Tax Type
Retail Sales and Use Tax
Description
Temporary storage for a third party
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
06-29-1994
June 29, 1994
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear**********
This will reply to your letter concerning the correction of a sales and use tax audit assessment for********** (the "Taxpayer") for the period January 1, 1987, through December 31, 1989.
FACTS
The Taxpayer is a real estate developer and builder. They state that an advertising business provides advertising/marketing services to them, which include the planning and preparation of flyers, brochures, posters, and signs. They believe that these items are exempt from the tax as advertising under Virginia Regulation (VR) 630-10-3.
In addition, the Taxpayer's employee, who was the president of the company, ordered fitness equipment for his personal use, which was delivered to the Taxpayer's office during working hours. In that the employee was not at the office, the Taxpayer paid for the equipment on behalf of the employee. Approximately one month later, the employee reimbursed the Taxpayer for the payment. In that the tax was not paid, the Taxpayer was held taxable in the audit. The Taxpayer contends that it did not purchase the equipment and they should not be taxed for temporarily loaning the money to the employee.
In a phone conversation with a member of my staff, you indicated that the Taxpayer has gone out of business. However, according to the State Corporation Commission, the Taxpayer is still a register corporation.
DETERMINATION
Advertising
Subdivision 5 of Va. Code §58.1-609.6, copy enclosed, exempts from taxation charges for "advertising," which is as defined in Va. Code § 58.1-602, copy enclosed, as:
-
- [T]he planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision.
- [T]he planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision.
In this instance, brochures, flyers, and signs that were created by the advertising business as a result of advertising services are exempt from the tax. However, reprints of brochures and flyers, directional signs, entrance signs, and similar items are considered the provision of tangible personal property instead of advertising as defined above. Therefore, charges for the sale of such items are taxable. As the printing which related to advertising was removed from the original audit, it is not necessary to adjust the assessment.
Payment for Equipment on Behalf of Employee
Va. Code §58.1-602 provides that "use tax" refers to, "[t]he tax imposed upon the use, consumption, distribution, and storage as defined herein." "Storage" is defined in this section to mean, "[a]ny keeping or retention of tangible personal property for use, consumption, or distribution in this Commonwealth...." Further, "distribution" is defined in this section to mean, "[t]he transfer or delivery of tangible personal property for use, consumption, or storage by the distributee...." (Emphasis added.)
Therefore, a person is liable for the use tax on the cost of tangible personal property which it pays for and stores the property for subsequent transfer or delivery to another person. In this instance, the Taxpayer paid for and stored fitness equipment which it subsequently delivered to the employee. Though the Taxpayer was reimbursed for the equipment, the Taxpayer is still subject to the use tax. In addition, as indicated in a letter of January 7, 1991, to the Taxpayer from the department (copy enclosed), the legal incidence for paying the sales and use tax is on the purchaser when the seller does not charge the tax. Consequently, in this instance, the Taxpayer is liable for paying the tax. The Taxpayer may be able to obtain from the employee a reimbursement of the tax assessed in the audit.
Based on the information, there is no basis for adjusting this audit. With interest updated through the date your appeal was received by this office, there is a balance of ******(tax, penalty, and interest of ****** and***************respectively). If this amount is paid within 30 days, I will waive the; interest that has accrued since that date. Your payment should be directed to **********Office of Tax Policy, Department of Taxation, P. O. Box 1880, Richmond, Virginia 23282-1880.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/4836N
Rulings of the Tax Commissioner