Tax Type
Retail Sales and Use Tax
Description
Media advertising; Political posters and bumper stickers; Database information
Topic
Exemptions
Date Issued
05-15-1991
May 15, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This will reply to your letter of April 2, 1991, in which you seek correction of sales and use tax assessments on behalf of your client, ******** ("the Taxpayer").
FACTS
As a result of an audit of the Taxpayer for the period July, 1984 through April, 1990, the Taxpayer was held liable for the sales and use tax on tangible personal property obtained in connection with purchases of computer services and media advertising services .
The Taxpayer employs a computer service company ("the vendor") to maintain the Taxpayer's central database on the vendor's computer system. In connection with its provision of computer services, the vendor provides the Taxpayer with computer printed materials containing selected information from the Taxpayer's database. The provision of the computer printed items were held taxable as the sale and purchase of tangible personal property. The Taxpayer contests the tax on these items, contending that the vendor is providing nontaxable computer services and the property transferred to the Taxpayer is incidental to the provision of such services. Moreover, the Taxpayer asserts that prior audits of the vendor by the department deemed the vendor a provider of nontaxable services.
In addition, the Taxpayer purchased glossies, hand posters, bumper stickers and other advertising materials for use in media advertising campaigns. The materials were designed and produced by an out-of-state advertising business. The Taxpayer contests inclusion of these items in the audit on the basis that the transactions represent the purchase of nontaxable media advertising services under Virginia Regulation (VR) 630-10-3.
DETERMINATION
Based on additional information presented by the Taxpayer subsequent to the audit, I have confirmed that the department had previously determined that the sales made by the Taxpayer's vendor were exempt from the tax. Va. Code §58.1-608(5)(a) provides an exemption from the tax for:
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- Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made, nor services rendered by repairmen for which a separate charge is made.
As such, the tangible personal property provided in connection with the provision of the vendor's services to the Taxpayer will be removed from the most recent audit of the Taxpayer.
I caution the Taxpayer that if in the future the nature of the vendor's business changes and the department determines that such transactions are subject to the tax, the Taxpayer will be held liable for any unpaid tax on subsequent purchases. The vendor will by required to notify its customers that its charges are subject to the tax in the event that it is so determined.
Further, due to additional information supplied by the Taxpayer and a review of the invoices from the advertising business employed by the Taxpayer, I find that the invoices in question represent charges for the provision of media advertising services which are exempt from the tax under Va. Code §58.1-608(6)(e). VR 630-10-3, which interprets this Code section, provides in part:
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- The tax does not apply to charges by an advertising business for the provision of concept, writing, graphic design, mechanical art, photography and production supervision in the development of an advertising campaign, whether or not all aspects of the campaign are actually performed by the same advertising business.
Therefore, these items will also be removed from the audit.
The audit will be adjusted in accordance with the determination reached in this letter. The department's auditor will contact the Taxpayer within the next ten days to discuss the revisions necessary to comply with this determination.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner