Tax Type
Retail Sales and Use Tax
Description
Taxpayer must collect tax on its sales of printing to the Virginia franchisees
Topic
Collection of Tax
Taxable Transactions
Date Issued
07-19-2007
Superseded by P. D.s 10-72 and 10- 73
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request reconsideration of the ruling issued in Public Document (P.D.) 05-10 (2/3/05) regarding certain transactions involving your client (the "Taxpayer"). The information provided in your letter of August 10, 2006 and in a phone conversation with members of my staff has been considered in this ruling. I apologize for the delay in responding to your letter.
The Taxpayer is a printer and publisher of direct mail advertising. In the scenario presented, the Taxpayer's Virginia franchisees (the "franchisees") contract with Virginia customers for the sale of direct mail advertising packets. The franchisees contract with the Taxpayer for printed materials pursuant to contracts with the Virginia customers. The franchisees direct the Taxpayer to deliver the printed materials to households in Virginia pursuant to the same contracts.
You present two issues to be addressed. You question whether a sale between the Taxpayer and the franchisee is subject to the Virginia sales tax when the printed materials are distributed from out-of-state through the United States Postal Service CUSPS). You also question whether the franchisee is subject to use tax on its purchases from the Taxpayer.
Virginia Code § 58.1-609.6 5 provides that the retail sales and use tax shall not apply to "[a]dvertising as defined in § 58.1-602." Virginia Code § 58.1-602 defines advertising as:
Title 23 of the Virginia Administrative Code (VAC) 10-210-40 defines the term "media" to include "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." Furthermore, Title 23 VAC 10-210-41 B provides, in pertinent part:
In P.D. 93-180 (8/9/03), the taxpayer was a Maryland based company that mailed printed advertising and promotional sales materials on behalf of its customers. The taxpayer had plans to locate an agent in Virginia to solicit orders for these materials, and requested a ruling regarding the tax implications. The taxpayer indicated that the materials would be printed and mailed by a contractor located outside of Virginia. Pursuant to Title 23 VAC 10-210-41 (former Virginia Regulation 630-10-3), the Tax Commissioner determined that if an out-of-state printer is used by a Virginia advertising business, only those materials shipped into Virginia by the printer are subject to tax.
In this case, the Virginia franchisees are providing media advertising services; therefore, the franchisees are the taxable users or consumers of all tangible personal property used in such advertising.
Pursuant to Va. Code § 58.1-609.6 5, Va. Code § 58.1-602 and Title 23 VAC 10210-41 B, the transaction between the franchisee (an advertising business) and its Virginia customers is exempt because the contract is for professional services in the development and placement of advertising in the media. The transaction between the franchisee and the out-of-state printer is taxable because the franchisee is an advertising business and the taxable user and consumer of all tangible personal property purchased to provide media advertising services. In accordance with Title 23 VAC 10-210-41 B and P.D. 93-180, the retail sales and use tax applies to the franchisees' purchases of printing, including direct mail items.
It is your position, based on the prior rulings in P.D. 01-22, 93-41 and 85-35, that the sale of the printed materials to the Virginia franchisees is exempt because the Taxpayer is out-of-state and distributes the printed materials from out-of-state. As addressed in P.D. 92-36 (4/2.3/92), the interstate commerce exemption is not applicable to the charges for printing purchased by the in-state advertising business from the out-of-state printer. Furthermore, in all the Department's prior rulings, the determination regarding the correct application of the tax centered on the fact that no taxable use of the property was made in Virginia, not on the fact that the tangible personal property was printed out-of-state and distributed from out-of-state. Additionally, in those rulings, the taxpayers purchasing the printed materials were not advertising businesses, as is the case here. The ruling in P.D. 05-10 and the ruling herein do not contradict the prior rulings cited and are consistent with the Department's long-standing policy regarding printing purchases made by advertising businesses in connection with the provision of advertising services. P.D. 00-176 and 97-264 referenced in P.D. 05-10 support the Department's position regarding the application of tax to printing purchased by an advertising business.
In your earlier correspondence, you indicate that the Taxpayer owns a second printing facility in Virginia. Based on this information and pursuant to Va. Code § 58.1-612 C 1, the Taxpayer has sufficient activity in Virginia to require it to register under Va. Code § 58.1-613 and collect tax on its retail sales to Virginia customers. Therefore, the Taxpayer must collect tax on its sales of printing to the Virginia franchisees for their use in media advertising, which includes direct mail items. If the Taxpayer fails to collect the tax, the franchisees are liable for the use tax on their purchases.
