Tax Type
Retail Sales and Use Tax
Description
Purchaser of printing services; Advertising business
Topic
Taxability of Persons and Transactions
Date Issued
04-23-1992
April 23, 1992
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter of September 16, 1991 in which you seek reconsideration of my August 30, 1991 determination (P.D. 91-197) regarding a sales and use tax assessment for * * * * * (the Taxpayer).
FACTS
The Taxpayer is an advertising, marketing and public relations business that purchases printing on behalf of its clients. The Taxpayer seeks a correction of an assessment for the period October 1987 through September 1990 for sales and use tax on printed materials purchased on behalf of its clients. The Taxpayer contends that P.D. 88-62 (4/6/88) which was referenced in the August 30, 1991 letter is not applicable to this case.
Additionally, the Taxpayer inquires as to whether the department makes a distinction between purchases of media by advertising agencies from purchases made by nonadvertising businesses.
DETERMINATION
As provided in P.D. 88-62, an advertising business is deemed to be the user or consumer of all tangible personal property purchased for use in providing advertising services. Virginia Regulation (VR) 630-10-3 specifically provides that the tax applies to purchases of printing, whether or not the printed materials are intended for distribution outside the state. Therefore, printed materials purchased by an advertising agency on behalf of a client are subject to the tax, whether or not the materials are for an instate or out-of-state client, and regardless of the existence of any exemption which may be enjoyed by its client.
While the Taxpayer may have directed the printer to ship the printed materials to the client out-of-state, the Taxpayer was the legal purchaser of the printed materials and subject to the tax as set forth above. The interstate commerce exemption is not applicable as the provision of media advertising services is not considered a sale of tangible personal property and thus would not serve to exempt the transaction.
Printing purchased by an advertising agency for a nonadvertising campaign for resale to a client may be purchased free of the tax under the resale exemption. Only in such an event would the interstate commerce exemption under Va. Code § 58.1-608(A)(10)(d) or the exemption for printed materials for out-of-state distribution under Va. Code § 58.1-608(A)(6)(d) potentially apply.
Advertising services are exempt from both the sales and use tax in Virginia, regardless of whether the advertising business is located within or outside the Commonwealth. Thus, a Virginia customer receiving advertising services from an out-of-state advertising business would not be liable for the use tax on those services and an out-of-state customer would not have to pay Virginia sales tax on services by a Virginia advertising business.
The burden of proving that the tax does not apply rests with taxpayers. Each purchase or sale transaction stands on its own and must be analyzed individually as to how the tax applies. Therefore, unless a taxpayer can demonstrate that the transaction is an exempt purchase, the tax would apply.
Finally, the department has held, that when an advertising business contracts with a photographer for the provision of specific photographs for use in a specific client's advertising campaign, the photographer is acting as an "advertising business" under VR 630-10-3. Therefore, any photographs purchased by the advertising business specifically for a campaign, and subsequently provided to its client, qualify for exemption from the tax.
Consequently, I am asking the department's Technical Services Section and Richmond District Office to review the Taxpayer's audit and make any necessary changes with respect to this issue. It is possible that some additional information may be required from the Taxpayer in order to verify that photographs were purchased for a specific advertising campaign. Upon completion of this review, a revised Notice of Assessment will be sent to the Taxpayer.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner