94-356 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Advertising; Leases and rentals; Sign manufacturer

Topic

Taxability of Persons and Transactions

Date Issued

11-23-1994

November 23, 1994

Re: §58.1-1821 Application: Retail Sales and Use Tax

Dear*******

This will reply to your letter of May 24, 1994, concerning your client,***********(the "Taxpayer") and the audit assessment of sales and use tax for the period March 1, 1990, through February 28, 1993.

FACTS

The Taxpayer fabricates signs that typically identify the customers' names or the names of special events. In order to inform the public of the customer or event location, the Taxpayer also rents to customers large air balloons on which the signs are placed. When the Taxpayer invoices the customers for the signs and balloons, the tax is applied to the charge for the sale of the signs; however, no tax is charged for the rental of the balloons. An audit assessment was issued for tax on the rental proceeds from the balloons. The Taxpayer contends that the signs and the balloon rentals are considered advertising, as defined in Code of Virginia §58.1-602 and are exempt from the tax, as provided in Code of Virginia §58.1-609.6(5).

DETERMINATION

- Virginia Regulation (VR) 630-10-100 provides that:
  
  The tax applies to the charge for the manufacture or fabrication of signs.... The tax applies to the total charge for the finished product including the labor involved in the construction or painting of the sign....

Generally, if a person fabricates a sign for sale to a customer, then the total sales price of the sign, including the labor to fabricate the sign, is taxable. Additionally, the fabrication of signs is not deemed to be exempt media advertising under VR 630-10-3 (Advertising). Therefore, the Taxpayer, in this case, was correct to charge the tax on the sales price of the fabricated signs.

- VR 630-10-57 provides that:
  
  Any person engaged in the business of leasing or renting tangible personal property to others is required to register as the dealer and collect and pay the tax on the gross proceeds.

When a business leases or rents tangible personal property to a customer, the tax should be collected unless a valid exemption certificate is supplied to the business by the customer. In this instance, since the balloons are tangible personal property, the Taxpayer was liable for collecting tax on the gross proceeds from the rental of the balloons. As a result, tax was appropriately assessed in the audit.

The Taxpayer claims that it was advised by a department representative several years ago to treat itself as an advertising business; however, this account is inconsistent with the Taxpayer's actions in this case, i.e., the collection of tax on the signage portion of its transactions. Additionally, VR 630-10-100 provided clear guidance to the application of the tax to signage; as such, the Taxpayer reasonably should have been aware of its potential liability.

Based on this information, there is no basis for adjusting the audit. The balance of the assessment is ******which represents tax of *****and interest of******, updated to the date the appeal was received. If this balance is paid within the next 30 days, the accrued interest subsequent to that time will be abated. If you have any questions, please feel free to contact ********of my staff at********

Sincerely,

Danny M. Payne
Tax Commissioner

OTP/7440N

Rulings of the Tax Commissioner