Tax Type
Retail Sales and Use Tax
Description
Magazine advertising homes for sale
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
06-04-1991
June 4, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear********************
This will reply to your letter of May 21, 1990 seeking correction of a sales and use assessment to your client, ****************(the "Taxpayer"), for the period of September 1, 1987 to November 30, 1988, and your follow-up letter of February 4, 1991.
FACTS
The Taxpayer publishes a magazine which contains advertisements for homes for sale. The magazine is published 11 times per year and is distributed free of charge to the public. The Taxpayer does the rough lay-out and design work for the magazine and sends it to its franchiser in another state for printing. The completed magazine is then shipped to Virginia where it is kept only long enough to repackage and is then taken to another state for distribution.
You point out that the basis of the tax assessed was not stated in the assessment and that the only purchases by the Taxpayer on which the assessment could be based are: the purchases of printing to publish the magazine, transportation charges, and royalties paid to the franchiser. You argue that no taxable transactions occur in Virginia.
You contend that the Taxpayer's magazine qualifies as an exempt publication under Va. Code §58.1-608(6)(c) and thus no tax should have been assessed. You further maintain that royalty charges paid for the use of the franchiser's name should not be taxable and that transportation charges are exempt under Virginia Regulation (VR) 630-10-107. You propose that if it is determined that any tax is due, such tax should be based on the ratio of duration of use of the magazine in Virginia to the useful life of the magazine, as provided in Va. Code §58.1-604.
DETERMINATION
A recent Ruling of the Tax Commissioner, P.D. 91-29 (3/11/91), copy enclosed, addresses the applicability of the sales and use tax to "shoppers" magazines advertising homes for sale. It explains that such magazines do not qualify for the publication exemption provided in Va. Code §608(6)(c).
The assessment, however, may be revised if the Taxpayer can provide documentation indicating that the royalty charges made by the franchiser were only for the intangible right to use the franchiser's name and were separately stated on the sales invoice. As the enclosed ruling letter points out, royalty charges paid by a taxpayer, if only for the intangible right to use the franchiser's name, are not subject to the tax if separately stated. However, if such charges are based on the number of pages printed, they would be subject to the tax since tangible personal property is received in connection with such royalties.
The assessment may be further revised if the Taxpayer can provide documentation revealing that transportation charges were separately stated on the sales invoices. The enclosed ruling letter further explains that transportation or delivery charges are nontaxable if separately stated on the invoice. Handling charges, however, are subject to the tax. If the franchiser bills the Taxpayer a lump-sum amount for the above, the total charge is subject to the tax.
Va. Code §58.1-604 provides for the imposition of a tax "upon the use or consumption of tangible personal property in this Commonwealth...." In the instant case, the magazines are shipped directly from the printer to the Taxpayer in Virginia. While some of the magazines may only be in Virginia for a short period of time, first use of all the property occurs in Virginia. Therefore, proration is inapplicable and the tax applies. In support of this, the Virginia Supreme Court held in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980), that "if a taxable event occurs in Virginia, subsequent delivery of property outside the state does not immunize the taxable event."
However, Va. Code §58.1-608(6)(d) does provide an exemption from the sales tax for:
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- [c]atalogs, letters, brochures, reports, and similar printed materials except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, and paper furnished to a printer for fabrication into such printed materials, when stored for twelve months or less in the Commonwealth and distributed for use without the Commonwealth.
In order to qualify for this exemption, the catalogs and similar printed materials must be stored for twelve months or less in Virginia and be distributed for use outside the Commonwealth. You maintain that the Taxpayer's magazines "are not sold, used, consumed, distributed, or stored in Virginia" and that they remain in the state "only long enough to be counted, transferred from one medium of carriage to another, and then shipped" to another state where they are distributed free of charge.
If the Taxpayer is able to provide documentation indicating that its magazines are for use in another state and that they are shipped out of the state, I will be willing to revise the assessment. Any magazines remaining in Virginia, however, will remain taxable.
Based on the above, I find no basis for revision of the assessment unless the Taxpayer can provide the documentation as explained above. Upon receipt of such information, if within 45 days, I will revise the assessment accordingly.
Such documentation should be sent to the department's office Services Division, Technical Services Section, P. O. Box 6-L, Richmond, Virginia 23282. If the documentation is not received within the specified time period, the assessment, with interest accrued through the date of your original letter, shall be due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner