Tax Type
Retail Sales and Use Tax
Description
Creative Design Services
Topic
Taxability of Persons and Transactions
Date Issued
01-04-1988
January 4, 1988
Re: Ruling Request/ Sales and Use Tax
Dear******************
This will reply to your letter of March 23, 1987, seeking information on the correct application of the sales and use tax to transactions engaged in by**************** (taxpayer) a creative design, marketing and advertising firm. We apologize for the delay in providing you with this response.
FACTS
According to your letter, the taxpayer conceptualizes, designs, creates and mechanically produces such items as logos, letterhead, internal newsletters, and business reply cards. In addition, the taxpayer prepares floor plans, portfolios, space applications and presentation kits for use at conferences, trade shows and exhibits. Furthermore, the taxpayer provides creative design services in the production of company prospectuses, brochures, flyers and posters.
In a phone conversation with a member of my staff, it was indicated that the vast majority of the work performed by the taxpayer is provided directly to its own clients and not to other advertising businesses, and that only a small percentage of its total work is intended for placement in newspapers, magazines, television, radio, or billboards.
Accordingly, a ruling is requested on the correct application of the tax to charges by the taxpayer to its clients for the provision of these items, including its charges for creation and design.
RULING
Since July 1, 1986, Virginia Code §58.1-608(57) has provided an exemption from the sales and use tax for "advertising" as defined in §58.1-602(23) of the Code as "[t]he 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." (Emphasis added). This Code section provides further however, that "[a]ny 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." In accordance with this recently enacted exemption, the department has republished Virginia Retail Sales and Use Tax Regulation (VR) 630-10-3, a copy of which is enclosed.
While the Virginia Code sections cited above do not define the term "media", §1 of the regulation defines the term very broadly to include, "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." In addition, the term "advertising business" is defined broadly in the regulation to include, "any person or group of persons providing advertising." Accordingly, the fact that a majority of work done by the taxpayer in this case is not intended for use in newspapers, magazines, television, radio or billboards, does not necessarily preclude the application of the advertising exemption to some of the work which it produces.
Internal Newsletters
When the taxpayer performs creative design services in the production of an internal newsletter, it is not providing advertising for placement in the media, within the meaning of the exemption. An internal newsletter is not intended for public consumption as is customarily characteristic of "media" advertising. Therefore, the taxpayer should add the tax to the total charge to its client for providing such a newsletter, including any charges for concept and creative design. However, the taxpayer may purchase pursuant to resale certificate of exemption any tangible personal property which becomes a component part of such newsletters, such as printing, photographs, etc.
Floor Plans, Portfolios, Presentation Kits
Creative design charges in connection with the taxpayer's provision of floor plans, space applications, portfolios and presentation kits, for use at trade shows, exhibits, conferences and similar events are subject to the tax, if they also involve the provision of some tangible product, such as a model or sample. In addition, design charges for the creation of table tents for use on restaurant tables, are subject to the tax.
These items are taxable since they are not usually intended for wide dissemination to the general public. However, as with the newsletters mentioned above, the taxpayer may purchase pursuant to resale certificate of exemption, (Form ST-10) any tangible personal property which becomes a component part of taxable floor Plans, portfolios, table tents, etc.
Logos
The creation of a logo involves "the assembly of type and art into a distinctive symbol unique to an organization, business or product." Getting it Printed, by Beach, Shepro and Russon, 1986 ed., p. 202. Accordingly, when a logo is created for use in media advertising, such as on billboards, matchbooks, and calendars, the total charge for the design and creation of the logo will be nontaxable. However, when a logo is created for use in an internal newsletter, on company letterhead, envelopes, or business reply cards, the total charge for the design and creation of the logo will be subject to the tax, since such items do not represent media advertising within the meaning of the enclosed regulation.
Prospectuses, Brochures r Posters, etc.
Graphic design charges in connection with the creation of prospectuses, brochures, flyers, posters, or similar items which are intended for public consumption, are not subject to the tax. For example, layout and design charges in the development of a client's quarterly financial report, are not subject to the tax, since such a report is intended for consumption not only by shareholders of the client, but also by members of the public generally. Therefore, the taxpayer should not add the tax to its charge for the creation and design of such items.
However, the taxpayer must pay the tax on all purchases of tangible personal property for use in connection with the creation and design of such prospectuses, brochures, etc., including its purchases of printing. (See subsection 2(B) of the enclosed regulation)
I hope that all of the foregoing has responded to your questions but let me know if you have any further questions.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner