Tax Type
Retail Sales and Use Tax
Description
Services; Professional or Personal; Word Processing Products
Topic
Taxability of Persons and Transactions
Date Issued
06-24-1992
June 24, 1992
Re: Request for Ruling: Retail Sales & Use Tax
Dear******************
This will reply to your letter of December 18, 1991 in which you seek a ruling on the applicability of the sales and use tax to various transactions engaged in by your company,************** (the "Taxpayer").
FACTS
The Taxpayer operates a secretarial shop which performs a variety of tasks for its customers utilizing word processors and computers to produce its final products. In most instances the material used to produce the products is stored on the computer or on floppy diskette.
It seeks a ruling on the applicability of the sales and use tax to various transactions in which it engages.
RULING
Specifically you ask for clarification of the applicability of the tax on work performed from a computer/word processor which is generated from a computer file that has been in existence in excess of 12 months. The age of the file, however, has no bearing on the taxability of various transactions involving the stored information.
I will address the various transactions raised in your letter as well as other transactions generally engaged in by word processing firms individually below.
Word processing, generally - As the enclosed public document (P.D. 90-218 (12/14/90)) indicates, the department has traditionally held that companies engaged exclusively in typing or word processing are providing a personal service, rather than selling tangible personal property. However, if a word processing company goes beyond the rendition of a service and also bills its customers for the production of multiple copies of a document, it is engaged in making retail sales of tangible personal property and must charge the tax. However, separately stated charges for editing and formatting services are tax exempt.
Likewise, if information stored on the Taxpayer's computer or on diskette provided by one of its customers is used to create repetitive letters, even those with slight variations to personalize essentially the same letter, the tax applies to the total charge for the provision of such letters, except for separately stated charges for editing and formatting.
Charges for merely updating/modifying information are nontaxable.
Labels - Also as explained in the enclosed public document, the true object sought by a client in purchasing mailing labels is the acquisition of the tangible labels themselves. Thus since labels are themselves physically separated and attached to something, and not merely intangible information, they are taxable. In instances where the Taxpayer's client furnishes a data base of addresses and the Taxpayer processes the file, supplies the blank labels and prints the address file on such, the entire transaction (not just the cost of the blank labels) is taxable. Mailing services provided in connection with the above transaction and in connection with any sale of tangible personal property are taxable. The tax would apply in the above manner to the preparation of the address label portion of the post card included with your letter.
However, when labels are supplied by a customer so that addresses stored in a database can be printed for mailing and the Taxpayer uses its technology to sort the file, print the address file, affix the label to the mailer (which is also supplied by the customer), and deliver the documents to the post office, the entire transaction is deemed a nontaxable service. This situation is readily distinguishable from transactions in which information is converted onto a diskette furnished by a customer. Such conversion has been deemed by the department to be the taxable fabrication of tangible personal property since the transfer of data from one diskette onto a blank diskette constitutes a change in the form, state and configuration of the blank diskette. (see P.D. 86-22 (1/16/86), copy enclosed)
Printed materials stored for 12 months or less in the state and for distribution outside Virginia - It should be noted that Va. Code §58.1-608(A)(6)(d) provides an exemption from the sales tax for catalogs, 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 Virginia and distributed for use outside Virginia. Therefore, if the Taxpayer produces any letters, brochures, etc., which are for storage in Virginia for twelve months or less for distribution outside the state, they are not subject to the tax. Taxable administrative supplies include, but are not limited to, letterhead, envelopes, and other stationary, invoices, billing forms, payroll forms, price lists, time cards, computer cards and similar supplies.
Printing address directly on postcards - Whenever the Taxpayer merely inserts names and addresses on pre-printed envelopes, forms or cards already containing generic information provided by its clients, the tax will not apply to the charge for such service. However, charges for these services will be subject to the tax when provided in conjunction with the sale of taxable documents by the taxpayer.
As you requested, I have enclosed copies of the laws and regulations relating to this matter.
I trust the above answers your questions, but please contact the department should you have any others.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5834H
Rulings of the Tax Commissioner