95-305 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Advertising; Media and non-media advertising

Topic

Taxability of Persons and Transactions

Date Issued

12-06-1995

December 6, 1995

Re: Ruling Request: Retail Sales and Use Tax

Dear*************:

This is in response to your letter of September 21, 1995 requesting a ruling on the application of the retail sales and use tax on various charges by a wholesale distributor ("Company A") to its customers.

FACTS

Company A is a wholesale distributor of grocery, dairy and frozen products, and provides retail support services such as marketing, training, and financial services. Currently, the total amount charged for products includes overhead costs for product acquisition, product storage, product handling, vendor discounts and various support services, except that shipping or delivery charges are separately stated on the invoice. In some instances, however, certain divisions of Company A bill a separate fee for overhead costs based on a fixed percentage of sales ranging from 2% to 5%.

Company A is now in the process of implementing a new marketing plan to provide its customers with the lowest possible cost of goods. The intent is to (i) eliminate the costs of advertising, marketing or other retail support services from the base (product) selling price, (ii) pass through manufacturer discounts to the retailers, and (iii) allow retailers to choose the specific support services they require.

Under this plan, all products will be sold FOB Company A's loading dock at its acquisition cost, plus storage and handling charges. Delivery service provided by Company A will be priced separately. Retailers who want support services will be allowed to separately purchase the amount and type of services they require. These retail support services include advertising, marketing, retail financial service, retail technology, retail training, retail store development, and franchise marketing programs.

It is my understanding that no tangible personal property will be furnished in connection with the provision of these services, except when brochures, posters or other printed materials are furnished in connection with advertising and marketing services.

Accordingly, charges for product acquisition cost, storage charge, handling charge, delivery charge and the various support service costs will be separately stated on the customer's invoice. However, since these separately stated charges are not independent of the products sold for resale, Company A maintains that all of these separate charges may be sold to its customers exempt of the tax as resale transactions and requests confirmation that it may take resale exemption certificates (Form ST-10) from its customers.

RULING

Code of Virginia § 58.1-603 imposes the sales tax upon the gross "sales price" of each item or article of tangible personal property sold at retail or distributed in Virginia. However, sales for resale are not taxable provided the seller receives a valid resale exemption certificate from the purchaser. Code of Virginia § 58.1-602 defines "sales price" as:

- ...the total amount for which tangible personal property or services are sold, including any services that are a Part of the sale...without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever. (Emphasis added).

Accordingly, under Company A's present invoicing procedures, no tax applies to the amounts charged for products, delivery and overhead costs, since the products are purchased for resale purposes only and valid resale exemption certificates are obtained from the purchaser. Under the proposed method of invoicing, the separately stated overhead and service charges are still considered services made in connection with the sale of tangible personal property, even though the customer is given the option of choosing whether it wants any of the retail support services offered by Company A. Therefore, regardless of whether Company A continues to use the current billing method or changes to the new method of billing for resale transactions, the total amount charged for products, including charges for related services and overhead costs, will not be subject to taxation, provided Company A receives valid resale exemption certificates from its customers.

As a general rule, charges for professional services are not subject to taxation. However, anyone providing professional services is deemed the user or consumer of the materials used in the provision of such services and is generally required to pay the tax on all of such purchases, unless a specific statutory exemption applies. While most professional services are not restricted from generally available exemptions in making certain purchases, Code of Virginia § 58.1-602 requires that anyone engaged in furnishing media advertising services pay the tax on all tangible personal property purchased in connection with such services. See P.D. 88-62 (4/6/88) and Virginia Regulation 630-10-3 (copies enclosed). Although no tax applies to charges for media advertising and marketing services, Company A is liable for the tax on all of its Purchases of printed materials and other tangible personal property which will be used or consumed in connection with a customer's media advertising campaign.

However, if non-media advertising-related items are sold to retail users or consumers, Company A is required to be registered with the Department of Taxation for the collection and reporting of the sales tax on the total amount charged its customers for providing such non-media advertising items. However, no tax will apply if such items are purchased for resale purposes only. Examples of non-media advertising items would be in-house franchise marketing manuals and other internal corporate or employee use items. See P.D. 88-90 (5/10/88), copy enclosed.

If you have any additional questions, please contact***********at ***************.

Sincerely,

Danny M. Payne
Tax Commissioner

OTP/10254R

Rulings of the Tax Commissioner