September 22, 2020
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you request reconsideration of the Department’s determination letter issued as Public Document 19-40 (4/25/19) for the period May 2012 through June 2015. I apologize for the delay in responding to your request.
FACTS
The Taxpayer sells and services manufactured signs in Virginia and more than 20 other states. The Taxpayer was audited for the period May 2012 through June 2015 and issued a sales tax assessment by the Department. The Taxpayer appealed the assessment and requested that certain sales transactions included in the audit be removed. A determination letter was issued to the Taxpayer on April 25, 2019, in which the assessment was upheld because the information provided with the appeal was insufficient to warrant removal of the transactions from the audit.
With its reconsideration, the Taxpayer provides documentation for review. The Taxpayer maintains that the original appeal filed with the Department included more than seven pages of documentation to support removing the contested transactions from the audit. The Taxpayer questions how the appeal could be denied if these documents were misplaced by the Department. The Taxpayer contends that the Department did not request additional documentation during the appeal process as stated in the determination letter. Based upon these claims and the amount of time taken to review the appeal, the Taxpayer maintains that relief should be granted.
DETERMINATION
Additional Documentation
The original appeal filed by the Taxpayer included a list of the invoices that were contested by the Taxpayer and copies of the notices of assessment issued to the Taxpayer for the audit period at issue. The Department’s analyst assigned to the appeal issued a letter to the Taxpayer, dated December 9, 2015, requesting that documentation supporting the Taxpayer’s contentions be provided in accordance with Title 23 of the Virginia Administrative Code (VAC) 10-20-165 D 3 a. In response to the Department’s request, the Taxpayer provided another copy of the document listing the invoices at issue. The Taxpayer did not, however, provide any documentation to support its contentions as requested. Notwithstanding the foregoing, the additional invoice documentation provided with the Taxpayer’s reconsideration has been reviewed and is considered in rendering this determination.
Invoice 4015
Church Exemption
The Taxpayer contends that the transaction at issue is not subject to the tax because the sale was made to a church. The Taxpayer provides a copy of the invoice at issue. The transaction was held taxable in the audit because the Taxpayer did not provide an exemption certificate or a Department-issued nonprofit letter from the customer (the church) during the performance of the audit. The Taxpayer has likewise not provided an exemption certificate or Department issued nonprofit letter with its reconsideration.
Virginia Code § 58.1-609.10 16 provides that the retail sales and use tax does not apply to:
Tangible personal property purchased by nonprofit churches that are exempt from taxation under § 501(c)(3) of the Internal Revenue Code, or whose real property is exempt from local taxation pursuant to the provisions of § 58.1-3606, for use (i) in religious worship services by a congregation or church membership while meeting together in a single location and (ii) in the libraries, offices, meeting or counseling rooms or other rooms in the public church buildings used in carrying out the work of the church and its related ministries, including kindergarten, elementary and secondary schools. The exemption for such churches shall also include baptistries; bulletins, programs, newspapers and newsletters that do not contain paid advertising and are used in carrying out the work of the church; gifts including food for distribution outside the public church building; food, disposable serving items, cleaning supplies and teaching materials used in the operation of camps or conference centers by the church or an organization composed of churches that are exempt under this subdivision and which are used in carrying out the work of the church or churches; and property used in caring for or maintaining property owned by the church including, but not limited to, mowing equipment; and building materials installed by the church, and for which the church does not contract with a person or entity to have installed, in the public church buildings used in carrying out the work of the church and its related ministries, including, but not limited to worship services; administrative rooms; and kindergarten, elementary, and secondary schools.
Title 23 VAC 10-210-310 D provides that purchases of tangible personal property may be made exempt of the tax “for use in religious worship services and in public church buildings in carrying out the work of the church and its related ministries.”
Title 23 VAC 10-210-310 A provides that “carrying out the work of the church and its related ministries means engaging in activities that communicate or spread the religious teachings and practices of a church.”
Title 23 VAC 10-210-310 E provides that:
Tangible personal property purchased by a church is generally taxable when it is (i) not used in religious worship services by a congregation or church membership while meeting in a single location; (ii) not used in sanctuaries, libraries, offices, meeting or counseling rooms, or other rooms in the public church buildings used in carrying out the work of the church and its related ministries; or (iii) used by separate legal or business entities that may be associated with the church.
Based upon the information provided, the transaction at issue is for the sale of a sign to a church. The transaction also includes a charge for installation and for permit procurement. The invoice at issue does not include a charge for the Virginia sales tax. In accordance with the cited authorities, the transaction at issue does not qualify for the exemption extended to nonprofit churches. The sign is not used for religious worship services as considered in the statute, and it is not used for carrying out the work of the church as considered in the regulation. Accordingly, the charge for the sign is subject to the sales tax and was properly included in the audit.
