Tax Type
Retail Sales and Use Tax
Description
Advertising; Media advertising services exempt.
Topic
Taxability of Persons and Transactions
Date Issued
11-07-1997
November 7, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***************
In your letter of September 5, 1997, you seek correction of a recent sales and use tax assessment issued to ****** (the Taxpayer).
FACTS
The Taxpayer is a nonprofit association. An audit for the period May 1994 through April 1997 resulted in the assessment of use tax on untaxed purchases of fixed assets and other tangible personal property.
The Taxpayer takes exception to the tax assessed on purchases from advertising businesses for various services and products. The Taxpayer maintains that these purchases are for exempt media advertising services, such as the creation and development of media advertising campaigns and placement of advertising, including the creation and production of promotional brochures to entice members and others to attend or sponsor, or exhibit at, its annual conference.
The Taxpayer also takes exception to the tax assessed on two other purchases and maintains that such purchases are merely for exempt training services.
DETERMINATION
Code of Virginia § 58.1-609.6(5) exempts from the sales and use tax charges for "advertising," which is defined in Code of Virginia § 58.1-602 as:
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- The planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision. (Emphasis added.)
The term "media" applies to newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication. The department's longstanding policy has been that modes of communication which disseminate information to the general public qualify as media for purposes of the advertising exemption.
It is my understanding that the Taxpayer hired a marketing consultant to write, design and produce advertisements for the Taxpayer's annual conference. These advertisements were placed in publications of general circulation to the public. These services, therefore, constitute media advertisements, and the charges for them will be removed from the audit. I also find that the advertisements promoting the Taxpayer's conference, other events, or services placed on a web site address qualify as media advertisements. Accordingly, charges for creating and producing such electronic advertisements will be removed from the audit. As for the application of the tax to transactions involving nonpromotional web sites, see Public Document 97-306 (7/18/97), copy enclosed.
In addition, creation and production charges for brochures, posters, exhibitor prospectuses and similar printed materials which advertise the Taxpayer's annual conference or other services or events and are for distribution to the public (i.e., to both members and nonmembers, or just to nonmembers), are not subject to the tax.
Charges to create and produce photography for specific media advertising campaigns are not taxable because these activities constitute exempt media advertising services. However, it is a longstanding policy that charges for the provision of stock photographs for use in a specific media advertising campaign do not constitute the provision of advertising services. Accordingly, a charge solely for stock photographs is taxable.
I would also note that purchases of conference brochures, maps, calendar of events, registration applications, name tags, and other printed materials which only serve an informational or administrative purpose, do not constitute the provision of media advertising and are subject to the tax, regardless of whether these nonpromotional items are distributed to paid conference attendees, exhibitors, or sponsors either prior to or during the conference.
Brochures sent to recipients outside Virginia may also qualify for the exemption granted by Code of Virginia § 58.1-609.6(4). This statute exempts:
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- Catalogs, letters, brochures, reports, and similar printed materials, except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, and paper furnished to a printer for fabrication into such printed materials, when stored for twelve months or less in Commonwealth and distributed for use without the Commonwealth. (Emphasis added.)
Accordingly, the audit will be revised to remove all exempt media advertising charges and any charges for brochures which satisfy the above cited exemption. Based on the facts presented, I also find basis for removing the two purchases which are for exempt training services.
As the removal of the contested purchases will affect the compliance test, the use tax compliance ratio will be recomputed. If the recomputed compliance ratio meets or exceeds 85%, the penalty will be waived.
After completion of the audit revision, the Taxpayer will receive a revised audit report and a revised bill. To prevent further interest charges, the revised assessment should be paid in full within 30 days of its receipt by the Taxpayer.
If you have any questions as to the audit revision, please contact ***** , Audit Supervisor of the department's****** District Office at**** , extension***. If you have any questions about the content of this letter, please contact **** at my Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12932R
Rulings of the Tax Commissioner