Tax Type
Retail Sales and Use Tax
Description
Exterior signs; Corporate logo
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
06-29-1988
June 29, 1988
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ****
This will reply to your letter of February 26, 1988 seeking correction of a sales and use tax assessment issued to ***** (taxpayer), for the audit period May 1984 through April 1987.
FACTS
In connection with its business as a commercial bank, the taxpayer was recently audited and held liable for the tax on a variety of untaxed purchases from suppliers. The taxpayer contests the bulk of the assessment on purchases made in connection with its adoption of a new corporate image. Such purchases included purchases from an image design consultant for the development, supervision of the manufacture and installation of new exterior signs for the taxpayer's branch offices located throughout the state.
The taxpayer also contests the application of the tax to design charges from this same consultant for the development of its new corporate image or logo for use on all of its correspondence, in brochures and in media advertising. The taxpayer contends that such charges represent charges for exempt professional advertising services, and that any tangible personal property transferred in the form of mechanicals, photographs, samples, etc., was inconsequential relative to the services being provided. The taxpayer contends further that any out-of-pocket expenses of its consultant and reimbursed by the taxpayer in connection with such professional services should also be exempt of the tax.
The remaining items contested concern purchases of computer hardware and software and recurring purchases from a direct marketing consultant for account maintenance and analysis and for the provision of confidential reports and mailing lists based on such analysis. It is the department's understanding that the monthly fee paid by the taxpayer to this consultant included amounts for the use by the taxpayer of provided computer hardware and software.
Lastly, the taxpayer seeks the waiver of all penalties assessed based on its good faith belief that the items held taxable in the audit were not subject to tax.
DETERMINATION
Based on the information presented, I find basis for concluding that the exterior signs purchased by the taxpayer which were either affixed to the exterior of its branch buildings or erected on pylons or monuments embedded in the ground adjacent to such branches, became a part of realty upon installation. Therefore, all such signs purchased by the taxpayer from its image design consultant will be removed from the audit. No correction of the assessment is due however for any temporary signs which may have been purchased, or any other interior or exterior signs which were not affixed to the taxpayer's branch buildings or embedded in the ground.
Moreover, the taxpayer's purchase of professional services in connection with the development and design of its new corporate image or logo were properly included in the audit in accord with the Supreme Court of Virginia case of WTAR Radio-TV Corp. v. Commonwealth, 217 Va. 877, 234 S.E.2d 245 (1977). In WTAR, the Court rejected a claim that advertising film transferred to a client represented an inconsequential element of a personal service or professional transaction, stating that "the true object of the buyer of the advertisement was not the service per se, but the end product produced by the service." The Court stated further that while "the customer obtained the technical expertise of ... production personnel,.. the primary object and concern of the [customer] was to obtain a finished film..."
Like the taxpayer in the WTAR case, the true object of the taxpayer in this case was the end product produced by the service provided by its corporate image design consultant, namely a new corporate image or logo. Therefore, contrary to the taxpayer's contention, the total charge by its corporate image design consultant for the provision of this new corporate image, including charges for professional design services and out-of-pocket expenses were, for all periods prior to July 1, 1986, properly held taxable in the audit.
However, effective July 1, 1986, the tax does not apply to "advertising" which is defined in §58.1-602(23) as "the 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." Therefore, any charges for professional services in the development and design of the taxpayer's new corporate image which were billed by the image design consultant on or after July 1, 1986 will be removed from the audit. In addition, any out-of-pocket expenses incurred by the consultant and billed to the taxpayer on or after July 1, 1986 will be removed from the audit. (See also Virginia Regulation 630-10-3: Advertising, enclosed ).
Furthermore, I find basis for granting the credit sought by the taxpayer for taxes paid by its computer hardware and software supplier for "Trust Master", and agree to remove from the assessment all charges from the taxpayer's marketing consultant,
Lastly, based on all the facts and circumstances of this case and the authority granted in Virginia Code §58.1-105, I find basis for the waiver of all penalties assessed in this case.
Upon receipt of the information requested above the audit will be adjusted in a manner consistent with the foregoing and a revised notice of assessment will be issued to the taxpayer under separate cover.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner