Tax Type
Retail Sales and Use Tax
Description
Mailing list license fees
Topic
Taxability of Persons and Transactions
Date Issued
05-28-1985
May 28, 1985
Re: 58.1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of July 19, 1984, in which you submit an application for relief of sales and use tax assessed to ***** as the result of an audit.
FACTS
***** (hereinafter *****) is engaged in the publication of financial newsletters. In connection with obtaining subscribers to its reports, ***** mails printed advertising materials to various individuals. ***** relies on various mailing list brokers in identifying the individuals to whom its advertising materials will be mailed. Such brokers generally provide mailing lists to ***** on magnetic tapes. The information on those lists is drawn from the brokers' listings of persons subscribing to other financial publications,; however, those lists are sometimes customized specifically for order that a more ideal market be reached for its publications. The mailing lists used by ***** are obtained under licensing agreements which provide for a one-time use of the information contained on the lists before they are returned to the broker.
In addition, ***** maintains its own mailing list which is licensed to other users. An audit of ***** produced an assessment for the failure to remit the sales and use tax on the license fees paid by ***** for using mailing lists provided by brokers or the fees charged by ***** to Virginia purchasers of its own mailing list.
contests the imposition of tax, contending that (1) the license to use mailing lists is a personal service transaction involving an inconsequential sale of tangible personal property exempt from tax under Virginia Code Section 58.1-608.2, (2) the mailing lists are used in the packaging of tangible personal property for shipment and are therefore exempt from tax under Virginia Code Section 58.1-608.1(d), and (3) the mailing lists are labels used for the mailing of printed advertising materials and therefore exempt from tax under Virginia Code Section 58.1-608.30.
DETERMINATION
Section 58.1-608.2 of the Code of Virginia provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
An examination of the instant transactions reveals that at least a portion of the mailing lists obtained or sold by ***** are exempt from the sales and use tax as inconsequential elements of personal service transactions. Specifically, mailing lists produced to**** specifications are so exempt. I find the true object of such transactions to be the acquisition of the services of the seller. While the magnetic tapes in which the mailing lists are transmitted constitute tangible personal property, such tapes are merely incidental to the services rendered by the seller.
Based upon the foregoing, all transactions relating to the sale or lease of mailing lists produced specifically for ***** or by ***** specifically for a customer will be removed from the department's audit.
The relief outlined above does not apply though to standard mailing lists produced by a broker for sale. The production of such lists does not involve a service element, there being no uniqueness to the product and no specificity in the labor of the seller directed toward the buyer. The buyer takes the same product as all similar buyers and has no part in the decision as to how the mailing list is designed or produced.
Further, I find no grounds in your other arguments upon which to base the removal of standard mailing lists from the department's audit. Those arguments center on the contention that mailing lists are labels exempt from the tax under the provisions of either Virginia Code Section 58.1-608.1(d) or Virginia Code Section 58.1-608.30.
In interpreting exemption statutes such as Virginia Code Sections 58.1-608.1(d) and 58.1-608.30, the Virginia Supreme Court has applied a rule of strict construction, Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E. 2d 619 (1973), resolving all doubts as to exemption against the taxpayer. Applying this rule to the instant case, I find that standard mailing lists are not exempt from the sales and use tax under the statutes in question. Such lists are not labels or other materials used in packaging tangible personal property, such labels and materials being exempt under Virginia Code Section 58.1-608.1(d), nor are such lists labels or other printed materials used in the advertising of tangible personal property for sale, an activity exempt under Virginia Code Section 58.1-608.30. Rather, the instant mailing lists are one step removed from these exemptions, i.e., labels, packaging materials, and printed advertising materials, will be produced using the names on the lists.
Lastly, I normally would find no basis for the relief of penalty assessed to ***** in this instance. ***** was clearly advised of the department's existing policy subsequent to a 1981 audit. ***** was not advised, as is asserted, that tax should be remitted on two percent of the fees paid for mailing lists. Rather, ***** was advised to remit tax on two percent of the cost of advertising materials mailed, representing the percentage of such materials mailed to Virginia addresses. However, I find basis for relief of penalty in this instance as this determination represents a change in departmental policy with respect to mailing lists produced to customer specifications.
In order to make the necessary revisions to the instant audit, ***** will need to provide information within the next sixty days that will enable the taxable and exempt mailing list transactions to be segregated. Such information should be provided to the department's Technical Services Section.
