Tax Type
Retail Sales and Use Tax
Description
Advertising business purchases; Media and nonmedia
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
05-10-1988
May 10, 1988
Re: Ruling Request/ Sales and Use Tax
Dear***************
This will reply to your letter of October 26, 1987 on behalf of ********* (taxpayer), seeking confirmation of your understanding of the sales and use tax as applied to advertising businesses.
FACTS
The taxpayer is a marketing communications company which produces advertisements, marketing plans, direct mail advertisements, exhibit designs and brochures. It is your understanding, pursuant to recently revised Virginia Regulation (VR) 630-10-3, that as an "advertising business" the taxpayer should not be charging sales tax on creative or production art for the end products it produces for clients, but that it must pay the tax on all tangible personal property purchased, such as printing, typography, photographs, art materials and exhibits in connection with its provision of such end products. Therefore, you ask whether this correctly reflects the department's policies regarding advertising businesses.
RULING
Effective July 1, 1986, the 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 and 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."
ADVERTISING FOR PLACEMENT IN THE MEDIA
Section 1 of VR 630-10-3 defines the term "media" broadly to include, "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." Therefore, whenever the taxpayer provides concept, writing, graphic design, mechanical art, photography and production supervision in the development of a client's media advertising campaign, all of its charges for the development of the campaign qualify for exemption from the tax. In addition, under §2(A) of the enclosed regulation, charges by an advertising business such as the taxpayer for concept, writing, graphic design, mechanical art, photography, etc., provided by another "advertising business", (as defined in the regulation), for use in the client's media ad campaign are not subject to the tax.
For example, when the taxpayer contracts with a photographer for the provision of photographs for use in its client's media ad campaign, the photographer is acting as an "advertising business" under the regulation. Therefore, any photographs so purchased by the taxpayer, and subsequently provided to its client, qualify for exemption from the tax. However, since the sales and use tax law generally deems the photographer to be engaged in making taxable retail sales of tangible personal property, it must be furnished a certificate of exemption (Form ST-10A), copy enclosed, to substantiate this exempt sale of photographs to the taxpayer.
Under the last sentence of Virginia Code §58.1-602(23) quoted above, all other purchases by the taxpayer of tangible personal property for use in the development of a client's media advertising campaign are taxable at the time of purchase, including its purchases of printing, typography, promotional items, and administrative equipment and supplies. (See §2 (B) of VR 630-10-3 enclosed.)
NON-MEDIA ADVERTISING
On those rare occasions when the taxpayer provides creative and design services resulting in a tangible product in connection with some non-media related project of its client, such as in the creation of an in-house directory, employee handbook, administrative form, or other item not intended for dissemination to the public, its total charge for the production and design of such items will be subject to the tax. For example, if the taxpayer is asked to create and design a logo for use on its client's customer invoices, business reply cards or envelopes, the total charge for the production of the logo, including creation and production art charges, will be subject to the tax. In addition, and only in these very limited circumstances, the taxpayer may purchase exempt of the tax, pursuant to resale certificate of exemption (Form ST-10), copy enclosed, any tangible items purchased for use in the creation of such non-media advertising which will be resold to clients subject to the tax.
FILING REQUIREMENTS
After a period of time the department may determine that the taxpayer qualifies for filing sales and use tax returns on a basis less frequently than monthly, such as on a quarterly basis. The department will notify the taxpayer of any such authorization.
To provide you with additional information, we have enclosed public document copies of recent ruling letters issued by the department involving issues similar to those raised in your letter. After you have had a chance to review these letters and all of the foregoing, please let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner