Tax Type
Retail Sales and Use Tax
Description
Advertising business; Law changes effective July 1, 1986
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 December 16, 1986 seeking information on the correct application of the sales and use tax to a variety of transactions involving advertising businesses and their clients.
Effective July 1, 1986 the sales and use tax does not apply to "advertising" which is defined in §58.1-602(23) of the Virginia 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.
Accordingly, effective July 1, 1986, when providing services in the production of advertising for placement in the "media", as defined in subsection 1 of the enclosed regulation, advertising businesses are the providers of a nontaxable professional service. Therefore, the total charge by an advertising business for the provision of media advertising including charges for consulting services, creative or design services, production supervision, or media placement services is not subject to the tax.
In addition, subsection 2(C) of the enclosed regulation provides that the tax does not apply to handling fees or cost plus charges added to out of pocket expenses incurred by an advertising business on behalf of their clients.
However, in accord with the last sentence of Virginia Code §58.1-602(23) cited above, an advertising business is the taxable user and consumer of all tangible personal property purchased in connection with its provision of services in the creation of media advertising. Therefore, all purchases by an advertising business of materials for use in the creation of media advertising, including but not limited to administrative items and supplies such as paper, ink, pencils, and office equipment are subject to the tax at the time of purchase.
Furthermore it should be noted that contrary to prior law, an advertising business' purchases of printing, for use in the production of media advertising, including direct mail items, non-customized or stock mailing lists, brochures, flyers, handbills, posters and similar printed materials are subject to the tax at the time of purchase and may not be purchased by an advertising business pursuant to resale certificate of exemption.
However, on those infrequent occasions when an advertising business provides production and design services in the creation of what is clearly non-media advertising, such as in the creation of a client's in-house directory, the total charge for the provision of such non-media advertising will be subject to the tax. In addition, and only in these very limited circumstances, an advertising business may purchase exempt of the tax, pursuant to resale certificate of exemption Form ST-10, any items used in the creation of non-media advertising which will be resold to its client subject to the tax.
I hope that all of the foregoing has responded to your questions but let me know if you have any further questions after having an opportunity to review the enclosed regulation.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner