Tax Type
Retail Sales and Use Tax
Description
Advertising; Graphic Design
Topic
Taxability of Persons and Transactions
Date Issued
04-14-1992
April 14, 1992
Re: Request for Ruling: Retail Sales & Use Tax
Dear****************
This will reply to your letter of December 30, 1991 and *********letter of April 2, 1992 seeking a ruling on the applicability of the sales tax to various transactions in which your company, ************(the "Taxpayer"), may engage.
FACTS
The Taxpayer is a graphic design firm which typically develops logos/corporate identity systems, letterhead designs, brochures, newsletters, direct mail, packaging design, ads and other similar communications vehicles. It primarily bills its customers for creative services, production, photography, and printing.
You seek a ruling on the applicability of the tax to the various services and products provided to clients.
RULING
I have enclosed copies of previous rulings of the department relating to the services provided by the Taxpayer. P.D. 88-304 (10/31/88) explains the tax treatment of computer graphics, corporate identity proposals, brochures, etc. P.D. 90-60 (4/12/90) relates to graphic design in the development of packaging. Below, I will explain the advertising exemption as it generally relates to the Taxpayer and respond to the specific questions raised in your letter.
Generally
Va. Code §58.1-608(A)(6)(e) provides that the tax does not apply to charges for the provision of "advertising" which is defined in Va. Code §58.1-602 as "[t]he 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." Thus, the total charges for any of these items by an advertising business (defined in Virginia Regulation (VR) 630-10-3, copy enclosed, as any person or group of persons providing "advertising") is not subject to the tax, whether or not such charge includes charges for one or more items of tangible personal property conveyed to the advertising business' client.
The term "media" is very broadly defined in the above regulation to include "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." To determine if a particular mode of communication developed by an advertising business qualifies for tax exemption as "media advertising", it is necessary to determine whether the communication mode is intended to convey promotional information to the public generally.
All advertising businesses' purchases of tangible materials and supplies for use in providing exempt media advertising services are subject to the tax, and may not be purchased pursuant to resale certificates of exemption. (See section 2(B) of VR 630-10-3 for examples of taxable purchases by advertising businesses.)
Nonmedia advertising services, such as the production of an in-house training manual, however, are taxable. Thus, for such services, the Taxpayer should add the tax to the total charge for producing such manual, including any charges for concept and creative design. However, the Taxpayer may purchase pursuant to resale certificates of exemption any tangible personal property which becomes a component part of the manual such as printing, photographs, etc.
Regarding the sample invoice provided, if the brochure is for use in media advertising the total charge for such would be exempt from the tax. However, if the brochure is for a nonmedia purpose, the total charge, including creative services, is taxable.
Now I will respond to the specific questions you asked in your letter.
1. Creative services conducted in connection with the provision of media advertising are nontaxable, however those conducted in connection with the provision of nonmedia advertising are taxable, whether or not separately stated on the invoice.
2. As explained above, any tangible personal property purchased for use in connection with media advertising are taxable to the Taxpayer. Any tangible personal property which becomes a component part of nonmedia advertising may be purchased exempt from the tax.
3. Photographic services, which involve a daily rate (creative fee) for the photographer based upon the number of hour/days required and charges for photographer's assistants, generally are taxable. VR 630-10-82 provides that the tax is applicable to the total charge to the customer for a photograph, slide, etc., including but not limited to charges for labor, photocomposition, setting design, photography time, and any other components of the charge, regardless of whether such components are separately stated. However, the Taxpayer may provide a photographer with a certificate of exemption (Form ST-10A, copy enclosed) when purchasing photographic services in connection with specific media advertising services for a client. However, when the Taxpayer makes purchases of photographic services not in connection with the development of a specific media advertising campaign it is required to pay the tax on such purchases.
In addition, the tax generally applies to printing, including direct mail items, noncustomized or stock mailing lists, handbills, brochures, and similar printed materials for use in the development of a specific media advertising campaign. However, printing purchased for resale as part of nonmedia advertising may be purchased exempt from the tax. In addition, pursuant to Va. Code §58.1-608(A)(6)(d) purchases of printed materials which are stored for twelve months or less in Virginia and distributed for use without the state would be exempt from the tax when purchased by an advertising agency for use only in nonmedia advertising.
4. With media advertising services, the Taxpayer may not pass the sales or use tax on to a customer as a tax. Instead it should take the amount of the tax into consideration in determining the charge for its services.
5. The Taxpayer must pay the use tax on tangible personal property purchased under a resale exemption certificate which is used for purposes other than resale - such as in the provision of media advertising services.
6. A completed (with number) and signed certificate of exemption (Form ST-10, enclosed) must be provided to a dealer when making an exempt purchase for the purposes of resale. However, dealers may retain a copy of the certificate on file to eliminate the need for the Taxpayer to provide one each time purchases are made.
When the Taxpayer makes a sale of media advertising services to another advertising agency, it must receive a certificate of exemption (form ST-10A), from the agency substantiating that the advertising product is intended for use in the media. An advertising agency may purchase nonmedia advertising services from the Taxpayer under a resale exemption certificate, Form ST-10.
The designation (profit v. nonprofit) of the organization purchasing the Taxpayer's services generally will have no bearing on the taxability of the transaction in Virginia. Unless a nonprofit organization is specifically exempted under Va. Code §58.1-608 from the sales tax, it must pay the tax like everyone else. However, some nonprofit organizations may purchase exempt from the tax nonmedia advertising products provided they provide the Taxpayer with a certificate of exemption.
Please note that the department is currently in the process of revising its regulation relating to advertising. We will include you on our mailing list to receive information concerning any proposed changes to the regulation during the revision process.
Please contact the department if you have any further questions regarding this matter.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5857H
Rulings of the Tax Commissioner