Tax Type
Retail Sales and Use Tax
Description
Advertising; Typography purchased for mechanical artwork
Topic
Taxability of Persons and Transactions
Date Issued
07-03-1990
July 3, 1990
Re: Ruling Request: Sales and Use Tax
Dear****************
This will reply to your letter of June 22, 1989 seeking a ruling on the application of the sales and use tax to the purchase by*******(the "taxpayer"), of typesetting. We regret the delay in providing you with this response.
FACTS
The taxpayer is a free-lance commercial artist who specializes in graphic design for packaging. The end product of the taxpayer's graphic design work is usually mechanical artwork which is later used by its clients in having printing plates made.
In a conversation with a member of my Tax Policy Division staff, you indicated that most of the taxpayer's design work is performed for manufacturers who use the mechanical artwork on product packaging. However, one of its clients is a publisher/printer who uses the mechanical artwork to develop a promotional brochure for a bank for free distribution to customers and others who enter the bank's premises.
You ask whether the taxpayer must pay sales tax on its purchases of typography from a third party for use in creating the above described mechanical artwork. You contend that you should not be charged the tax on typography, since you generally add the tax to your total charge to customers for mechanical artwork. You also seek information regarding refunds due for taxes which may have been erroneously paid on the taxpayer's purchases of typography.
RULING
Since July 1, 1986 the tax has not applied to "advertising" which is defined in Virginia Code §58.1-602, 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." (Emphasis added)
When the taxpayer in this case provides graphic design for use in product packaging, it is providing an advertising service, the total charge for which qualifies for the above exemption. Thus, the taxpayer should not add the tax to charges for graphic design and mechanical artwork provided to customers for use in product packaging. Of course, the taxpayer is liable for payment of the tax on all items purchased for use in the creation of such mechanical artwork, including items such as typesetting.
The taxpayer in this case is also providing an exempt advertising service when it provides mechanical artwork for use in the creation of a bank's promotional brochure which is distributed free of charge to the public. Purchases by the taxpayer in the creation of this mechanical artwork would also be taxable under the above referenced code section.
However, if the taxpayer provides graphic design to a client for some non-media purpose, such as for use on letterhead, envelopes, business cards, etc., it must add the tax to its total charge to the client. Under these circumstances, the taxpayer may purchase pursuant to resale certificate of exemption (Form ST-10), materials and supplies used in creating such graphic design.
Based on the foregoing, the taxpayer was correctly charged sales tax by its typesetting supplier and is not due a refund for any tax paid on such purchases. However, the taxpayer's clients may seek refunds of sales tax erroneously paid on mechanical artwork provided by the taxpayer for use in product packaging and the brochures described above. The refund claims should first be made to the taxpayer, who may then seek reimbursement for such refunds from the department, less any dealer's discount claimed when such taxes were initially remitted by the taxpayer to the department.
The department is currently in the process of revising Retail Sales and Use Tax Regulation (VR) 630-10-3: Advertising. We will include you on our mailing list to receive information concerning any proposed changes to the regulation during the regulation revision process.
Please let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner