Tax Type
Retail Sales and Use Tax
Description
Services,Marketing consulting and production management
Topic
Taxability of Persons and Transactions
Date Issued
09-25-1997
September 25, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This will reply to your letter in which you seek correction of the retail sales and use tax audit of ************** (the "Taxpayer") for the period of October 1994 through December 1995. This letter will also address issues raised in the June 11, 1997 meeting attended by members of my staff.
FACTS
The Taxpayer is in the business of direct marketing consulting and production management. The Taxpayer provides data manipulation, laser personalization, envelope stuffing, and mail shop services as described below.
Data Manipulation
The Taxpayer may manipulate existing data in order to meet their customers' needs. Data manipulation consists of identifying the target market the Taxpayer's client may wish to contact and extracting such information from existing data bases. For example, the Taxpayer's client may wish to contact all single males, college graduates, between the ages of 25 and 40, living in a single family dwelling, on the eastern seaboard. The Taxpayer will manipulate existing data bases in order to provide this information, along with addresses, to their client.
Laser Personalization
Laser personalization consists of incorporating variable information into an existing letter copy in order to personalize the letter for each individual recipient. The variable information is obtained from the client or by data manipulation as explained above. In the present case the Taxpayer does not specifically do the laser personalization, but purchases all such laser personalization from a sister corporation.
Envelope Stuffing and Mail Shop Services
The Taxpayer will provide envelope stuffing and mail shop services for client provided materials and also for materials produced by the Taxpayer. This function involves the stuffing of envelopes, sorting, postal metering, and delivery to the United States Postal Service, or other letter carrying services.
The Taxpayer may contract to perform each individual function separately, a combination of functions, or entire turnkey jobs which include all the functions listed above. The Taxpayer does not provide any paper stock in performing their services. The Taxpayer was audited and assessed tax on transactions which the auditor deemed to be retail sales of tangible property to customers. The Taxpayer takes the position that they are in the business of providing services and not making sales of tangible personal property.
Advertising Issue
The Taxpayer also requests clarification of the terms "media," "non-media," and "general public" in order to determine the tax application with respect to advertising.
DETERMINATION
Audit Issue
Code of Virginia § 58.1-609.5(1) provides a sales and use tax exemption for the "professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made, nor services rendered by repairmen for which a separate charge is made." In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. See 23 Virginia Administrative Code (VAC) 10-210-4040 (copy enclosed).
Based on the information provided by the Taxpayer, the Taxpayer is engaged in providing services to its customers. This position is further substantiated by the fact the Taxpayer does not furnish any tangible personal property, i.e., paper stock, to the customer. All paper stock, i.e., letterhead, envelopes, etc., is furnished to the Taxpayer by the customer.
Please note, however, that should the Taxpayer alter its method of operation and furnish the actual paper stock, such alteration could change the nature of the Taxpayer's operation and the sales and use tax application. Should the nature of the Taxpayer operation change, the Taxpayer should seek guidance from the department as to the proper tax application. I would also like to point out that based on the fact the Taxpayer is providing a nontaxable service, the Taxpayer is liable for tax on all purchases used in providing such services.
Advertising
The department will continue to work with the Direct Marketing Tax Fairness Committee in order to address what qualifies as "media," "non-media," and "general public" with respect to the application of the advertising exemption for sales and use tax.
Based on the results outlined above, the audit will be adjusted accordingly. A representative from the department's****** District Office will contact the Taxpayer to make the appropriate adjustments. If you should have any further questions, please contact *** , Office of Tax Policy, at*******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12231K
Rulings of the Tax Commissioner