Tax Type
Retail Sales and Use Tax
Description
Advertising business; Non-media videotapes
Topic
Taxability of Persons and Transactions
Date Issued
03-30-1987
March 30, 1987
Re: Ruling Request/ Sales and Use Tax
Dear **********************
This will reply to your letter of November 25, 1986 seeking information on the correct application of the sales and use tax to transactions involving advertising businesses and their clients.
FACTS
Specifically you ask whether an advertising business' purchase of a video from an outside vendor for use by one of its clients as a training film within the client's company, and not for use in media advertising or for consumption by the general public, qualifies for exemption from the tax as a purchase of tangible personal property for resale. In addition, you ask whether the result would be different if the video so purchased by an advertising business was intended for use by its client in media advertising.
RULING
Effective July 1, 1986 the tax does not apply to "advertising" which is defined in §58.1-602(23) of the Code as, "the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or 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."
As a result of this law change, the Department has recently revised §630-10-3 of the Retail Sales and Use Tax Regulations, a copy of which is enclosed.
Subsection 2(A) of the enclosed regulation provides that the tax does not apply to "charges by an advertising business for the provision of concept, writing, graphic design, mechanical art, photography and production supervision in the development of an advertising campaign.. [including] ...charges by [such] advertising business for concept, writing, graphic design, ... provided by another advertising business."
Therefore, in general the purchase by an advertising business of a finished video tape or film from an outside vendor, for use by one of its clients in media advertising will not be subject to the tax. In addition, the total charge by an advertising business to its client for such a video, including charges for production supervision, artwork, design, etc., in the creation of the video, will not be subject to the tax. (See however, subsection 2(B)(1) of the enclosed regulation regarding an advertising business' purchases of "blank" audio or video tapes.)
However, in those rare instances when an advertising business makes an isolated purchase of a video tape or film for use by one of its clients only in what is clearly non-media advertising, such as for in-house training purposes, such a video may be purchased by the advertising business exempt of the tax for resale under certificate of exemption Form ST-10. The taxpayer must then collect and report the tax on the total charge to its client for such video and for any services provided in the creation of the video, such as concept, design, production supervision, etc.
It should be noted further that this ruling is strictly limited to the facts presented and should not be extended to other transactions involving advertising businesses which in the vast majority of cases are the providers of nontaxable professional services.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner