Tax Type
Retail Sales and Use Tax
Description
Government transactions; State and local transactions; Printed materials purchased on behalf of government
Topic
Taxability of Persons and Transactions
Date Issued
10-31-1996
October 31, 1996
Re: Request for Ruling: Retail Sales and Use Tax
Dear**********
This is in response to your letter of October 14, 1996, regarding certain transactions conducted by ********* (The"Taxpayer").
FACTS
The Taxpayer is an advertising agency which provides concept and design services for television, radio, brochure and other media advertising projects. To support these activities, the Taxpayer makes purchases of tangible personal property, including printing.
One of the Taxpayer's clients is an agency of the Commonwealth. The state agency is exempt from the tax on its purchases of tangible personal property pursuant to Code of Virginia § 58.1-609.1(4). The Taxpayer currently uses two methods for billing outside costs when making purchases in connection with advertising projects for the state agency:
(1) In the first method, the Taxpayer purchases goods and services, pays the vendors directly, and then bills the state agency for the total cost of the project.
(2) In the second method, the state agency itself orders goods and services directly from the vendors. The invoices (between the state agency and vendors) are forwarded to the Taxpayer for payment. The Taxpayer pays the invoices and subsequently bills the state agency to be Reimbursed for the payments.
You request a ruling on the application of the tax to these transactions.
RULING
The department previously addressed transactions involving advertisers and their tax-exempt clients in the enclosed Public Document 93-113 (4/29/93). As noted, purchases of tangible personal property by the advertiser are taxable regardless of any exemption available to the client. Conversely, if the client itself makes purchases, the client may make such purchases exempt of the tax by providing its vendors with certificates of exemption.
In the instant case, the state agency orders the property from the vendor and is invoiced by the vendor. Provided that the purchaser in this transaction is the state agency, no tax would be imposed on this transaction because of the state agency's statutory exemption. The exemption is applicable regardless that the invoice is paid by the Taxpayer. Further, and because the sale is from the vendor to the state agency (and not to the Taxpayer), the Taxpayer is not required to pay the tax on the transaction.
I would also remind the Taxpayer of legislation enacted by the 1995 General Assembly which affects Virginia advertising businesses. Effective July 1, 1995, certain printed materials may be purchased exempt from the tax by Virginia advertising businesses provided these printed materials are (1) stored in Virginia for twelve months or less, and (2) distributed for use outside of Virginia. As set out in Code of Virginia § 58.1-609.6(4), these printed materials include "catalogs, letters, brochures, reports and similar printed materials, except administrative supplies...."
Please contact ******* in my Office of Tax Policy at ******* if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11726I
Rulings of the Tax Commissioner