Sincerely,
W. H. Forst
Tax Commissioner
Re: 58.1-1821 Application/Sales and Use Tax
Dear ****
This will reply to your letter of July 19, 1984, in which you submit an application for relief of sales and use tax assessed to ***** as the result of an audit.
FACTS
***** (hereinafter *****) is engaged in the publication of financial newsletters. In connection with obtaining subscribers to its reports, ***** mails printed advertising materials to various individuals. ***** relies on various mailing list brokers in identifying the individuals to whom its advertising materials will be mailed. Such brokers generally provide mailing lists to ***** on magnetic tapes. The information on those lists is drawn from the brokers' listings of persons subscribing to other financial publications,; however, those lists are sometimes customized specifically for order that a more ideal market be reached for its publications. The mailing lists used by ***** are obtained under licensing agreements which provide for a one-time use of the information contained on the lists before they are returned to the broker.
In addition, ***** maintains its own mailing list which is licensed to other users. An audit of ***** produced an assessment for the failure to remit the sales and use tax on the license fees paid by ***** for using mailing lists provided by brokers or the fees charged by ***** to Virginia purchasers of its own mailing list.
contests the imposition of tax, contending that (1) the license to use mailing lists is a personal service transaction involving an inconsequential sale of tangible personal property exempt from tax under Virginia Code Section 58.1-608.2, (2) the mailing lists are used in the packaging of tangible personal property for shipment and are therefore exempt from tax under Virginia Code Section 58.1-608.1(d), and (3) the mailing lists are labels used for the mailing of printed advertising materials and therefore exempt from tax under Virginia Code Section 58.1-608.30.
DETERMINATION
Section 58.1-608.2 of the Code of Virginia provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
An examination of the instant transactions reveals that at least a portion of the mailing lists obtained or sold by ***** are exempt from the sales and use tax as inconsequential elements of personal service transactions. Specifically, mailing lists produced to**** specifications are so exempt. I find the true object of such transactions to be the acquisition of the services of the seller. While the magnetic tapes in which the mailing lists are transmitted constitute tangible personal property, such tapes are merely incidental to the services rendered by the seller.
Based upon the foregoing, all transactions relating to the sale or lease of mailing lists produced specifically for ***** or by ***** specifically for a customer will be removed from the department's audit.
The relief outlined above does not apply though to standard mailing lists produced by a broker for sale. The production of such lists does not involve a service element, there being no uniqueness to the product and no specificity in the labor of the seller directed toward the buyer. The buyer takes the same product as all similar buyers and has no part in the decision as to how the mailing list is designed or produced.
Further, I find no grounds in your other arguments upon which to base the removal of standard mailing lists from the department's audit. Those arguments center on the contention that mailing lists are labels exempt from the tax under the provisions of either Virginia Code Section 58.1-608.1(d) or Virginia Code Section 58.1-608.30.
In interpreting exemption statutes such as Virginia Code Sections 58.1-608.1(d) and 58.1-608.30, the Virginia Supreme Court has applied a rule of strict construction, Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E. 2d 619 (1973), resolving all doubts as to exemption against the taxpayer. Applying this rule to the instant case, I find that standard mailing lists are not exempt from the sales and use tax under the statutes in question. Such lists are not labels or other materials used in packaging tangible personal property, such labels and materials being exempt under Virginia Code Section 58.1-608.1(d), nor are such lists labels or other printed materials used in the advertising of tangible personal property for sale, an activity exempt under Virginia Code Section 58.1-608.30. Rather, the instant mailing lists are one step removed from these exemptions, i.e., labels, packaging materials, and printed advertising materials, will be produced using the names on the lists.
Lastly, I normally would find no basis for the relief of penalty assessed to ***** in this instance. ***** was clearly advised of the department's existing policy subsequent to a 1981 audit. ***** was not advised, as is asserted, that tax should be remitted on two percent of the fees paid for mailing lists. Rather, ***** was advised to remit tax on two percent of the cost of advertising materials mailed, representing the percentage of such materials mailed to Virginia addresses. However, I find basis for relief of penalty in this instance as this determination represents a change in departmental policy with respect to mailing lists produced to customer specifications.
In order to make the necessary revisions to the instant audit, ***** will need to provide information within the next sixty days that will enable the taxable and exempt mailing list transactions to be segregated. Such information should be provided to the department's Technical Services Section.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner