for ***** in connection with their merger and acquisitions of other banks. The mailings went to ***** customers and customers of the acquired banks. The Taxpayer feels the recipients of these mailings constitute the general public and should be exempt. The department takes the position that the customer of a specific bank constitutes a limited audience and would not qualify as exempt media advertising. It is noted in the auditors comments that the Taxpayer also printed letters that were not targeted to bank customers, but to the general public, and these were excluded from the audit as media advertising.
Stock Photographs and Transparencies
The Taxpayer purchases transparencies from photographers for use in advertisements. The Taxpayer feels the transparencies are purchased for specific advertising campaigns and are not taxable.
VAC 10-21041.B, copy enclosed, addresses purchases made by advertising agencies and provides that "advertising businesses are engaged in providing professional services and are the users and consumers of all tangible personal property purchased for use in such businesses.' This regulation goes on to provide that, "the tax applies to all purchases by an advertising business of concept, writing, graphic design, mechanical art, photography, etc..., not made pursuant to the development of a specific advertising campaign. For example, if an advertising business purchases scenic photographs of Virginia for possible use in future advertising campaigns, the purchase of such photographs will be subject to the tax.' It is the departments position that the term "photograph' means any medium used by a photographer to transfer images for sale, i.e., photographs, slides, transparencies, etc.
It is the intent of the above regulation to extend the exemption to advertising agencies purchasing from photography businesses which qualify under the definition of "advertising business'. However, when the purchase of photographs, slides, transparencies, etc., are from a photography business not qualifying as an "advertising business' (i.e., not engaged to create media advertising), the purchase is for the use and consumption of the advertising agency and are taxable, whether or not purchased for a specific advertising campaign.
Embossing of Vinyl Cards
The Taxpayer was assessed tax on embossed vinyl cards for use in an advertising campaign. The vendor separated the charge for embossing services from the cost of the actual cards. The Taxpayer is taking the position that the "true object' of the transaction was the embossing services and therefore the transaction should be exempt.
Based on a reading of the enclosed regulation, VAC 10-210-4040, it is the department's position that the true object of the transaction described above is to obtain the actual cards. The provision of the embossing services without the provision of the tangible personal property is of no value to the Taxpayer, nor the Taxpayer's customer. The embossing services are considered to be services in connection with the sale of the tangible personal property and would be taxable to the Taxpayer, whether or not separately stated.
An auditor from the ***** District Office will contact the Taxpayer in order to make the revisions set forth above. If you should have any question, please contact ***** Office of Tax Policy, at *****.
Dear*****:
This will reply to your letter in which you request correction of the retail sales and use tax assessment of your client, ***** (the "Taxpayer'), for the period of January 1993 through December 1995.
FACTS
The Taxpayer is an advertising agency. The Taxpayer was audited and assessed tax on the purchase of laser personalization services, the sale of advertising services, the purchase of stock photographs, and the purchase of vinyl embossed cards. These issues will be addressed separately below.
DETERMINATION
Laser Personalization Services
Code of Virginia Sec. 58.1-609.5(1) provides a sales and use tax exemption for the "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made' and for services rendered by repairmen for which a separate charge is made. In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object' of the transaction must be examined. See 23 Virginia Administrative Code (VAC) 10-210-4040 (copy enclosed, previously VR 630-10-97.1).
Based on a recent ruling of the department, see P.D. 97-387 (9/25/97) enclosed, the taxable status of laser personalization services depends on the facts and circumstances surrounding the provisions of printed material to customers. In P.D. 97-387, the laser personalization printing was performed on customer provided letterhead or paper stock. Based on the facts in that case, the department determined the true object of the transaction was the provision of an exempt service. The Taxpayer did not provide any tangible personal property to the customer. The ruling noted that if the person performing the laser personalization provides the actual letterhead or paper stock in addition to the printing services, they would be considered to be selling tangible personal property and would be required to charge the tax on the total charge, including any services provided. An auditor from our District Office will contact the Taxpayer and review your records to determine the Taxpayer's status based on this ruling.
