Tax Type
Retail Sales and Use Tax
Description
Sale of direct mail advertising packets
Topic
Exemptions
Taxable Transactions
Date Issued
02-03-2005
Superseded by P. D.s 10-72 and 10- 73
February 3, 2005
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter, submitted on behalf of your client (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to direct mail advertising. I apologize for the delay in the Department's response.
The Taxpayer is a printer and publisher of direct mail advertising. The Taxpayer's Virginia franchisees contract with Virginia customers for the sale of the direct mail advertising packets. The direct mail advertising packets are printed and distributed by the Taxpayer on behalf of the franchisees. All printing, sorting, insertion and mailing activities of the direct mail advertising to be distributed in Virginia occur at the Taxpayer's printing facility located in another state ("State A"). The direct mail items are shipped to Virginia residents via a U. S. Postal Service detached mail unit located at the Taxpayer's facility in State A, or they are shipped via common carrier to a U. S. Postal Service Distribution Center (located in Virginia).
The Taxpayer has a second printing facility located in Virginia. The Virginia facility does not provide any services to the Virginia franchisees, and it does not print or assemble advertising packets for distribution to Virginia residents.
Issue 1
Are the sales to Virginia franchisees taxable sales in Virginia?
Title 23 Virginia Administrative Code (VAC) 10-210-41 B provides, in pertinent part:
In Public Document (P.D.) 00-176 (10/5/00), the taxpayer was a printer and mailer of direct mail advertising. The advertising was sold by the taxpayer's franchisees, primarily through contracts with retailers and local service providers. The Department held that direct mail advertising supplements and coupons, when produced by an advertising business, have always been taxable in accordance with Title 23 VAC 10-210-41 B. The taxpayer was required to pay tax on the direct mail items.
In P.D. 97-264 (6/13/97), the taxpayer printed, packaged and direct mailed retailer coupons, marketing materials and advertising materials for retail and service businesses through a franchise operation. Pursuant to Title 23 VAC 10-210-40 and Title 23 VAC 10-210-41 B, the Department found that the taxpayer's franchisees were advertising businesses and that the taxpayer's sales of printed coupons to the franchisees were taxable sales of tangible personal property.
In the situation presented, the Taxpayer's advertising is sold by the Virginia franchisees through contracts with Virginia customers. The Virginia franchisees are considered advertising businesses. Accordingly, pursuant to the regulation and public documents referenced above, the Taxpayer's sales of the direct mail advertising packets to the Virginia franchisees are taxable sales of tangible personal property.
Issue 2
Do the Virginia franchisees owe use tax on the advertising packets distributed from out of state to Virginia residents through the U. S. Mail?
Relying on Public Documents 01-22 (3/21/01), 93-41 (3/4/93) and 85-35 (2/28/85), you maintain that the Virginia franchisees do not owe use tax because they do not exercise any right of power or control over the advertising packets in Virginia. The regulation and public documents referenced above apply in this instance. If the Taxpayer does not collect sales tax on the direct mail advertising packets, the Virginia franchisees are required to remit the use tax on these items.
Issue 3
Does the fact that the Taxpayer now has a printing facility in Virginia have any effect or bearing on the taxation of the sales to Virginia franchisees?
In this instance, the existence of the Virginia facility has no bearing on the taxation of the sales to the Virginia franchisees because the Taxpayer is required to remit the sales tax with regard to these sales.
Issue 4
Are the printing services provided by the Virginia facility to non-Virginia franchisees for distribution outside of Virginia exempt under Virginia Code §§ 58.1-609.6 4 and 58.1609.6 5?
Virginia Code § 58.1-609.6 4 provides, in pertinent part, that the tax shall not apply to "[c]atalogs, letters, brochures, reports, and similar printed materials, except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, and paper furnished to a printer for fabrication into such printed materials, when stored for 12 months or less in the Commonwealth and distributed for use without the Commonwealth."
Title 23 Virginia Administrative Code 10-210-260 B provides that "the tax does not apply to catalogs and other printed materials or to paper furnished to a printer for fabrication into catalogs and other printed materials used in advertising tangible personal property for sale, and any envelopes, containers and labels used for packaging and mailing them, when stored for 12 months or less in the state and distributed for use outside this state."
Virginia Code § 58.1-609.6 5 provides that the tax shall not be applied to "advertising as defined in § 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. Any person providing advertising as defined herein shall be deemed to be the user or consumer of all tangible personal property purchased for use in such advertising.
In this instance, the exemptions would apply to the printing services provided by the Virginia printing facility. Virginia Code § 58.1-609.6 4 would apply so long as the printed materials are stored in Virginia for 12 months or less, and the materials are distributed for use outside Virginia. Virginia Code § 58.1-609.6 5 would apply because the printed materials at issue constitute advertising pursuant to Va. Code § 58.1-602.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections cited, along with other reference documents, are available on-line in the Department's Tax Policy Library, located at www.policylibrary.tax.virginia.gov. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
AR/51201P
February 3, 2005
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter, submitted on behalf of your client (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to direct mail advertising. I apologize for the delay in the Department's response.
