Tax Type
Retail Sales and Use Tax
Description
Printing; Laser personalization
Topic
Taxability of Persons and Transactions
Date Issued
12-02-1997
December 2, 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 March 1993 through December 1995.
FACTS
The Taxpayer is in the business of database processing and laser personalization printing. The Taxpayer also performs other services for clients such as programming, data entry, word processing and mailshop services. The Taxpayer was audited and assessed tax on the sale of laser personalization printing to customers.
This is the third generation audit of the Taxpayer. The previous two audits of the Taxpayer, for the periods of October 1980 through October 1984 and July 1985 through June 1988, produced little or no liability. While the basic business operations of the Taxpayer have basically remained the same, the business has become more sophisticated and the final product more elaborate. During the previous two audits, the Taxpayer basically performed data processing and printed names and addresses on preprinted letters and was classified as a service provider.
The recent audit revealed that not only does the Taxpayer provide data manipulation and mail shop services, but in fact, prints the entire letter on blank stationary. The Taxpayer was audited as a traditional printer and assessed tax on the sale of printed material. The Taxpayer is taking exception to the reclassification of its business to a printer/retailer, as opposed to a service provider.
DETERMINATION
Code Virginia § 58.1-609.5 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, the Taxpayer is engaged in the provision of a number of services to its customers. These services include database processing, programming, data entry, word processing, and mailshop services. The Taxpayer also provides laser personalization which consists of laser printing letters to include variable information in order to personalize the letter for each individual recipient. The Taxpayer may provide all or any combination of the individual services listed above.
Based on a recent ruling of the department, see P.D. 97-387 (9/25/97) enclosed, the taxable status of the laser personalization portion of the Taxpayer's operation depends on the facts and circumstances surrounding the provision of printed material to customers. As provided in P.D. 97-387, if the Taxpayer performs the laser personalization printing on customer provided letterhead or paper stock, the Taxpayer is considered to be rendering a service, the charge of which is exempt from the tax. However, if the Taxpayer furnishes the letterhead or paper stock and the true object of the transaction is the provision of the tangible personal property, the sale of the letters to the customer would be considered the sale of tangible personal property and would be taxable. It should also be noted that any other services provided in this situation, i.e. data manipulation, mailshop services, etc., would be considered services in connection with the sale of tangible personal property and would be considered taxable.
Based on the analysis of those sales of tangible personal property as opposed to services, the audit will be adjusted. A representative for the department's ****District Office will contact the Taxpayer to make the appropriate review. If you should have any questions, please contact ****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10481K
Rulings of the Tax Commissioner