Tax Type
Retail Sales and Use Tax
Description
Advertising; Direct Mail Materials
Topic
Taxability of Persons and Transactions
Date Issued
03-11-1991
March 11, 1991
Re: Request for Ruling: Retail Sales and Use Tax
Dear*************
This will reply to your letter of April 26, 1990, in which you request a ruling on the applicability of the sales and use tax to charges for the printing of direct mail items.
FACTS
The Taxpayer is a mail processing business located in Virginia. Customers provide the Taxpayer with printed materials for mail processing. Printed materials are delivered to the Taxpayer in Virginia and mailed out by the Taxpayer through the U.S. Postal Service within 12 months. Some of the mailings go entirely to persons outside of Virginia; some go entirely to persons within Virginia; and some go to persons within and without Virginia. A prior ruling issued to the Taxpayer by the department, P.D. 89-99 (March 15, 1989), stated that a customer would generally be liable to its printer for the tax only on the sales price of printed materials that are shipped to the Taxpayer and mailed to Virginia addresses. It further stated, however, that any printed materials, except administrative items, distributed outside the state by the Taxpayer would be exempt.
The Taxpayer requests a ruling whether the exemption would also apply to the purchase of printing by a direct mail agency (the "Agency") for use in a direct mail promotional advertising campaign if the materials are intended for distribution out of state.
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." (Emphasis added).
Consistent with the foregoing, the department promulgated Virginia Regulation (VR) 630-10-3: Advertising, copy enclosed. The regulation defines "media" as including, "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication. The term "advertising business" is defined broadly to include, "any person or group of persons providing advertising." (Emphasis added).
Accordingly, when providing services in the production of advertising for placement in the "media," as defined above, advertising businesses, including direct mail advertising firms, 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.
§ 2(B) of the above 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, a direct mail agency makes a taxable use of and is subject to the sales and use tax for any printed materials which it purchases on behalf of customers for use in a direct mail promotional advertising campaign, regardless of how long such materials may be stored in the state and distributed for use outside Virginia and regardless of the existence of any exemptions which may be enjoyed by its customers. In such instances, the Agency should not pass the sales or use tax paid for any of its purchases on to its clients as a tax. Rather, the Agency should take the tax into consideration when setting its fees to customers for the provision of its services.
However, on those occasions when the agency creates direct mail items and in connection therewith purchases printing for some non-promotional purpose of its customer, the Agency may purchase such printing exempt of the tax pursuant to a resale certificate of exemption (Form ST-10), copy enclosed. The Agency would then collect the tax from its customers on the sales price of materials mailed to Virginia addresses. A customer could provide the Agency with a properly completed Form ST-10A, copy enclosed, for an exemption from the tax under VR 630-10-18.1 and VR 630-10-86 on the portion on those non-promotional materials mailed outside of Virginia.
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