93-180 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Advertising; Printing and mailing contractor

Topic

Taxability of Persons and Transactions

Date Issued

08-09-1993

August 9, 1993

Re: Request for Ruling: Retail Sales and Use Tax

Dear*********************

This will reply to your letter of October 7, 1992 in which you request a ruling concerning the retail sales and use tax application to the operations of your client.

FACTS

Your client is a company based in Maryland which mails out printed advertising and promotional sales materials (hereafter referred to as "materials") on behalf of its customers. It plans to have an agent move to Virginia and solicit orders for these materials from individual customers. For a fee, your client will provide the following services for its customers:

Sign up the customers to participate in the mail advertising program.
Have materials printed and mailed to households in the customer's general business area. These materials include discount coupons or similar materials designed to entice individuals to shop at a particular business or to buy a product.

The materials will be produced by a contractor, which may be located outside of Virginia. This contractor is responsible for printing and mailing the materials to the households specified by your client. Your client has requested a ruling on their requirement to file and pay retail sales and use tax.

RULING

Registration Requirement

Va. Code §58.1-612, copy enclosed, sets forth "nexus" requirements which give the Commonwealth the authority of requiring dealers to register for collection and remittance of the sales and use tax. The statute provides in part that a dealer shall be deemed to have sufficient activity within this state to require registration if he "[s]olicits business in this State by employees, independent contractors, agents or other representatives." Therefore, when the Taxpayer sends an independent sales agent into Virginia to solicit business, sufficient activity has been established to require registration for sales and use tax, even if the agent does not live or have an office in Virginia.

Advertising

Va. Code §58.1-608(A)(6)(e), copy enclosed, provides an exemption from the sales and use tax for "advertising", which is defined in Va. Code §58.1-602, copy enclosed, 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. Any person providing & advertising as defined herein shall be deemed to be the user or consumer of all tangible Personal property purchased for use in such advertising. (Emphasis added.)

In addition, §1 of Virginia Regulation (VR) 630-10-3, copy enclosed, defines an "advertising business" to mean, "[a]ny person or group of persons providing 'advertising'." (Emphasis added.) Therefore, a company, which solicits advertising from its clients to be placed in advertising and promotional sales materials for distribution to households, is considered to be an advertising business. As such, the fees charged by your client to its customers for providing advertising and having materials mailed to households are exempt from the retail sales tax.

As provided in the statute above, an advertising business is deemed a user and consumer of materials used in providing advertising. In addition, §2.B. of VR 630-10-3 provides that:

- [t]he tax applies to all purchases by an advertising business including, without limitation,...printing, including direct mail items, non-customized or stock mailing lists, handbills, brochures, flyers, bumper stickers, posters, and similar printed materials...whether or not any of such materials are intended for distribution out of state. (Emphasis added.)

Based on this regulation, the department considers all purchases of printed materials by an advertising business from a Virginia printer in conjunction with an advertising campaign to be subject to the tax regardless of whether the materials are shipped inside or outside of Virginia by the printer.

If an out of state Printer is used by the advertising business, only those materials shipped into Virginia by the printer are subject to the tax since the advertising business is considered to have made use of the material until it reaches its Virginia destination. However, in this situation, a credit may also be allowed as provided in Va. Code §58.1-611, copy enclosed, which states:

- A credit shall be granted against the taxes imposed by this chapter with respect to a person's use in the Commonwealth of tangible personal property purchased by him in another state. The amount of the credit shall be equal to the tax paid by him to another state or political subdivision thereof by reason of the imposition of a similar tax on his purchase or use of the property. The amount of the credit shall not exceed the tax imposed by this chapter.

In addition, VR 630-10-29(A), copy enclosed, further interprets this statute by stating, "The credit does not apply to tax erroneously charged or incorrectly paid to another state." Therefore, if the advertising business can verify that the out of state printer correctly collected tax for another state on the materials before they reached their Virginia destination, a credit will be allowed.

If a printer is a registered dealer who does not collect the tax or is not registered to collect the tax, your client must report and pay the use tax on a Consumer Use Tax Return, Form ST-7. I have enclosed information needed to register for Virginia Consumer Use tax as you have requested.

If further assistance is needed, please contact the department.

Sincerely,

W. H. Forst
Tax Commissioner

OTP/6484N

Rulings of the Tax Commissioner