Exemption Certificate
Virginia Code § 58.1-623 A provides that:
All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter. [Emphasis added.]
Title 23 VAC 10-210-280 B states that:
Legitimate use of exemption certificates is vital. 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 any item of tangible personal property not covered by the exact wording of the certificate.
All retail sales made by the Taxpayer are subject to the tax, unless the Taxpayer accepts a certificate from its customer to the effect that the property is exempt under Virginia’s retail sales and use tax laws. Generally, in order to make an exempt sale to a customer, the Taxpayer must receive a valid and properly executed exemption certificate from the customer. The Taxpayer should also retain all exemption certificates used to support exempt sales.
In this instance, in order for the church exemption to apply, the sale must meet one of the criteria listed in Virginia Code § 58.1-609.10 16. Additionally, the church would be required to provide to the Taxpayer a properly executed Form ST-13A. In accordance with Virginia Code § 58.1-623 A, had the church provided the required Form ST-13A, the Taxpayer would have been able to exercise reasonable care and judgment by reading the certificate and determining that the sale of the sign did not meet the exact wording of the certificate, i.e., the criteria of the exemption statute.
Labor and Services
Virginia Code § 58.1-602 defines sales price as:
The total amount for which tangible personal property or services are sold, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.
Virginia Code § 58.1-609.5 2 provides that the retail sales and use tax does not apply to “An amount separately charged for labor or services rendered in installing, applying, remodeling, or repairing property sold or rented.”
The transaction at issue included charges for installation and for the procurement of a permit. In accordance with Virginia Code § 58.1-609.5 2, the separately stated charge for installation is not subject to the sales tax and is not included in the assessment at issue. In accordance with the Virginia Code § 58.1-602 definition of sales price, the charge for the procurement of a permit is subject to the sales tax and is properly included in the assessment at issue.
Invoices 4059, 4061, 4083, 4085 and 4086
The Taxpayer maintains that the invoices at issue are for billboard advertising as provided in Virginia Code § 58.1-609.6 5, and the transactions at issue are not subject to the sales tax. The Taxpayer provides invoices and a billboard lease – outdoor advertising agreements, with its reconsideration to support its contention.
In a discussion with the Department analyst, the Taxpayer stated that the pole and sign space for its billboards are erected on property that it rents from the landowner. Further, the customer provides the advertising idea that is placed on the billboard, and the Taxpayer creates the vinyl or digital display based upon the content provided by the customer. The auditor found that the billboard rental does not qualify as advertising because the Taxpayer is not in the advertising business as defined in Title 23 VAC 10-210-40 and Title 23 VAC 10-210-41.
Virginia Code § 58.1-609.6 5 provides that the retail sales and use tax does not apply 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 in this section shall be deemed to be the user or consumer of all tangible personal property purchased for use in such advertising.
Title 23 VAC 10-210-41 A provides that:
The tax does not apply to charges by an advertising business for professional services in the planning, creating or placing of advertising in newspapers, magazines, billboards, direct mail, radio, television, or other media regardless of how such charges are computed by the advertising business and whether or not such business actually places the advertising in the media.
Based upon a review of the information provided by the Taxpayer, I find that the Taxpayer is placing its customers’ advertising on the Taxpayer’s billboards, as contemplated in the cited statute and regulation. Accordingly, I find that the charges at issue are for advertising as defined above, and the advertising exemption applies to the transactions at issue. The transactions will be removed from the audit and the audit assessment will be revised.
The information regarding the advertising exemption in the Department’s December 1991 Expenditure Study supports this determination. The Expenditure Study provides that an interpretation of the sales and use tax law with respect to advertising agencies has been a part of the sales and use tax regulations since 1966. Before 1986, the Department’s regulations with respect to advertising exempted advertising prepared and placed in media by an advertising agency. However, in 1986, the Virginia General Assembly enacted legislation that exempted from the sales and use tax charges for advertising placed in the media. Virginia Tax Bulletin 86-12 (7/1/1986) provides, in pertinent part, that “Effective July 1, 1986, the sales and use tax will not apply to charges for advertising which is defined as the planning, creating or placing of advertising in newspapers, magazines, billboards, broadcasting and other media….” [Emphasis added.]
Remaining Invoices
Invoices 2577, 2562, 2571, 2564 and 2585 were also contested by the Taxpayer. These invoices will remain in the audit because the Taxpayer has not provided documentation to support removal of these transactions. Invoice 4065 assessed in the audit is not contested by the Taxpayer.
CONCLUSION
The audit will be returned to the appropriate field audit staff to make the revisions consistent with this determination. Once the revisions are complete, a revised audit report will be provided to the Taxpayer. In addition, a revised bill, with accrued interest, will be mailed to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 60 days of the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *****, Post Office Box 27203, Richmond, Virginia 23261-7203.
The Code of Virginia sections, regulations and tax bulletin cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2086.p