Tax Type
Retail Sales and Use Tax
Description
Advertising, Purchases, Application for Refund
Topic
Exemptions
Property Subject to Tax
Date Issued
12-18-1998
December 18, 1998
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in response to your letter requesting a ruling on the application of the retail sales and use tax to purchases and sales made by ***** (the Taxpayer). The Taxpayer also requests a ruling on a refund request.
FACTS
The Taxpayer creates and produces video marketing tapes for commercials, broadcast and other marketing purposes. To accomplish this, the Taxpayer writes scripts for voice overs and gathers video clips, formats and layouts of the product. The Taxpayer is also responsible for musical selections, voice talent fees, video rights of certain clips, and graphic creations. The Taxpayer also produces wedding tapes.
You seek classification of the Taxpayer's business as an advertising business so that the tax is applied in accordance with Title 23 of the Virginia Administrative Code (VAC) 10-210-41. If the department determines that the Taxpayer is an advertising business, you request permission to seek a refund of taxes erroneously paid by the Taxpayer since its inception.
RULING
Code of Virginia § 58.1-609.6(5) provides an exemption from the sales and use tax for advertising as defined in § 58.1-602. Code of Virginia § 58.1-602 defines advertising as:
Audiovisual works exemption. Beginning *****, a partial exception to the advertiser's tax liability rule went into effect for advertising businesses when they use or sell audiovisual works for licensing, distribution, broadcasting or commercial exhibition. This exception is set out by Code of Virginia § 58.1-609.6(6),(This exemption is scheduled to expire on June 30, 2002, unless re-enacted by the General Assembly.) copy enclosed, as an exemption from the tax for sales and purchases of audiovisual works for public broadcasting, production services for such works, media incident to the performance of such services, and equipment and parts and accessories thereto used for the production of such audiovisual works.
However, I would note that the audiovisual works exemption does not apply to all sales of audiovisual works. For example, Tax Bulletin 95-5 (6/23/95, copy enclosed) explains that the tax applies to sales of in-house training films; films of weddings, corporate meetings, or other special events; and films for purposes other than distribution, broadcast, commercial exhibition, etc. Furthermore, the tax on equipment used in both taxable and exempt activities must be prorated based on the percentage of time used in taxable versus exempt activities.
In addition, Public Document (P.D.) 95-198 (7/31/95, copy enclosed) explains that the determining factor as to the tax status of the various production services or products purchased by a taxpayer will depend on the type of work produced. That is, if the audiovisual work qualifies for the exemption, the various production services, incidental tangible personal property, and equipment used in producing such are also exempt. However, if the tape is taxable, then everything used to produce it, including services in connection with the sale of the tape, like editing, dubbing, mixing, the rental of studios, are taxable. Other Public Documents are enclosed to assist you.
Accordingly, when the Taxpayer produces audiovisual tapes for public broadcasting of commercials, the charge to the customer is nontaxable. In producing such exempt works, the exemption extends to Taxpayer's purchases of various production services for exempt audiovisual works, incidental tangible personal property and equipment used in the production of exempt audiovisual works. However, the Taxpayer remains liable for the tax on purchases of tangible personal property used for administrative purposes or not used in the actual production services of the exempt audiovisual works. Although the Taxpayer could be classified as an advertising business, it must remain registered for collection of the sales tax on wedding tapes and other taxable tapes produced and sold.
Refund. As your request was timely filed, the Taxpayer may seek a refund of erroneously paid sales and use taxes for the period ***** to present to the extent that the audiovisual works exemption applies. I would note, however, that the Taxpayer remains liable for the sales or use tax on all of its purchases of equipment, parts, accessories, and supplies made before *****.
The Taxpayer should request the appropriate tax refunds from its vendors by presenting them with a completed and signed certificate of exemption, Form ST-20A, and a copy of this letter. After the tax has been reimbursed by refund or credit memo, the vendor is entitled to recover the amount refunded by taking a deduction on Line 6e of their sales tax return. The vendor should maintain a copy of this letter with their file copy or worksheet of the return on which the deduction is taken.
If a vendor refuses to issue a refund or credit memo in this matter, the Taxpayer may seek a refund directly from the department. In such instance, however, the dealer's discount taken by the vendor cannot be refunded since the department never received such tax moneys. If a refund is to be requested directly from the department, please contact *****, Audit Supervisor of the department's *****.
