Tax Type
Retail Sales and Use Tax
Description
Television broadcasting
Topic
Collection of Delinquent Tax
Date Issued
09-25-1996
September 25, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This is in reply to your letter in which you seek correction of sales and use tax assessed to ******** (the "Taxpayer"), for the period June 1992 through May 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates as a television broadcaster of 24-hour local news programming for three jurisdictions. As a result of the department's audit, the Taxpayer was assessed tax on dub fees charged to viewers in connection with providing copies of programming via video tapes. The Taxpayer protests the tax and views its dub fee as a nontaxable reimbursement for the provision of a service
In the event that the department upholds the tax, the Taxpayer requests that the tax liability be reduced by 33% as this represents an approximation of sales of video tapes to viewers outside Virginia.
DETERMINATION
Code of Virginia § 58.1-609.5(1) provides a sales tax exemption for "[p]rofessional, 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 true 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. If the true object of the transaction is to secure the tangible personal property which the services produce, then the entire charge, including services provided, will be taxable.
Upon request, the Taxpayer searches its files and pulls a master video. The Taxpayer then transfers the requested segment from the master to a common VHS video tape. The Taxpayer charges a dub fee for the requested video. While the Taxpayer may view this transaction as a service because it is labor intensive, the true object sought by the viewer is to obtain a tangible copy of previous news programming. The transfer of tangible personal property is critical to the transaction because the programming on the tape would not be useful without the actual tape. As such the transaction is taxable.
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." The dub fee is charged by the Taxpayer to offset its cost in providing a copy of a programming segment in tangible form to a viewer. Under the statute, the dub fee represents the sales price of the copied video tape. As such, the sales tax was properly assessed on the dub fees in the audit.
I do not find basis to grant your request to reduce the assessment as you have not provided documentation to support your claim that 33% of the video sales were sent to viewers outside Virginia. I will allow 60 days from the date of this letter for receipt of such documentation. If the information is not received within that time, you will receive an updated bill with interest accrued through the date of your letter of protest. In addition, I will allow a credit against the audit liability for the tax paid on the video tapes that were resold to viewers. The Taxpayer must provide documentation that such tapes were not used for any other purpose prior to being resold.
Please forward the information to *******Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. If you have additional questions, you may contact ***** at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10377J
Rulings of the Tax Commissioner