Tax Type
Retail Sales and Use Tax
Description
Assessment of printing sold to publication customers and advertising customers
Topic
Appropriateness of Audit Methodology
Exemptions
Date Issued
09-17-2004
September 17, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessments issued to ***** (the "Taxpayer") for the audit period April 2000 through March 2003. At issue in this case are bill numbers ***** (for account *****) and ***** (for account *****). You are requesting a refund for taxes paid as a result of the audit assessment. I apologize for the delay in this response.
FACTS
The Taxpayer is a full service commercial sheet-fed printer. At issue in this case is the assessment of printing sold to publication customers and printing sold to advertising customers. I understand that the Taxpayer did not have certificates of exemption on file for these contested sales. Further, the audit staff saw no information indicating that these contested sales are exempt from the tax. The Taxpayer now offers additional information regarding these contested sales.
In addition, you ask how to handle situations where a customer is invoiced for sales tax but refuses to pay the tax to the Taxpayer.
DETERMINATION
Certificates of Exemption
Title 23 of the Virginia Administrative Code 10-210-280 provides that all sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.
The regulation further provides that reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax free purchase of an item of tangible personal property not covered by the exact wording of the certificate.
In order for the Taxpayer to make exempt sales of publications printed for its customers, the Taxpayer must obtain from its customers, at the time of the sale, a properly completed and signed certificate of exemption certifying that the purchase qualifies for an exemption. Form ST-11 should be used by the Taxpayer's customers in order for the sale to be exempt of the tax. Pursuant to Public Document 01-36 (4/11/01), when a dealer is afforded a "second chance" to secure exemption certificates to support untaxed sales, the Department's long-standing policy is to more closely evaluate the validity of the certificate because the taxpayer did not originally rely on the certificate to make the exempt sale.
Audit Issues
Publications
Virginia Code § 58.1-609.3(2)(v) provides that the retail sales and use tax shall not apply to equipment, printing or supplies used directly to produce a publication described in Va. Code § 58.1-609.6(3), whether it is ultimately sold at retail or for resale or distribution at no cost. Virginia Code § 58.1-609.6(3) defines an exempt publication as being issued daily, or regularly at average intervals not exceeding three months.
The Taxpayer questions the assessment associated with the following customers:
***** - The Taxpayer prints ***** for this customer. This magazine is produced six times a year.***** - The Taxpayer prints a quarterly newsletter for this customer.***** - The Taxpayer prints the ***** for this customer.***** - The Taxpayer prints , ***** a quarterly publication, for this customer.
The magazines and newsletters printed by the Taxpayer for these customers, meet the requirements established in Va. Code § 58.1-609.6(3) for an exempt publication. The contested transactions were assessed because the Taxpayer did not have the certificates of exemption required by the Code of Virginia and the regulations. Pursuant to the aforementioned references, the printing sold by the Taxpayer qualifies for the exemption under Va. Code § 58.1-609.3(2)(v). Accordingly, the printing sales associated with these publications will be removed from the assessment, and the Taxpayer will be issued a refund. In the future, the Taxpayer must obtain certificates of exemption from its customers in order to make exempt sales of printing for qualifying publications.
Advertising
Virginia Code § 58.1-609.6(5) provides that the tax shall not apply to advertising as defined by Va. Code § 58.1-602. Virginia Code § 58.1-602 defines advertising 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. It further provides that any person providing advertising shall be deemed the taxable user or consumer of all tangible personal property purchased for use in such advertising.
Title 23 of the Virginia Administrative Code 10-210-41(13)(2) 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. Therefore, the tax applies to all purchases by an advertising business including without limitation, printing, direct mail items, noncustomized or stock mailing lists, handbills, brochures, flyers, bumper stickers, posters and similar materials whether or not for use in the development of a specific advertising campaign, and whether or not any such materials are intended for distribution out of state.
With regard to Invoice ***** and Invoice *****, the Taxpayer prints advertising materials for this customer. The Taxpayer cannot accept a resale certificate of exemption because the customer provides advertising services and is the user and consumer of all tangible personal property purchased for use in its advertising business. Accordingly, the Taxpayer should have charged its customer sales tax on the printed materials.
Additionally, the ST-10 presented to the Taxpayer by its customer is invalid because the customer is not registered for sales tax. This customer cannot collect sales tax from its customers because it does not have a Certificate of Registration. Accordingly, the Taxpayer's sales to this customer are taxable and will remain in the assessment.
Nonpayment of Sales Tax by Taxpayer's Customers
Virginia Code § 58.1-625 provides that the tax levied shall be paid by the dealer, but the dealer shall separately state the amount of the tax and add such tax to the sales price or charge. Thereafter, such tax shall be a debt from the purchaser, consumer, or lessee to the dealer until paid and shall be recoverable at law in the same manner as other debts.
The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/47241P
Rulings of the Tax Commissioner