If you have any questions about this ruling, please contact ***** with my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in response to your letter requesting a ruling on the application of the retail sales and use tax to purchases and sales made by ***** (the Taxpayer). The Taxpayer also requests a ruling on a refund request.
FACTS
The Taxpayer creates and produces video marketing tapes for commercials, broadcast and other marketing purposes. To accomplish this, the Taxpayer writes scripts for voice overs and gathers video clips, formats and layouts of the product. The Taxpayer is also responsible for musical selections, voice talent fees, video rights of certain clips, and graphic creations. The Taxpayer also produces wedding tapes.
You seek classification of the Taxpayer's business as an advertising business so that the tax is applied in accordance with Title 23 of the Virginia Administrative Code (VAC) 10-210-41. If the department determines that the Taxpayer is an advertising business, you request permission to seek a refund of taxes erroneously paid by the Taxpayer since its inception.
RULING
Code of Virginia § 58.1-609.6(5) provides an exemption from the sales and use tax for advertising as defined in § 58.1-602. Code of Virginia § 58.1-602 defines advertising as:
-
- ... 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. 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.)
- ... 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. 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.)
Audiovisual works exemption. Beginning *****, a partial exception to the advertiser's tax liability rule went into effect for advertising businesses when they use or sell audiovisual works for licensing, distribution, broadcasting or commercial exhibition. This exception is set out by Code of Virginia § 58.1-609.6(6),(This exemption is scheduled to expire on June 30, 2002, unless re-enacted by the General Assembly.) copy enclosed, as an exemption from the tax for sales and purchases of audiovisual works for public broadcasting, production services for such works, media incident to the performance of such services, and equipment and parts and accessories thereto used for the production of such audiovisual works.
However, I would note that the audiovisual works exemption does not apply to all sales of audiovisual works. For example, Tax Bulletin 95-5 (6/23/95, copy enclosed) explains that the tax applies to sales of in-house training films; films of weddings, corporate meetings, or other special events; and films for purposes other than distribution, broadcast, commercial exhibition, etc. Furthermore, the tax on equipment used in both taxable and exempt activities must be prorated based on the percentage of time used in taxable versus exempt activities.
In addition, Public Document (P.D.) 95-198 (7/31/95, copy enclosed) explains that the determining factor as to the tax status of the various production services or products purchased by a taxpayer will depend on the type of work produced. That is, if the audiovisual work qualifies for the exemption, the various production services, incidental tangible personal property, and equipment used in producing such are also exempt. However, if the tape is taxable, then everything used to produce it, including services in connection with the sale of the tape, like editing, dubbing, mixing, the rental of studios, are taxable. Other Public Documents are enclosed to assist you.
Accordingly, when the Taxpayer produces audiovisual tapes for public broadcasting of commercials, the charge to the customer is nontaxable. In producing such exempt works, the exemption extends to Taxpayer's purchases of various production services for exempt audiovisual works, incidental tangible personal property and equipment used in the production of exempt audiovisual works. However, the Taxpayer remains liable for the tax on purchases of tangible personal property used for administrative purposes or not used in the actual production services of the exempt audiovisual works. Although the Taxpayer could be classified as an advertising business, it must remain registered for collection of the sales tax on wedding tapes and other taxable tapes produced and sold.
Refund. As your request was timely filed, the Taxpayer may seek a refund of erroneously paid sales and use taxes for the period ***** to present to the extent that the audiovisual works exemption applies. I would note, however, that the Taxpayer remains liable for the sales or use tax on all of its purchases of equipment, parts, accessories, and supplies made before *****.
The Taxpayer should request the appropriate tax refunds from its vendors by presenting them with a completed and signed certificate of exemption, Form ST-20A, and a copy of this letter. After the tax has been reimbursed by refund or credit memo, the vendor is entitled to recover the amount refunded by taking a deduction on Line 6e of their sales tax return. The vendor should maintain a copy of this letter with their file copy or worksheet of the return on which the deduction is taken.
If a vendor refuses to issue a refund or credit memo in this matter, the Taxpayer may seek a refund directly from the department. In such instance, however, the dealer's discount taken by the vendor cannot be refunded since the department never received such tax moneys. If a refund is to be requested directly from the department, please contact *****, Audit Supervisor of the department's *****.
If you have any questions about this ruling, please contact ***** with my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner