Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal; Customized mailing lists
Topic
Taxability of Persons and Transactions
Date Issued
06-13-1996
June 13, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your letter of March 21, 1996 seeking correction of the sales and use tax audit of your client, *********(the "Taxpayer"), for the period of May 1992 through April 1995.
FACTS
The Taxpayer is in the direct mailing list brokerage business. In most cases the Taxpayer receives requests from customers for a mailing list containing specific data. The Taxpayer interviews its customers to determine what information is desired, researches available lists which will reach the target market, and recommends the data base provider based on quality of information, turn-around time, and cost. The mailing list is then provided to the Taxpayer's customer either by magnetic tape or by hard copy computer sheets. In cases where the information is provided to the customer by way of magnetic tape, the Taxpayer's customer or a third party service provider will print the addresses directly on envelopes or labels. In cases where the mailing lists are furnished on computer printouts, the actual printouts are cut into strips containing the names and addresses, paste is applied to the strips, and they are pasted on individual envelopes.
As the result of a recent sales and use tax audit, the auditor exempted the sale of customized mailing lists furnished by way of magnetic tape; however, the auditor taxed the sale of customized mailing lists furnished on computer printouts due to the fact the computer printouts themselves were transformed into mailing labels and applied to envelopes. The Taxpayer is taking exception to this result based on the fact that the printed mailing lists were also customized.
DETERMINATION
Code of Virginia § 58.1-609.5(1) provides an exemption from the sales and use tax for "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made...." In addition, Virginia Regulation (VR) 630-10-97.1(C) provides that:
In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, 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.
It has been the longstanding policy of the department that mailing lists produced to a customer's specifications are exempt from the tax as the true object of the transaction is to obtain the services of the list provider and not the tangible lists. In such cases the lists are deemed to be inconsequential elements of a personal service transaction. [See P.D. 89-236 (9/11/89) and P.D. 95-185 (7/21/95)]. Standard mailing lists are subject to the tax as they involve no special service element. From the information provided, it appears the mailing lists sold by the Taxpayer are custom lists and thus are exempt from the tax and will be removed from the audit.
In response to your request that the department reconsider its policy with respect to the taxing of customized mailing lists provided by labels, the department finds no basis for reversing our position at this time. The "true object" sought in the purchasing of mailing labels is the acquisition of the tangible labels themselves. This same distinction was upheld in a State Supreme Court in the decision of Fingerhut Products Company, et. al.. v. Commissioner, 258 N.W. 2d 606, (1977).
If you should have any questions, please contact ****Office of Tax Policy, at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10979K
Rulings of the Tax Commissioner