This response is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result. The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
d
AR/55071P
July 19, 2007
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request reconsideration of the ruling issued in Public Document (P.D.) 05-10 (2/3/05) regarding certain transactions involving your client (the "Taxpayer"). The information provided in your letter of August 10, 2006 and in a phone conversation with members of my staff has been considered in this ruling. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a printer and publisher of direct mail advertising. In the scenario presented, the Taxpayer's Virginia franchisees (the "franchisees") contract with Virginia customers for the sale of direct mail advertising packets. The franchisees contract with the Taxpayer for printed materials pursuant to contracts with the Virginia customers. The franchisees direct the Taxpayer to deliver the printed materials to households in Virginia pursuant to the same contracts.
You present two issues to be addressed. You question whether a sale between the Taxpayer and the franchisee is subject to the Virginia sales tax when the printed materials are distributed from out-of-state through the United States Postal Service CUSPS). You also question whether the franchisee is subject to use tax on its purchases from the Taxpayer.
RULING
Virginia Code § 58.1-609.6 5 provides that the retail sales and use tax shall not apply to "[a]dvertising 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. [Emphasis added.]
Title 23 of the Virginia Administrative Code (VAC) 10-210-40 defines the term "media" to include "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." Furthermore, Title 23 VAC 10-210-41 B provides, in pertinent part:
-
- 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 . . . printing, 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. [Emphasis added.]
In P.D. 93-180 (8/9/03), the taxpayer was a Maryland based company that mailed printed advertising and promotional sales materials on behalf of its customers. The taxpayer had plans to locate an agent in Virginia to solicit orders for these materials, and requested a ruling regarding the tax implications. The taxpayer indicated that the materials would be printed and mailed by a contractor located outside of Virginia. Pursuant to Title 23 VAC 10-210-41 (former Virginia Regulation 630-10-3), the Tax Commissioner determined that if an out-of-state printer is used by a Virginia advertising business, only those materials shipped into Virginia by the printer are subject to tax.
In this case, the Virginia franchisees are providing media advertising services; therefore, the franchisees are the taxable users or consumers of all tangible personal property used in such advertising.
Pursuant to Va. Code § 58.1-609.6 5, Va. Code § 58.1-602 and Title 23 VAC 10210-41 B, the transaction between the franchisee (an advertising business) and its Virginia customers is exempt because the contract is for professional services in the development and placement of advertising in the media. The transaction between the franchisee and the out-of-state printer is taxable because the franchisee is an advertising business and the taxable user and consumer of all tangible personal property purchased to provide media advertising services. In accordance with Title 23 VAC 10-210-41 B and P.D. 93-180, the retail sales and use tax applies to the franchisees' purchases of printing, including direct mail items.
It is your position, based on the prior rulings in P.D. 01-22, 93-41 and 85-35, that the sale of the printed materials to the Virginia franchisees is exempt because the Taxpayer is out-of-state and distributes the printed materials from out-of-state. As addressed in P.D. 92-36 (4/2.3/92), the interstate commerce exemption is not applicable to the charges for printing purchased by the in-state advertising business from the out-of-state printer. Furthermore, in all the Department's prior rulings, the determination regarding the correct application of the tax centered on the fact that no taxable use of the property was made in Virginia, not on the fact that the tangible personal property was printed out-of-state and distributed from out-of-state. Additionally, in those rulings, the taxpayers purchasing the printed materials were not advertising businesses, as is the case here. The ruling in P.D. 05-10 and the ruling herein do not contradict the prior rulings cited and are consistent with the Department's long-standing policy regarding printing purchases made by advertising businesses in connection with the provision of advertising services. P.D. 00-176 and 97-264 referenced in P.D. 05-10 support the Department's position regarding the application of tax to printing purchased by an advertising business.
In your earlier correspondence, you indicate that the Taxpayer owns a second printing facility in Virginia. Based on this information and pursuant to Va. Code § 58.1-612 C 1, the Taxpayer has sufficient activity in Virginia to require it to register under Va. Code § 58.1-613 and collect tax on its retail sales to Virginia customers. Therefore, the Taxpayer must collect tax on its sales of printing to the Virginia franchisees for their use in media advertising, which includes direct mail items. If the Taxpayer fails to collect the tax, the franchisees are liable for the use tax on their purchases.
This response is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result. The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. 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,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
-
-
-
-
-
-
d
AR/55071P
Rulings of the Tax Commissioner