Tax Type
Retail Sales and Use Tax
Description
Market research publications
Topic
Basis of Tax
Property Subject to Tax
Date Issued
12-20-2001
December 20, 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 ***** (the "Taxpayer") for the period March 1997 through February 2000. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer, a textile manufacturer, was audited and assessed tax on market research publications made available to participating manufacturers. A market research firm conducts studies on behalf of textile manufacturers and disseminates this information on a monthly basis either on CD or via e-mail. The Taxpayer received the reports in the form of CD's through December 1999, at which time they began receiving the report electronically via e-mail. The report is not made available to the general public, and new manufacturers may subscribe only if current participating manufacturers approve. The auditor assessed the tax on the report during the period of the audit that the Taxpayer received the report in tangible form, i.e., CD's. The Taxpayer believes the reports represent an exempt service and should be removed from the audit findings.
The Taxpayer is also taking exception to the taxing of charges made by an out-of-state national marketing firm (the "Firm") for providing the concept and planning of national conferences for the Taxpayer. The Firm provides a comprehensive plan to the Taxpayer that includes concept, theme and design services and, in most cases, tangible personal property. In some cases, the tangible personal property is sent directly to the conference site located outside Virginia. In other cases, the tangible personal property is sent to the Taxpayer in Virginia, and the Taxpayer transports the tangible personal property to the conference site. Since the lump sum billing by the Firm included both exempt services and tangible personal property, the auditor assessed the tax on the entire invoice. The Taxpayer agrees that the tangible personal property, including the design services, delivered to Virginia are subject to the tax. However, the Taxpayer believes the other services provided by the Firm should be exempt. It is also the Taxpayer's contention that the exempt services provided by the Taxpayer comprise the majority of the billing amount.
DETERMINATION
Market Research Publications
Code of Virginia § 58.1-609.6(3) provides a sales and use tax exemption for any publication issued daily, or regularly at average intervals not exceeding three months. The department has traditionally relied on the definition of "publication" as upheld by the Virginia Supreme Court in Jefferson Publishing Corp. v. Forst, 217 Va. 988, 234 S.E.2d 297 (1977), in determining whether various printed or tangible materials qualify as exempt publications. In Jefferson, the court defined "publication" as a "newspaper, magazine or other periodical which is available for general distribution to the public."
The information provided indicates the reports at issue are not available to the general public. Therefore, the publication exemption under Code of Virginia § 58.1-609.6(3) is not applicable.
This being the case, it must be determined whether the dissemination of the marketing information qualifies as an exempt service or a taxable sale. In order to determine this, the department uses the "true object" test set forth in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040, copy enclosed. Subsection D of this regulation provides the criteria used to determine the true object of a transaction and provides, in part, the following:
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- 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. If the object of the transaction is to secure a service and the tangible personal property that 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 that it produces, then the entire charge, including the charge for any services provided, is taxable.
This subsection of the regulation goes on to provide that standard data lists or reports are taxable, and customized data lists or reports are exempt. The department has previously determined that lists or reports compiled for one customer based on criteria and parameters the customer sets constitute customize reports. See Public Document (P.D.) 98-45 (03/10/98), copy enclosed. In the present case, the report at issue is produced for multiple industry members and is purchased on a subscription basis. Although the information compiled is based on information sought by the various subscribers, the report qualifies as a standardized report produced for the industry as a whole and not a specific manufacturer. For this reason, I find the report provided in tangible form (i.e., on CD) was correctly held taxable in the audit.
Conference Planning
As explained in your letter and the auditor's comments, the transaction between the Firm and the Taxpayer involves both the purchase of tangible personal property and the provision of exempt services. The Taxpayer agrees that tangible personal property, including the design fees for such property, delivered to the Taxpayer in Virginia is taxable.
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 part of the sale. Furthermore, 23 VAC 10-210-4040 notes that charges for services included in or in connection with the sale of tangible personal property are taxable. In this case, the Taxpayer was billed a lump sum charge for the tangible personal property and services. Based on the law and regulation cited above, the auditor correctly held the total charge as taxable.
Notwithstanding the above, I recognize there may have been exempt services included in the Firm's total charge to the Taxpayer. Because this is a new issue for the Taxpayer, I will allow the Taxpayer to present additional information to the auditor that would indicate a reasonable dollar amount associated with the exempt services that were included in the taxable portion of the Firm's billings. Upon the auditor's review and verification of documentation deemed satisfactory to support the Taxpayer's position, the audit will be adjusted accordingly.
Conclusion
Based on the foregoing, I will have the auditor contact the Taxpayer to review any additional documentation the Taxpayer may present concerning the conference planning issue. Absent additional information, the audit assessment as issued will be deemed correct and the outstanding balance of the audit assessment will become due and payable.
If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
PD/31306K
Rulings of the Tax Commissioner