FACTS
The Taxpayer is a printer and publisher of direct mail advertising. The Taxpayer's Virginia franchisees contract with Virginia customers for the sale of the direct mail advertising packets. The direct mail advertising packets are printed and distributed by the Taxpayer on behalf of the franchisees. All printing, sorting, insertion and mailing activities of the direct mail advertising to be distributed in Virginia occur at the Taxpayer's printing facility located in another state ("State A"). The direct mail items are shipped to Virginia residents via a U. S. Postal Service detached mail unit located at the Taxpayer's facility in State A, or they are shipped via common carrier to a U. S. Postal Service Distribution Center (located in Virginia).
The Taxpayer has a second printing facility located in Virginia. The Virginia facility does not provide any services to the Virginia franchisees, and it does not print or assemble advertising packets for distribution to Virginia residents.
RULING
Issue 1
Are the sales to Virginia franchisees taxable sales in Virginia?
Title 23 Virginia Administrative Code (VAC) 10-210-41 B provides, in pertinent part:
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- Advertising businesses are engaged in providing professional services and are the users and consumers of all tangible personal property purchased for use in such business. Therefore, the tax applies to all purchases by an advertising business including, without limitation, the following items: . . . [p]rinting, including direct mail items, noncustomized or stock mailing lists, handbills, brochures, flyers, bumper stickers, posters and similar printed materials whether or not for use in the development of a specific advertising campaign, and whether or not any of such materials are intended for distribution out of state . . . .
In Public Document (P.D.) 00-176 (10/5/00), the taxpayer was a printer and mailer of direct mail advertising. The advertising was sold by the taxpayer's franchisees, primarily through contracts with retailers and local service providers. The Department held that direct mail advertising supplements and coupons, when produced by an advertising business, have always been taxable in accordance with Title 23 VAC 10-210-41 B. The taxpayer was required to pay tax on the direct mail items.
In P.D. 97-264 (6/13/97), the taxpayer printed, packaged and direct mailed retailer coupons, marketing materials and advertising materials for retail and service businesses through a franchise operation. Pursuant to Title 23 VAC 10-210-40 and Title 23 VAC 10-210-41 B, the Department found that the taxpayer's franchisees were advertising businesses and that the taxpayer's sales of printed coupons to the franchisees were taxable sales of tangible personal property.
In the situation presented, the Taxpayer's advertising is sold by the Virginia franchisees through contracts with Virginia customers. The Virginia franchisees are considered advertising businesses. Accordingly, pursuant to the regulation and public documents referenced above, the Taxpayer's sales of the direct mail advertising packets to the Virginia franchisees are taxable sales of tangible personal property.
Issue 2
Do the Virginia franchisees owe use tax on the advertising packets distributed from out of state to Virginia residents through the U. S. Mail?
Relying on Public Documents 01-22 (3/21/01), 93-41 (3/4/93) and 85-35 (2/28/85), you maintain that the Virginia franchisees do not owe use tax because they do not exercise any right of power or control over the advertising packets in Virginia. The regulation and public documents referenced above apply in this instance. If the Taxpayer does not collect sales tax on the direct mail advertising packets, the Virginia franchisees are required to remit the use tax on these items.
Issue 3
Does the fact that the Taxpayer now has a printing facility in Virginia have any effect or bearing on the taxation of the sales to Virginia franchisees?
In this instance, the existence of the Virginia facility has no bearing on the taxation of the sales to the Virginia franchisees because the Taxpayer is required to remit the sales tax with regard to these sales.
Issue 4
Are the printing services provided by the Virginia facility to non-Virginia franchisees for distribution outside of Virginia exempt under Virginia Code §§ 58.1-609.6 4 and 58.1609.6 5?
Virginia Code § 58.1-609.6 4 provides, in pertinent part, that the tax shall not apply to "[c]atalogs, letters, brochures, reports, and similar printed materials, except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, and paper furnished to a printer for fabrication into such printed materials, when stored for 12 months or less in the Commonwealth and distributed for use without the Commonwealth."
Title 23 Virginia Administrative Code 10-210-260 B provides that "the tax does not apply to catalogs and other printed materials or to paper furnished to a printer for fabrication into catalogs and other printed materials used in advertising tangible personal property for sale, and any envelopes, containers and labels used for packaging and mailing them, when stored for 12 months or less in the state and distributed for use outside this state."
Virginia Code § 58.1-609.6 5 provides that the tax shall not be applied to "advertising as defined in § 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. Any person providing advertising as defined herein shall be deemed to be the user or consumer of all tangible personal property purchased for use in such advertising.
In this instance, the exemptions would apply to the printing services provided by the Virginia printing facility. Virginia Code § 58.1-609.6 4 would apply so long as the printed materials are stored in Virginia for 12 months or less, and the materials are distributed for use outside Virginia. Virginia Code § 58.1-609.6 5 would apply because the printed materials at issue constitute advertising pursuant to Va. Code § 58.1-602.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections cited, along with other reference documents, are available on-line in the Department's Tax Policy Library, located at www.policylibrary.tax.virginia.gov. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/51201P
Rulings of the Tax Commissioner