Tax Type
Retail Sales and Use Tax
Description
Ad slicks; In-house advertising
Topic
Taxability of Persons and Transactions
Date Issued
09-06-1988
September 6, 1988
PRe: Ruling Request/ Sales and Use Tax
Dear***********************
This will reply to your correspondence of March 9, 1988 seeking information on the correct application of the sales and use tax to advertising related purchases made by ***************** (taxpayer). This also has reference to a previous determination issued by the department to the taxpayer on December 19, 1985.
FACTS
The taxpayer is a furniture manufacturer. In connection with the promotion of its new furniture lines each year the taxpayer contracts with various parties for the production of 11" x 16" color photographs, ("Type C" photographs), catalog prints, and ad slicks. The Type C photographs depict various furniture groups to be offered for sale by the taxpayer during the year, as well as the names, order numbers, and dimensions of the furniture groups. The photos are used by the taxpayer at semi-annual trade shows sponsored for retail furniture dealers, as well as by the taxpayer's own salesmen when promoting the new furniture lines to dealers throughout the year.
Based on orders received from dealers, the taxpayer determines which furniture groups to manufacture for a particular selling season. The taxpayer then contracts with a printer for the production of catalog prints (using transparencies and black and white prints of the Type C photographs) of the furniture groups to be manufactured. After receipt of the catalog prints in bulk, the taxpayer assembles the catalogs and ships them to its salesmen and furniture dealers across the country.
In a December 19, 1985 ruling, the department determined that the taxpayer qualified for the catalog and other printed material exemption when purchasing Type C photographs and catalog prints for use or consumption by its salesmen or furniture dealers outside Virginia.
In addition, to facilitate its dealers promotion of new furniture lines, the taxpayer provides the dealers with "ad slicks" which are made from tracings (sketches) of furniture made by the taxpayer from furniture groupings depicted in its Type C photographs. The taxpayer contracts with a local company to develop copy (descriptive wording) to accompany the tracings, to organize (layout) the tracings and the copy, and to set the type for and actually print the ad slicks themselves. When printed, the taxpayer provides the ad slicks to its furniture dealers for use by them in placing their own advertisements in local print media.
Based on the foregoing, you ask whether, effective July 1, 1986, the taxpayer enjoys an exemption from the sales and use tax on its purchases of the Type C photographs, catalog prints and ad slicks described above.
RULING
Type C Photographs and Catalog Prints
Based on the information provided, the taxpayer's purchases of Type C photographs and catalog prints qualify for the catalog and other printed material exemption in Virginia Code §58.1-608(30). Therefore, such photographs and catalog prints purchased by the taxpayer for storage in Virginia for less than 12 months and for distribution outside the state, qualify for exemption from the tax in the same manner as indicated in my December 19, 1985 ruling to the taxpayer. (See also Virginia Regulation (VR) 630-10-18.1 enclosed.)
However, section 4 of VR 630-10-3, copy enclosed, provides that "[m]aterials and supplies and other tangible personal property used in "in-house" advertising, that is, advertising produced by any entity to advertise, promote or display its own products or services, are subject to the tax at the time of purchase." (Emphasis added) The taxpayer's purchases of Type C photographs and catalog prints in the present case are not taxable as purchases of materials and supplies for use in "in-house" advertising since they represent purchases of finished printed materials, rather than raw materials and supplies for use by the taxpayer in the production of its own advertising.
Moreover, the department has previously determined that only advertising which is intended for wide dissemination to the general public qualifies as "media advertising". (See public document # 87-54, dated February 27, 1987, enclosed). Since the Type C photographs and catalog prints described above are not intended for dissemination to the general public, they are not materials and supplies used in "in-house" advertising.
Ad Slicks
Section 1 of VR 630-10-3 defines the term "advertising" to mean, "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." (Emphasis added)
Unlike the Type C photographs and catalog prints described above, the ad slicks in this case are ultimately intended for dissemination to the general public. Therefore, the total charge by the taxpayer's local company for the provision of the ad slicks represents the charge for exempt media advertising. That is, the local company's charges to the taxpayer for the provision of copy and layout in the design of the ad slicks, as well as its charges for typesetting and printing in the production of the ad slicks would be nontaxable. However, under §2(B) of the enclosed regulation, all of such company's purchases of paper, ink, and other items for use in creating the ad slicks to be provided to the taxpayer would be taxable.
It should be noted further that the ad slicks in this case do not represent taxable materials and supplies used in the creation of "in-house" advertising, since they do not represent the purchase of materials and supplies used by the taxpayer in creating its own advertisement. If the taxpayer decides to write its own copy, and/or provide its own layout for the ad slicks in the future, and contracts with a third party only to set the type and print the ad slicks, its purchases of materials and supplies in the creation of the ad slicks would be taxable under §4 of the enclosed regulation, as would its purchases of the finished printed ad slicks.
I hope that the foregoing has responded to your questions but let me know if you have any further questions.
Sincerely,
W. H. Frost
Tax Commissioner
Rulings of the Tax Commissioner