Tax Type
Retail Sales and Use Tax
Description
Graphic artwork, true object, taxable purchase of tangible personal property
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
03-14-2001
March 14, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to your client, ***** (the "Taxpayer"), for the period of May 1996 through April 1999. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a trade association that derives revenues from membership dues and provides periodic newsletters to its members. The Taxpayer was audited and assessed tax on the purchase of graphic artwork and copy for use in various publications the Taxpayer provides to its members. This work included the concept, writing, graphic design, mechanical art, and other services related to the final product. The Taxpayer believes that the purchase of graphic artwork and copy constitutes the provision of an exempt service, and not the taxable purchase of tangible personal property, and should be removed from the audit findings.
DETERMINATION
When determining whether a transaction involving both the sale of tangible personal property and the provision of a service represents a sale of tangible personal property or an exempt service, the "true object" test is used. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D), copy enclosed, states that "[i]f the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable."
In the present case, the "true object" of the transactions between the Taxpayer and the graphic artist must be determined. Based on the information provided, the transactions in question would be of no value to the Taxpayer without the transfer of the tangible personal property. Therefore, based on the reading of the above regulation, the entire charge for the graphic artwork, including the services rendered in creating the artwork, would be subject to the Virginia sales and use tax. This is the case even if the services and tangible personal property are separately stated on the invoice, as these are considered services made in connection with the sale of tangible personal property (see Title 23 VAC 10-210-4040.B(1) of the enclosed regulation). I have included a copy of Public Document (P.D.) 94-199 (6/24/99), which explains that creative and design services resulting in a tangible product generally are taxable.
Based on all of the above, I find that the artwork in question was correctly held taxable in the audit. The outstanding balance of the assessment totals $*** tax plus *** interest). If the Taxpayer pays this amount within 30 days of the date of this letter, interest accrued since the date of the Taxpayer's letter of protest will be waived. If payment is not received within the allotted time, interest will continue to accrue from the original date of assessment.
If you should have any questions regarding this matter, please contact **** of the Office of Tax Policy, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/24369K
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear
This will reply to your letter in which you seek correction of the retail sales and use tax audit assessment issued to your client, ***** (the "Taxpayer"), for the period of May 1996 through April 1999. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a trade association that derives revenues from membership dues and provides periodic newsletters to its members. The Taxpayer was audited and assessed tax on the purchase of graphic artwork and copy for use in various publications the Taxpayer provides to its members. This work included the concept, writing, graphic design, mechanical art, and other services related to the final product. The Taxpayer believes that the purchase of graphic artwork and copy constitutes the provision of an exempt service, and not the taxable purchase of tangible personal property, and should be removed from the audit findings.
DETERMINATION
When determining whether a transaction involving both the sale of tangible personal property and the provision of a service represents a sale of tangible personal property or an exempt service, the "true object" test is used. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(D), copy enclosed, states that "[i]f the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable."
In the present case, the "true object" of the transactions between the Taxpayer and the graphic artist must be determined. Based on the information provided, the transactions in question would be of no value to the Taxpayer without the transfer of the tangible personal property. Therefore, based on the reading of the above regulation, the entire charge for the graphic artwork, including the services rendered in creating the artwork, would be subject to the Virginia sales and use tax. This is the case even if the services and tangible personal property are separately stated on the invoice, as these are considered services made in connection with the sale of tangible personal property (see Title 23 VAC 10-210-4040.B(1) of the enclosed regulation). I have included a copy of Public Document (P.D.) 94-199 (6/24/99), which explains that creative and design services resulting in a tangible product generally are taxable.
Based on all of the above, I find that the artwork in question was correctly held taxable in the audit. The outstanding balance of the assessment totals $*** tax plus *** interest). If the Taxpayer pays this amount within 30 days of the date of this letter, interest accrued since the date of the Taxpayer's letter of protest will be waived. If payment is not received within the allotted time, interest will continue to accrue from the original date of assessment.
If you should have any questions regarding this matter, please contact **** of the Office of Tax Policy, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/24369K
Related Documents
Rulings of the Tax Commissioner