Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting; Services; Professional or personal; Video clippings; Newspapers on CD-ROM
Topic
Taxability of Persons and Transactions
Date Issued
10-18-1994
October 18, 1994
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear**********
This will reply to your letter of July 7, 1994 seeking correction of a sales and use tax assessment to your company, ***********(the Taxpayer), for the period August 1990 through September 1993.
FACTS
The Taxpayer, an organization that promotes free press, free speech, and free spirit through various means, was audited and held liable for the tax on purchases of newspaper subscriptions on CD-ROM and charges for video cassettes provided in connection with a video "clipping" service. You maintain that the newspaper subscriptions on CD-ROM qualify for exemption from the tax under Code of Virginia 58.1-609.6(2). Furthermore, you maintain that the video cassettes are merely the medium for transmitting the findings of the "clipping" service and thus are nontaxable.
DETERMINATION
I will address each of the contested issues individually below.
Video Monitoring Service: The Taxpayer uses a video monitoring service through which it obtains on video cassette video clippings of television broadcasts which mention the organization and its programs.
Code of Virginia §58.1-609.5(1) provides an exemption from the retail sales and use tax for "professional, insurance or personal service transactions which involve sales as inconsequential elements for which no separate charges are made." Virginia Regulation (VR) 630-10-97.1 provides that in determining whether a particular transaction involving both the provision of services and the sale of tangible personal property is taxable, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including services provided, will be taxable.
Based on the information provided which indicates a high degree of "customization" for each separate client of the Taxpayer's vendor, and consistent with the department's determination in P.D. 86-216 (11/3186), copy enclosed, we find that the "true object" of the video monitoring service is the services rendered in selecting the desired information, rather than the tangible personal property used to convey the information.
Subscriptions on CD-ROM: The department recently ruled in P.D. 94-248 (8/12/94), copy enclosed, that publications provided on microforms or CD-ROM qualify as exempt publications under Code of Virginia §58.1-609.6(3) provided certain criteria are met. Specifically, the printed version of a publication must meet the exemption criteria provided for in §58.1-609.6(3), the microform or CD-ROM service must be available on a subscription basis with a frequency of delivery of at least four times a year, and subscribers must receive the microforms or CD-ROM at the normal subscription interval. From the information provided, it appears that the Taxpayer's CD-ROM subscriptions meet the above criteria and thus qualify for exemption from the tax.
Accordingly, the audit assessment will be revised to remove the tax and interest assessed with respect to the above issues.
If you have any questions regarding this matter, please let me know.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8258H
Rulings of the Tax Commissioner