95-185 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Advertising; Direct mail services

Topic

Taxability of Persons and Transactions

Date Issued

07-21-1995

July 21, 1995

Re: Request for Ruling: Retail Sales and Use Tax

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

This will reply to your letter of March 1, 1995 seeking a ruling on the tax status of various purchases made by your client, ************* the "Taxpayer", used in the preparation of direct mail advertising.

FACTS

The Taxpayer, which is not an advertising business, purchases from a specialty photographer, either located within or outside Virginia, photo transparencies of images to appear in direct mail advertising brochures. The transparencies are then scanned to create an electronic image which is saved on diskette. The transparencies and diskette are submitted to a printer, located within or outside Virginia, for further processing. The printer may submit the transparencies and diskette to a photoprocessor for further work and the charges for the color separation work are included in the charges for the printing of the brochure.

Once the images are in a format suitable for printing, printing is done and the printer ships the finished product to a direct mail firm, located within or outside Virginia, for addressing and mailing. Finally, the mailing list for the mailings is provided by a service company which creates the mailing list. You seek a ruling on the tax status of each of the above transactions.

RULING

I will address each of the issues individually below.

Photo Transparencies: Code of Virginia §58.1-609.6(5) exempts from the sales tax charges for "advertising" defined in Code of Virginia §58.1-602 as:

- the 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. (Emphasis added.)

The term "media" applies to newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication. The department's longstanding policy has been that modes of communication which disseminate information to the general public qualify as media for purposes of the advertising regulation. In that the Taxpayer distributes its direct mail brochures to customers located throughout the United States, this activity would constitute media advertising as information is being disseminated to the general public.

Accordingly, a specialty photographer providing photo transparencies is providing an exempt advertising service under the above provision as the transparencies will be used in advertising in the media. See P.D. 94-360 (11/28/94), copy enclosed.

Printing: The Taxpayer's printed materials are delivered directly by the printer, either located in Virginia or another state, to a mailing service, either located within or outside Virginia, for shipment throughout the United States.

Code of Virginia §58.1-609.6(4) provides an exemption from the tax for:

- [c]atalogs, letters, brochures, reports, and similar printed materials, except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, ... when stored for twelve months or less in the Commonwealth and distributed for use without the Commonwealth .

If the printing is purchased from a Virginia or out-of-state printer and delivered to an out-of-state mailing house, the transaction is exempt from the tax as the Taxpayer will make no use of the brochures in Virginia. However, if the printing is purchased from a Virginia or out-of-state printer and delivered to a Virginia mailing house, the tax is due on that portion of the brochures which will be mailed to Virginia residents; those brochures mailed out of state will be exempt from the tax under the above provision provided they are stored for 12 months or less in the state. See P.D. 89-99 (3/15/89), copy enclosed.

Mailing List Services: The Taxpayer has engaged a processing service to create a mailing list from information in the Taxpayer's own customer database or from the processing service's database. You suggest that the lists are customized and thus exempt from the tax. The department traditionally has held that a mailing list produced to a customer's specifications is exempt from the tax as the true object of the transaction is to obtain the services of the list provider and not the tangible list. In such cases, the tangible list is deemed to be an inconsequential element of a personal service transactions. However, standard mailing lists are subject to the tax as they involve no special service element. From the information provided, it appears that the mailing list services purchased by the Taxpayer are in connection with the production of custom lists and thus are exempt from the tax. See P.D. 89-236 (9/11 /89), copy enclosed.

Direct Mail Services: The direct mail company receives the printed brochures and mailing information. It addresses, sorts, applies postage and sends the completed brochures to the post office for mailing to customers. You suggest that this represents a nontaxable service.

As explained in P. D .86-9 (1/3/86), copy enclosed, when mailing services alone are provided, no tax is due from the customer. However, in instances in which mailing services are provided in connection with the sale of printed materials, including labels which the mailing service itself provides, the tax is due on the total charge for the printing and services provided, regardless of whether the direct mail company is located within or outside Virginia.

I trust this addresses all your concerns but should you have any other questions, please contact**********in my Office of Tax Policy at*************.

Sincerely,

Danny M. Payne
Tax Commissioner

OTP/9478H

Rulings of the Tax Commissioner