Tax Type
Retail Sales and Use Tax
Description
Mail order catalogs; Advertising agency
Topic
Taxability of Persons and Transactions
Date Issued
11-29-1989
November 29, 1989
Re: Request for Ruling/ Sales and Use Tax
Dear***************
This will reply to your letter of July 7, 1989, concerning the application of the sales and use tax to various transactions engaged in by advertising agencies. We regret the delay in providing you with a response to your inquiry.
Facts
******* client ("the Taxpayer"), a Virginia based advertising agency, has contracted with a Virginia based customer ("the customer") for the full service development of a mail-order catalog advertising the sale of tangible personal property. The catalog will be distributed directly by the customer via direct mail throughout Virginia and other states within twelve months of its completion. The Taxpayer contracts with third parties for the provision of photography and printing, the charges for which are billed to the Taxpayer. The catalog design, layout, marketing concepts and campaign are services provided by the Taxpayer.
You are requesting a ruling on the application of the tax based on the above facts (Case #1), and also in the following separate cases: (2) The customer is based in another state; (3) The catalog will be distributed by the Taxpayer, rather than by the customer; (4) Charges for the printing are billed directly to the customer rather than to the Taxpayer; (5) Photography and/or printing is performed in-house by the Taxpayer rather than by third parties; (6) Typesetting is performed in-house by the Taxpayer rather than by third parties; (7) Catalogs are not distributed in Virginia.
Ruling
Since July 1, 1986 Virginia Code §58.1-608(6)(e) has provided an exemption from the sales and use tax for "advertising" which is defined in §58.1-602 of the 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."
Consistent with the foregoing, the department promulgated Virginia Retail Sales and Use Tax Regulation (VR) 630-10-3: Advertising, copy enclosed.
Accordingly, 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 to its customers 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. However, all purchases by an advertising business of materials for use in the creation of such media advertising are subject to the tax at the time of purchase.
Under §3(A) of VR 630-10-3, charges by an advertising business for professional services in the development and placement of advertising in the media are not subject to the tax whether or not the advertising business, the client which contracts with such business or the advertising media itself are located in Virginia. In addition, §2(B) of the regulation provides that, "...the tax applies to all purchases by an advertising business including, without limitation, the following items: ...[p]rinting, including direct mail items ...and similar printed materials whether or not for use in the development of a specific advertising campaign, and whether or not any of such materials_ are intended for distribution out of state." (Emphasis added).
Applying the facts presented in your letter to the statutes and regulation cited above, the Taxpayer makes a taxable use of and is subject to the sales and use tax for any catalogs or other printed materials which it purchases on behalf of customers, regardless of how long such materials may be stored in the state and distributed for use outside Virginia by its customers, and regardless of the existence of any exemptions which may be enjoyed by its customers. However, in instances such as example #4 in your letter, where charges for printing are billed directly to the Taxpayer's customer by a third party printer, the Taxpayer will not be subject to the tax on the printing charges. In such cases, the Taxpayer's retail customer could purchase direct from the printer, certain catalogs and other printed material exempt of the tax. ( See Commissioner's Ruling dated April 6, 1988, copy enclosed).
In all of the other examples presented in your letter, the Taxpayer will be subject to the tax on all of its purchases, including printing and typesetting; however, its purchases of photography for use in the catalogs will not be subject to the tax. ( See Commissioner's ruling dated May 10,1988, copy enclosed). The photographer must be furnished a certificate of exemption (Form ST-10A), copy enclosed, to substantiate this exempt sale of photographs to the Taxpayer. When the printing, typesetting or photography is performed in-house by the Taxpayer, the Taxpayer is also subject to the tax on purchases of equipment and supplies used in providing the printing, typesetting or photography services. In addition, the Taxpayer should not pass the sales or use tax paid for any of its purchases on to its clients as a tax. Rather, the Taxpayer should take the tax into consideration when setting its fees to customers for the provision of its services.
I trust this will answer the questions posed in your letter; however, please contact the department if you have additional questions or if we may be of any further assistance.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner