Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal; Production of master videotapes
Topic
Taxability of Persons and Transactions
Date Issued
12-09-1996
December 9, 1996
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear************
This will reply to your letter in which you request a correction of the department's assessment issued to ************* (the "Taxpayer"), for the period February 1992 through December 1994. 1 apologize for the delay in our response.
FACTS
The Taxpayer is engaged in providing professional services to its members. The Taxpayer employed a video production firm to produce videotapes on subjects of interest to its members. By contract, the final product and copies are delivered to the Taxpayer. The copies are then resold to association members. The department's audit assessed use tax on the costs associated with the production of the master tape. The Taxpayer states that all video tapes are purchased for resale and that there are no master video tapes which are used for copying purposes. Accordingly, the Taxpayer requests that the audit be adjusted to remove the video production costs.
DETERMINATION
Code of Virginia §58.1 -602 defines the term "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 property sold, the cost of materials used, labor or service costs. Iosses or any other expenses whatsoever."
Code of Virginia §609.5(1) provides a sales tax exemption for "professional, 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, is taxable.
In reviewing the contract provided to the auditor, l note that the video production company specifically lists that a final script, master tape and VHS copies are deliverable to the Taxpayer. The department has consistently held that costs associated with producing a master video tape, which is used for generating copies, is taxable to the party contracting with the production company producing the video. [See P.D.'s 87-105 (3130187) and 93-15 (1129193) enclosed]. The tax is applicable to the total cost of the video and for any services in creating the video, such as concept, design, production supervision, etc.
In light of the wording of the contract, and the lack of any documentation to support the Taxpayer's contention that it does not receive any master tapes, l do not find any basis to allow for an adjustment to the department's audit. Accordingly, the balance of the department's assessment remains due and payable.
Please return your payment for tax and interest totaling ****** to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 60 days. If payment is not received within that time interest will accrue on the balance due from the original date of assessment. If you have any questions regarding this matter, please contact ************** of the department's Office of Tax Policy at,*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9907Q
Rulings of the Tax Commissioner