Tax Type
Retail Sales and Use Tax
Description
Advertising; In-house advertising
Topic
Taxability of Persons and Transactions
Date Issued
10-02-1997
October 2, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear**************
In your letter of August 8, 1997, you request a ruling whether *****(the Taxpayer) qualifies for an exemption from the retail sales and use tax on purchases of photographs and color separations used to produce a sales catalog of its products.
FACTS
The Taxpayer is a retailer which sells through several stores and worldwide through mail order sales. Mail orders are solicited through the distribution of catalogs throughout the United States and abroad. Graphic design, copywriting and layout for the catalog are performed by the taxpayer "in-house." The only element of the catalog not produced "in-house" are the photographs and color separations. These are produced by an outside photography business and incorporated in the layout to complete the copy-ready catalog.
RULING
It is well established that the sales and use tax does not apply to charges by an advertising business because these charges are for the rendering of a service. Title 23 of the Virginia Administrative Code (VAC) 10-210-41 provides that:
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- The tax does not apply to charges by an advertising business for the provision of concept, writing, graphic design, mechanical art, photography and production supervision in the development of an advertising campaign, whether or not all aspects of the campaign are performed by the same advertising business. [emphasis added]
The fact that different parts of the same advertising campaign may be performed by different advertising businesses, does not change this result. See P.D.'s 88-90 (5/10/88) and 97-265 (6/12/97) copies enclosed. However, the foregoing regulation only applies to advertising businesses - not businesses that perform their own advertising work "in-house."
For "in-house" advertising the applicable regulation, 23 VAC 10-210-43, provides as follows:
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- Materials and supplies and other tangible personal property used in "in-house" advertising, that is, advertising produced by any entity to advertise, promote or display its own products or services, are subject to the tax at the time of purchase.
When an in-house staff creates media advertising specifically for their employer, it does not constitute an "advertising business." Accordingly, the Taxpayer is subject to the tax on its purchases of tangible personal property used in "in-house" advertising regardless of whether such tangible personal property is purchased for use in a media advertising campaign. In your situation the charge for the photographs and color transfers are a charge for tangible personal property used in "in-house" advertising, not advertising services. In such instances, the photographs and color transfers are subject to the Virginia sales or use tax.
If you have any questions regarding this matter, you may contact ******of the department's Office of Tax Policy at***************.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner