Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting
Topic
Taxability of Persons and Transactions
Date Issued
05-02-1997
May 2, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear******************
This is in reply to your letter of March 3, 1997, in which you request a ruling on the applicability of the Virginia retail sales and use tax to certain transactions by your client, Corporation "X" (the "Taxpayer").
FACTS
The Taxpayer is a nonprofit corporation qualifying for exemption from taxation under Internal Revenue Code (IRC) § 501(c)(6). The Taxpayer sells periodicals and publications by mail order to customers throughout the country. The Taxpayer also conducts seminars for members of a certain profession throughout the country.
The Taxpayer sets forth several scenarios regarding the sale of publications and other materials in several different formats, and requests the department's ruling as to the taxable status of each transaction listed.
DETERMINATION
Prior to any response I feel it is necessary to provide some general information relating to certain subjects.
Application of the Sales and Use Tax
Code of Virginia § 58.1-603 levies and imposes a sales tax "upon every person who engages in the business of selling at retail or distributing tangible personal property." Code of Virginia § 58.1-604 levies and imposes a tax "upon the use or consumption of tangible personal property."
Nonprofit organizations
There is no general exemption from the Virginia retail sales and use tax for nonprofit organizations. The only exemptions from the tax are set out in Code of Virginia §§ 58.1-609.1 through 58.1-609.13. The Virginia courts have consistently required strict construction of these exemptions, i.e., where there is any doubt as to the application of an exemption, the doubt is resolved against the one claiming the exemption.
Subscriptions/Publications
Code of Virginia § 58.1-609.6.3 provides an exemption from the retail sales and use tax for "any publication issued daily, or regularly at average intervals not exceeding three months ..., except that newsstand sales of the same are taxable." (Emphasis added.)
The department has traditionally relied on the definition of "publication" as upheld by the Virginia Supreme Court in Jefferson Publishing Co. v. W.H. Forst, 217 Va. 988, 234 S.E.2d 297 (1977), in determining whether various printed materials qualify as exempt publications.
Advertising
Code of Virginia § 58.1-609.6.5 provides an exemption from the sales and use tax for "advertising", which is defined in Code of Virginia § 58.1-602 as, "the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting and other media...."
Title 23 of the Virginia Administrative Code (VAC) 10-210-42 provides that charges for placing or running advertising in the media are not subject to the tax. This same section also defines "media" as including newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication.
Questions
In light of the forgoing, l shall respond to the Taxpayer's questions as presented.
1-A. The Taxpayer has established that the material in question is published, sold and distributed on an annual basis. While the publication is available to the general public, it does not meet the interval test as provided in Code of Virginia § 58.1-609.6.3. Accordingly, the sale of such publications would be taxable.
1-B. The Taxpayer, as in 1-A, has established that the materials are published in a printed or written format on an annual basis. Accordingly, the provisions of Code of Virginia § 58.1-609.6.3 do not apply, and the sale of such materials are taxable.
1-C. The Taxpayer, as in 1-A, has established that the materials are published in a printed or written format on a monthly basis. As the publications are sold to the general public, and meet the interval test provided in Code of Virginia § 58.1-609.6.3, the sale of the publication is exempt of the tax, except that over-the-counter or newsstand sales are taxable.
1-D. The Taxpayer, as in 1-A, has established that the materials are published in a printed or written format on an annual basis. Accordingly, the provisions of Code of Virginia § 58.1-609.6.3 do not apply, and the sale of such materials are taxable.
2. The Taxpayer questions the taxability of subscription fees for publications described in 1-C. As the materials published in 1-C meet the criteria established in Code of Virginia § 58.1-609.6.3, the subscription fees would not be subject to the tax.
3-A through D. The Taxpayer questions the application of tax to advertisers for advertisements, inserts/supplements placed directly in the publications described in issues 1-A through D. Charges for the placement of advertising in the media are services and are not considered taxable. This holds true for the placement of such advertising in the publications the Taxpayer distributes, even if the publication does not meet the interval test established in Code of Virginia § 58.1-609.6.3.
4-A through 5-D. The Taxpayer questions the application of the sales tax to the publications listed in issues 1-A through D on diskettes, or CD-ROM. I have enclosed a previous ruling, P.D. 94-315 (10/18/94), which addresses the issue of publication subscriptions on CD-ROM. The ruling allows for the exemption to such a medium, and other like mediums (diskettes), provided the diskette or CD-ROM meet the same criteria established in Code of Virginia § 58.1-609.6.3. As the diskettes in 4-A, B, and D, and CD-ROM in 5A, B and D do not meet the interval test as previously stated, such sales would be taxable. The tax would not apply to the diskettes in 4-C, or CD-ROM in 5-C, however, as the interval test has been met.
6-A through D. The Taxpayer questions the application of the sales tax to the licensing to others of the right to reprint information contained in publications listed in 1-A through D.
Code of Virginia § 58.1-603 imposes the sales tax upon "each item or article of tangible personal property ... sold at retail ... in this state." The term "sale" is defined in Code of Virginia § 58.1-602 as "any transfer of title or possession ... of tangible personal property." I have enclosed a copy of a previous ruling, P.D. 87-97 (03/27/87), which sets forth the department's longstanding policy with regard to licensing when related to the transfer of tangible personal property, or with regard to the granting of an intangible right or privilege. It would appear that the licensing of a right to reprint information contained in publications described in issues 1-A through D, would be a nontaxable transaction. This response is based upon the facts as presented and would not be applicable if the licensing of the right also included the transfer of tangible personal property as set forth in P.D. 87-97.
7. The Taxpayer questions the applicability of tax to the sale of mailing lists, on diskettes, consisting of the names of the members of Corporation "X", the Taxpayer. Title 23 of the Virginia Administrative Code (VAC) 10-210-4040.D, copy enclosed, 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.
Accordingly the department has traditionally held that a mailing list produced to a customer’s specifications is exempt from the tax as the true object of the transaction is to obtain the service of developing a specific and unique list, and not the tangible list itself. The tangible list is deemed to be an inconsequential element of the personal service transaction. Standard mailing lists and the medium on which they are provided, however are subject to the tax as no special service element is involved in the production of such a list. Based on the information provided the mailing list sold by the Taxpayer would constitute a taxable sale.
8. The Taxpayer questions the applicability of the tax to video cassettes containing training sessions intended for members of a professional service industry.
Code of Virginia § 58.1-609.6.6, copy enclosed, was added by the 1995 Session of the Virginia General Assembly, and exempts from the tax audiovisual works which are produced for licensure, distribution, commercial exhibition, broadcast, or for use in the production of another exempt work. The department's interpretation of this exemption allows for its application to feature film, program, and documentary producers, audiovisual production companies, and others engaged in the production of tapes for use in the above manner. P.D. 95-198 (07/31/95), copy enclosed. The department further interprets that the exemption shall not apply to producers of tapes and films not intended for commercial distribution, inclusive of in-house training tapes and corporate pieces generally. Accordingly, such sales of video cassettes would be considered taxable. It should be noted that the June 30, 1997, sunset date of the exemption has been extended to June 30, 2002.
9. The Taxpayer questions the applicability of the tax to audio cassettes containing training sessions intended for members of a professional service industry.
As can be seen and as has been interpreted from the wording of Code of Virginia § 58.1-609.6.6, sales of audio cassettes are likewise subject to the tax.
10. The Taxpayer questions the applicability of sales tax to seminar fees of attendees of training sessions intended for members of a professional service industry. The Taxpayer states that publications and/or handouts are distributed at the seminars, with no separately stated charge for the materials.
VAC 10-210-4040 discusses the applicability of the true object test to certain transactions. The department has previously held that the provision of conferences and seminars is deemed to be a nontaxable service, P.D. 93-232 (12/21/93), copy enclosed. With regard to the Taxpayer's supply of publications and/or handouts, however the Taxpayer is deemed to be the user and consumer of all items used in providing such conferences or seminars, e.g., reading materials, and must accrue the use tax on the cost price of such materials.
11. See response to Item 10.
12. See response to Item 10.
13. See response to Item 10.
14. The Taxpayer questions the application of tax to membership fees it receives. If the fees do not include the provision of tangible personal property, such fees would not be considered taxable. I have enclosed previous rulings, P.D.'s 96-231 (09/17/96), and 84-89 (07/03/84), which further detail the department's longstanding policy.
15. The Taxpayer questions the application of tax to fees paid to Corporation "X" for membership with Corporation 'X” the Taxpayer. Individuals applying for and receiving a membership with the Taxpayer will receive subscriptions to publications previously described in issues 1-A, and 1-C, within the membership fee, for which there is no separately stated charge.
As provided in P.D. 96-231 (see response to item 14), the application of the sales tax to membership fees depends upon the transfer of tangible personal property as a condition of the membership fee. If the subscription does not meet the definition of a publication as previously detailed (see response to item 1-A), then sales tax would apply to the membership fee. Alternatively, since the subscriptions to publications in item 1-C have been deemed to meet the definition of a publication as outlined in Code of Virginia § 58.1-609.6.3, such membership fees would not be subject to the tax.
16. The Taxpayer questions the application of the sales tax to fees for supplying information from its library in the form of copies of magazine articles or data relating to a professional services industry. The Taxpayer will perform research and/or compile information as necessary, forwarding the results to the customer in a written format, or by facsimile transmission.
Should a customer require a reprint of a previously published article in the Taxpayer's publications, or information on data relating to a professional services industry, the fee for the production of such information would not be taxable. If a charge is made for additional copies of the information provided to the customer, such charges would be taxable. With regard to the transmission of the information by facsimile, such charges represent sales for which no tangible personal property has been transferred, and accordingly are not subject to the tax. I have enclosed P.D. 95-68 (03/30/95), which further details the department's policy.
17. The Taxpayer questions the application of sales tax to fees charged to customers for job advertisements listed on the Taxpayer's on-line service. Typically, a member of the Taxpayer will place an advertisement for on-line circulation to other members of the Taxpayer. As the fees do not encompass the transfer of tangible personal property, such charges would not be taxable. I have enclosed a copy of P.D. 95-30 (02/27/95), which details the department’s policy with respect to such transactions.
Lastly, with regard to your request for a summary of the Virginia state and local tax rates, and registration information, I have enclosed a copy of the department’s Virginia Tax Facts booklet, which lists the taxes regulated by the department, and the applicable rates. Additionally, l have enclosed registration forms and instructions which may be reproduced to accommodate your needs.
I trust that the foregoing responses have addressed your concerns. If, however, you should require any additional assistance, please contact ******** of the department’s Office of Tax Policy at ***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12303Q
Rulings of the Tax Commissioner