Tax Type
Retail Sales and Use Tax
Description
Advertising; Communications Not Disseminated to General Public
Topic
Taxability of Persons and Transactions
Date Issued
08-27-1992
August 27, 1992
Re: Ruling Request: Retail Sales and Use Tax
Dear********************
This will reply to your letter seeking clarification of a ruling of the department, P.D. 88-15 (1/4/88) concerning the sales and use tax exemption for media advertising.
FACTS
You state that the above mentioned ruling misinterprets the advertising exemption by refusing to treat as "media," items not intended for dissemination to the general public, such as newsletters, brochures, portfolios, and similar communication devices used at trade shows, conventions and similar events. You contend that refusing to treat such communication devices as items of exempt media advertising ignores the intent of the General Assembly in enacting the advertising exemption to treat advertising agencies in the same manner as other providers of professional services, such as doctors, lawyers, and accountants.
You state further that all communication devices, including those not intended for dissemination to the public, should be deemed exempt from the tax when developed by an advertising agency. In support of this contention you cite the inclusion of "direct mail" in the definition of "media" in the department's advertising regulation, § 1 of Virginia Regulation (VR) 630-10-3, and state that direct mail is by definition "not intended for wide dissemination to the general public."
RULING
Va. Code §58.1-608(6)(e) exempts from the sales and use tax, "[a]dvertising as defined in §58.1-602." Va. Code §58.1-602 defines the term "advertising" 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."
The legislative impact statement for 1985 House Bill 1472, copy enclosed, reflects the legislative history of the current advertising exemption. The fourth paragraph in Item 13 on page 2 of the impact statement parenthetically states that: "For purposes of this legislation, the term "media" would be given its customary and ordinary meaning, i.e., newspaper, billboards, radio, television, magazines and similar items." (Emphasis added)
Each of the items of media advertising mentioned in the impact statement as well as in the definitional section quoted above are similar since they are all typically used by advertisers to deliver their messages to large segments of the public. Thus, the department's position as set forth in P.D. 88-15 has not been shown to be without basis in the law or in practical application.
In enacting this exemption, the General Assembly recognized the inherent differences between advertising agencies and other providers of professional services, such as doctors and lawyers, when it created a new exemption for advertising, rather than incorporate the exemption into the existing exemption for providers of professional services in Va. Code §58.1-608(5)(a). Further, the exemption does not extend to all advertising, but only to media advertising.
The enclosed impact statement also shows that in enacting the exemption the General Assembly was responding in large part to the Virginia Supreme Court's decision in WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.E. 2d 245 (1977). In WTAR, the Supreme Court supported the taxation of advertising services whenever a tangible end product was produced.
Further, the inclusion of "direct mail" in the definition of "media" in VR 630-10-3 does not make every communication device created by an advertising agency exempt as media advertising. Although the regulation does not define the term "direct mail," it has been recently defined as "mail usually consisting of advertising matter, appeals for donations or the like, sent simultaneously to large numbers of possible individual customers or contributors." (Emphasis added) Random House Dictionary of the English Language, 2d. Edition, (1987, unabridged), p. 559. Thus, direct mail is similar to other forms of media advertising which are targeted to reach large segments of the general population, such as newspapers, billboards, radio, television, and magazines.
Furthermore, while the regulation defines the term media to include "other modes of communication," it does not define it to include every mode of communication which might be developed by an advertising agency. Under the legal doctrine "noscitur a sociis" ("it is known from its associates,") the meaning of a word takes color and expression from the purport of the entire phrase of which it is a part, and it must be read in harmony with its context." Turner v. Commonwealth, 226 Va. 456, 309 S.E. 2d 337 (1983). Therefore, the phrase "other modes of communication" in the department's regulation must be read in harmony with the rest of the phrase, which refers to newspapers, magazines, billboards, broadcasting, etc. Thus, "other modes of communication" refers to those communication modes similar to newspapers, radio, television, magazines, billboards, etc., when created by an advertising agency.
However, based upon current policy and the strict construction of all exemption statutes long approved by the Virginia Supreme Court, see, e.g., Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E. 2d 511 (1973), I find no basis for revision of P.D. 88-15.
The department is currently in the process of revising the advertising regulation with the goal of addressing some of your concerns, such as the status of trade shows and seminar materials, specialty advertising and point-of-purchase advertising. Under the Virginia Administrative Process Act, the department offers interested parties an opportunity to comment on proposed regulations during the promulgation of new or revisions to existing regulations. Be assured that your comments and observations will be considered as we complete drafting of the revised advertising regulation. Additionally, as a longstanding interested party, your name is listed for receipt of the proposed advertising regulation during the comment period.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner