Tax Type
Retail Sales and Use Tax
Description
Advertiser; Constructive possession
Topic
Collection of Delinquent Tax
Date Issued
11-10-1998
November 10, 1998
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 May 1990 through April 1996. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the direct mail marketing business. More specifically, the Taxpayer coordinates the preparation and mailing of a variety of client solicitations through a network of third-party vendors throughout the country. The Taxpayer is taking exception to the tax assessed on mailing labels which were purchased from a Virginia-based company but procured from a third-party vendor located outside the state. The labels never entered the Commonwealth unless mailed as a part of the direct mail marketing package to a Virginia customer. The Taxpayer also takes exception to the rental of photographs for use by the Taxpayer in developing direct mail marketing packages for its clients. The Taxpayer sent the photographs to an out-of-state printer who used the negatives in printing the direct mail packages. The out-of-state printer then returned the photographs to the Taxpayer who, in turn, returned the photographs to the owner. The Taxpayer believes that the photographs were used by the out-of-state printer, and the Taxpayer is merely acting as a broker/agent. Accordingly, the photographs are not subject to the Virginia tax.
DETERMINATION
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:
Title 23 of the Virginia Administrative Code (VAC) 10-210-40, copy enclosed, defines "advertising' as "the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media....' The term "media,' as used in this regulation, includes direct mail advertising. An "advertising business' is defined as "any person or group of persons providing`advertising'as defined herein.' Title 23 VAC 10-210-41 (B) contains a list of purchases that are taxable to advertising business, including "[p]rinting, including direct mail items ... whether or not for use in the development of a specific advertising campaign....' (Emphasis added).
Based on the above reading of the statute and regulations, the Taxpayer is acting as an "advertising business' with respect to the direct mail items and is, therefore, the user and consumer of all tangible personal property purchased in creating the direct mail advertising.
In the present case, the Taxpayer purchased mailing labels from a Virginia vendor. The Virginia vendor then procured the labels from a third party out-of-state company. The Taxpayer believes that since the labels were procured from an out-of-state company through the Virginia vendor, the Taxpayer did not take actual possession of the labels and is not liable for the tax on the labels.
Title 23 VAC 10-210-780, copy enclosed, addresses sales in interstate and foreign commerce and states, in part, the following:
It should be pointed out that the 1995 General Assembly passed Senate Bill 648 which exempts the sale of printing to a Virginia advertising business for distribution outside of Virginia, effective July 1, 1995. A review of the audit working papers reveals that no labels were included in the audit findings after July 1, 1995.
In regard to the rental of photographs of which the image eventually becomes a part of the direct mail package, the statute clearly states that the advertising business is the user and consumer of photography used in the creation of direct mail advertising. It has been the department's consistent policy since the enactment of the advertising regulation in 1986 that advertising businesses make a taxable use of any tangible personal property which they purchase on behalf of a client. The enclosed copies of P.D. 91-197 (8/30/91) and P.D. 88-62 (5/13/87) further substantiate this departmental policy.
Based on the above, there is no basis for revising the audit. The Taxpayer will shortly receive an updated bill with interest accrued to date. If you should have any questions regarding this matter, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13265K
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 May 1990 through April 1996. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is in the direct mail marketing business. More specifically, the Taxpayer coordinates the preparation and mailing of a variety of client solicitations through a network of third-party vendors throughout the country. The Taxpayer is taking exception to the tax assessed on mailing labels which were purchased from a Virginia-based company but procured from a third-party vendor located outside the state. The labels never entered the Commonwealth unless mailed as a part of the direct mail marketing package to a Virginia customer. The Taxpayer also takes exception to the rental of photographs for use by the Taxpayer in developing direct mail marketing packages for its clients. The Taxpayer sent the photographs to an out-of-state printer who used the negatives in printing the direct mail packages. The out-of-state printer then returned the photographs to the Taxpayer who, in turn, returned the photographs to the owner. The Taxpayer believes that the photographs were used by the out-of-state printer, and the Taxpayer is merely acting as a broker/agent. Accordingly, the photographs are not subject to the Virginia tax.
DETERMINATION
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:
-
-
- [t]he 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. Any person providing advertising as defined herein shall be deemed to be the user or consumer of all tangible personal property purchased for use in such advertising. (Emphasis added).
-
Title 23 of the Virginia Administrative Code (VAC) 10-210-40, copy enclosed, defines "advertising' as "the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media....' The term "media,' as used in this regulation, includes direct mail advertising. An "advertising business' is defined as "any person or group of persons providing`advertising'as defined herein.' Title 23 VAC 10-210-41 (B) contains a list of purchases that are taxable to advertising business, including "[p]rinting, including direct mail items ... whether or not for use in the development of a specific advertising campaign....' (Emphasis added).
Based on the above reading of the statute and regulations, the Taxpayer is acting as an "advertising business' with respect to the direct mail items and is, therefore, the user and consumer of all tangible personal property purchased in creating the direct mail advertising.
In the present case, the Taxpayer purchased mailing labels from a Virginia vendor. The Virginia vendor then procured the labels from a third party out-of-state company. The Taxpayer believes that since the labels were procured from an out-of-state company through the Virginia vendor, the Taxpayer did not take actual possession of the labels and is not liable for the tax on the labels.
Title 23 VAC 10-210-780, copy enclosed, addresses sales in interstate and foreign commerce and states, in part, the following:
-
- The tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia.
- The tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia.
It should be pointed out that the 1995 General Assembly passed Senate Bill 648 which exempts the sale of printing to a Virginia advertising business for distribution outside of Virginia, effective July 1, 1995. A review of the audit working papers reveals that no labels were included in the audit findings after July 1, 1995.
In regard to the rental of photographs of which the image eventually becomes a part of the direct mail package, the statute clearly states that the advertising business is the user and consumer of photography used in the creation of direct mail advertising. It has been the department's consistent policy since the enactment of the advertising regulation in 1986 that advertising businesses make a taxable use of any tangible personal property which they purchase on behalf of a client. The enclosed copies of P.D. 91-197 (8/30/91) and P.D. 88-62 (5/13/87) further substantiate this departmental policy.
Based on the above, there is no basis for revising the audit. The Taxpayer will shortly receive an updated bill with interest accrued to date. If you should have any questions regarding this matter, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13265K
Rulings of the Tax Commissioner