Tax Type
Retail Sales and Use Tax
Description
Preprinted newspaper advertising supplements
Topic
Taxability of Persons and Transactions
Date Issued
03-13-1984
March 13, 1984
Re: §58-1118 Application/Sales and Use Tax
Dear *********
This will reply to your letter of January 30, 1984 in which you submit an application for relief of sales and use tax assessed to as the result of an audit.
FACTS
***** (hereinafter *****) engaged in making retail sales to consumers through several locations in Virginia and other states. An audit of ***** revealed a failure to remit the sales and use tax on its use within Virginia of preprinted newspaper advertising supplements.
Such supplements are distributed with various Virginia newspapers and those newspapers charge an advertising fee for such service. Accordingly, ***** contests this assessment, contending that such supplements become an integral part of such newspapers and are therefore exempt from the sales and use tax.
DETERMINATION
§ 58-441.5 of the Code of Virginia imposes "a tax upon the use or consumption of tangible personal property". Virginia Code § 58-441.3(h) in turn defines the term "use" to mean and include "the exercise of any right or power over tangible personal property incident to the ownership thereof."
We find in the instant case that ***** contracted with printers to produce advertising supplements which were then brought into Virginia and provided to various newspaper publishers for distribution to the public. Accordingly, we find that ***** made a taxable use of such advertising supplements in Virginia, notwithstanding the provisions of Virginia Code § 38-441.6(k), by providing-such supplements to publishers within this state.
Virginia Code § 58-441.6(k) provides, until July 1, 1984, an exemption from the sales and use tax for "[a]ny publication issued daily, or regularly at average intervals not exceeding three months." The department has traditionally held that newspaper advertising inserts are not a component part of a newspaper and therefore are not exempt from the t 8. Such supplements are prepared by an entity completely independent of the newspapers with which they are distributed and are not a regular part of such newspapers inasmuch as they are merely inserted at irregular intervals determined by the retailer. As you likely are aware, this issue is presently in litigation in one of Virginia's lower state courts.
Furthermore, the legal incidence of the Virginia sales and use tax is on the purchaser. United States v Forst, 442 F. Supp. 920 (W.D. Va. 1977), affirmed, 569 F.2d 811 (4th Cir. 1978). Therefore, the legal incidence of sales and use tax exemptions is upon the purchaser also. In the instant case, newspapers are not the purchasers of the supplements in question, consequently, no exemption exists for ***** in this matter.
As you likely know, the 1983 session of the Virginia General Assembly enacted legislation, effective July 1, 1984, exempting such supplements from the sales and use tax. This legislation will include "advertising supplements and any other printed matter ultimately distributed with or as part of...publications" within the exemption provided by Virginia Code § 58-441.6(k). This change would tend to affirm the department's position in the instant case inasmuch as a change in law is normally presumed when new provisions are added to prior legislation by amendatory act. Boyd v. Commonwealth, 216 Va. 16 (1975).
Therefore, based upon the foregoing, I find no basis for the relief of tax assessed in this matter. However, I will entertain the filing of a protective claim for refund by your client inasmuch as this issue is presently in litigation within the state. Subsequent to the filing of such a claim under the provisions of Virginia Code-§ 58-1119.1, I will hold this matter in abeyance until the rendering of a decision in K-Mart Corporation v. Commonwealth in the Circuit Court of the City of Richmond, Part I.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner