Tax Type
Retail Sales and Use Tax
Description
Copyright Fees Paid by a Non-Profit Organization
Topic
Taxability of Persons and Transactions
Date Issued
11-06-2001
November 6, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in reply to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period January 1997 through October 1999. I apologize for the delay in the department's response.
FACTS
The Taxpayer is a nonprofit organization exempt from federal income taxation under Internal Revenue Code § 501(c)(3). The contested issue in this case concerns copyright fees paid by the Taxpayer for original artworks.
As a fundraising activity, the Taxpayer sells and auctions copies of original artworks. The Taxpayer selects these works by reviewing sample works submitted by artists or their agents. If a sample is not selected, it is returned to the artist or agent. If a work is selected, the Taxpayer enters into a contract with the artist or agent to purchase the copyright to the artwork. Among other rights, the copyright allows the Taxpayer to reproduce the artwork and then sell or auction the copies to raise funds.
You maintain that the department erroneously assessed the copyright fees. In this regard, you contend that the copyright fees are associated with intangible property. Alternatively, you maintain that the artworks are purchased by the Taxpayer for resale to its customers.
You also contend that the Taxpayer is exempt from paying sales and use tax on its purchases under the nonprofit civic and community service exemption set out in Code of Virginia § 58.1-609.8(39).
DETERMINATION
Copyright Fees
Code of Virginia § 58.1-602 defines "Sale" as "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, ... of tangible personal property ... for a consideration ...." That same statute defines "retail sale" as "a sale to any person for any purpose other than for resale in the form of tangible personal property ...."
The assessed copyright fees in this case are assessed on those artworks that the Taxpayer specifically selects. There is no assessment associated with the samples. Further, specific agreements between the Taxpayer and the artists are executed for those selected artworks. With one exception, the agreements that have been submitted indicate that the Taxpayer is purchasing full copyrights to images for any use the Taxpayer deems appropriate. In one instance, the Taxpayer is granted only those usage rights (e.g., prints, collector's plate, etc.) specified in the agreement.
In this case, the Taxpayer was entitled to the use of the images (tangible personal property) for a consideration (the copyright fees). Accordingly, I find that a taxable sale of tangible personal property has occurred. Further, the images that the Taxpayer is entitled to use are not for resale. Rather, the images are used to create copies, and it is the copies that are being resold. The enclosed Public Documents 95-317 (12/15/95) and 97-375 (09/17/97) also address this issue.
Nonprofit Civic and Community Service Exemption
Code of Virginia § 58.1-609.8(39) provides an exemption for:
-
- tangible personal property purchased for use or consumption by a nonprofit organization exempt from taxation under Section 501 (c) (3) of the Internal Revenue Code and organized exclusively to conduct annual fund-raising campaigns for the direct benefit of nonprofit member agencies.
Based on the information before me, the Taxpayer is not organized exclusively to conduct annual fund-raising campaigns for member agencies. I note, for example, that the Taxpayer funds a number of educational, safety, and award programs as well as funding a museum at its corporate headquarters.
The department's policy with respect to sales and use tax exemptions is mandated by the rule of strict construction established by the Virginia courts. The Virginia Supreme Court has consistently held that "exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption." Golden Skillet Corp. v. Commonwealth 214 Va. 276, 199 S.E.2d 511 (1973).
If the Taxpayer is interested in pursuing exemption legislation, the enclosed questionnaire for legislative consideration of a sales and use tax exemption must be completed and forwarded to the legislator who will sponsor the bill for exemption. The legislator is to sign the questionnaire and submit it to the department by November 1, 2001, in order for the exemption request to be considered by the 2002 General Assembly. I have also enclosed Virginia Tax Bulletin 94-13, which explains the procedure and information required for legislative consideration of sales tax exemption legislation. The completed and signed questionnaire, along with supporting documentation, should be sent to ***** in the department's Office of Policy and Administration, Policy Development, Post Office Box 1880, Richmond, Virginia 23218-1880.
Questions regarding the nonprofit exemption application process may be directed to ***** at *****. Other questions regarding this letter may be directed to ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
ARO/28300Q
Rulings of the Tax Commissioner