Tax Type
Retail Sales and Use Tax
Description
Interstate transactions; Property stored in Virginia
Topic
Taxability of Persons and Transactions
Date Issued
05-09-1996
May 9, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***********************
This will reply to your letter of February 23, 1996 in which you seek correction of the sales and use tax audit of the ***** (the "Taxpayer") for the period of February 1992 through January 1995.
FACTS
The Taxpayer is a national nonprofit association located in Virginia. The Taxpayer holds several conventions during the year, usually outside the state of Virginia. As a course of business, the Taxpayer purchases videos for presentation at these conventions. These videos are purchased from an out-of-state vendor and delivered to the state where the convention is being held. Subsequent to the conventions, the video is brought back to Virginia for archival purposes. The Taxpayer takes the position that first use of the videos is made outside the state of Virginia and is therefore not subject to the Virginia tax. In addition, the Taxpayer takes the position that should the department find that the videos are taxable, the value of the videos is minimal, if not diminimus, at the point it is brought into Virginia for storage purposes.
The Taxpayer is also taking exception to the assessment of audit penalty. The majority of the audit liability is the result of the Taxpayer not accruing use tax on creative design work associated with printed matter. The Taxpayer understood these costs to be not taxable as this area, and the purchase of production videos, had not been at issue in the previous audits of the Taxpayer.
DETERMINATION
Code of Virginia § 58.1-604 imposes the Virginia use tax on the cost of tangible personal property acquired for use outside the state of Virginia and subsequently brought into Virginia within six months of its acquisition. In interpreting this statute, Virginia Regulation (VR) 630-10-109 (copy enclosed) provides that "the use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." (Emphasis added).
As understood by this office, the sales tax on the videos in question was not paid to the state in which they were first used and the videos were brought to Virginia immediately following the conventions. In addition, it is also understood that subsequent to the first use presentation of the videos at the conventions, the videos were in fact used as reference materials, and in some cases portions of the videos were reused for future presentations. This being the case, the department does not feel the value of the videos is minimal upon being stored in Virginia.
The department has consistently held that the cost of video tapes for in-house use, such as the use made of the videos by the Taxpayer, is taxable to the party that contracts with the production company to produce the video. [See P.D. 87-105 (3/30/87) and P.D. 93-15 (1/29/93) enclosed]. The tax is applicable to the total cost of the video and for any services provided in creating the video, such as concept, design, production supervision, etc. For this reason, the department finds no basis for removing the videos from the audit, nor does the department find basis for taxing the videos for less than the actual cost price.
With regard to the waiver of audit penalty, Virginia Regulation (VR) 630-10-80 provides that the application of penalty to audit deficiencies is mandatory. This regulation, however, goes on to provide that, absent indications of fraud, penalty will be waived on the first audit of all taxpayers. It is indicated in your letter that creative design work and video tapes were not issues in the previous two audits of the Taxpayer. Based on this understanding, I will agree to waive the audit penalty associated with these areas as being first time audit issues. A revised assessment will be issued to the Taxpayer.
If you should have any questions, please contact *****Office of Tax Policy, at******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10882K
Rulings of the Tax Commissioner