Sales - Media Advertising Services
Code of Virginia Sec. 58.1-609.6(5) provides that the tax does not apply to charges for the provision of "advertising' which is defined in Code of Virginia Sec. 58.1-602 as "the planning, creating, or placing of advertising in newspapers. magazines. billboards. broadcasting and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision.' (Emphasis added).
The term "media' is defined in VAC 10-210-40 to include "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communications.' To determine if a particular mode of communication developed by an advertising business qualifies for tax exemption as "media advertising', it is necessary to determine whether the communication is intended to provide promotional information to the public generally. Based on the above, I will address three transactions at issue separately below.
**************
The Taxpayer produces calendars for *****. These calendars are sent to property owners and are also distributed to "walk-ins' and other interested persons at sales office. In light of the fact that the ***** sales office is open to the general public, and the purpose of the calendars is to promote the property for sale, the department finds that those calendars distributed through the sales office do qualify as media advertising. The audit will be revised to remove these calendars.
***************
The Taxpayer designed and produced newsletters for this company. The Taxpayer's billing invoices to ***** referred to the newsletters as "Customer Newsletters'. This being the case, the department cannot make the assumption that a company's customer base constitutes the "general public' for purposes of the media advertising exemption. Absent additional information as to the distribution of the newsletter, the department finds that the newsletter does not qualify as "media' advertising and is therefore taxable.
********************
The Taxpayer designed and printed a number of informational mailings for ***** in connection with their merger and acquisitions of other banks. The mailings went to ***** customers and customers of the acquired banks. The Taxpayer feels the recipients of these mailings constitute the general public and should be exempt. The department takes the position that the customer of a specific bank constitutes a limited audience and would not qualify as exempt media advertising. It is noted in the auditors comments that the Taxpayer also printed letters that were not targeted to bank customers, but to the general public, and these were excluded from the audit as media advertising.
Stock Photographs and Transparencies
The Taxpayer purchases transparencies from photographers for use in advertisements. The Taxpayer feels the transparencies are purchased for specific advertising campaigns and are not taxable.
VAC 10-21041.B, copy enclosed, addresses purchases made by advertising agencies and provides that "advertising businesses are engaged in providing professional services and are the users and consumers of all tangible personal property purchased for use in such businesses.' This regulation goes on to provide that, "the tax applies to all purchases by an advertising business of concept, writing, graphic design, mechanical art, photography, etc..., not made pursuant to the development of a specific advertising campaign. For example, if an advertising business purchases scenic photographs of Virginia for possible use in future advertising campaigns, the purchase of such photographs will be subject to the tax.' It is the departments position that the term "photograph' means any medium used by a photographer to transfer images for sale, i.e., photographs, slides, transparencies, etc.
It is the intent of the above regulation to extend the exemption to advertising agencies purchasing from photography businesses which qualify under the definition of "advertising business'. However, when the purchase of photographs, slides, transparencies, etc., are from a photography business not qualifying as an "advertising business' (i.e., not engaged to create media advertising), the purchase is for the use and consumption of the advertising agency and are taxable, whether or not purchased for a specific advertising campaign.
Embossing of Vinyl Cards
The Taxpayer was assessed tax on embossed vinyl cards for use in an advertising campaign. The vendor separated the charge for embossing services from the cost of the actual cards. The Taxpayer is taking the position that the "true object' of the transaction was the embossing services and therefore the transaction should be exempt.
Based on a reading of the enclosed regulation, VAC 10-210-4040, it is the department's position that the true object of the transaction described above is to obtain the actual cards. The provision of the embossing services without the provision of the tangible personal property is of no value to the Taxpayer, nor the Taxpayer's customer. The embossing services are considered to be services in connection with the sale of the tangible personal property and would be taxable to the Taxpayer, whether or not separately stated.
An auditor from the ***** District Office will contact the Taxpayer in order to make the revisions set forth above. If you should have any question, please contact ***** Office of Tax Policy, at *****.
Rulings of the Tax Commissioner