Tax Type
Retail Sales and Use Tax
Description
Advertising; Purchases of tangible personal property for resale, not advertising
Topic
Taxability of Persons and Transactions
Date Issued
02-12-1998
February 12, 1998
Dear**************:
This will reply to your letter in which you request a ruling on the sales and use tax treatment of various transactions between ***** (the "Taxpayer') and an affiliate corporation (the "Affiliate').
FACTS
The Taxpayer is an advertising and management consulting firm providing tangible personal property and services to its Affiliate, a graphics design firm. The Taxpayer purchases printing, stock photographs, photolab services, and related items and resells the tangible personal property and services to the Affiliate for use in media and non-media advertising campaigns, or for resale. The Taxpayer is requesting a ruling on the sales and use tax application to various transactions between the Taxpayer and the Affiliate, and the proper use of exemption certificates.
RULING
Statutory and Regulatory Provisions
Title 23 of the Virginia Administrative Code (VAC) 10-210-41.B (copy enclosed) addresses purchases made by advertising agencies and provides that "advertising businesses are engaged in providing professional services and are the users and consumers of all tangible personal property purchased for use in such businesses.' This regulation goes on to provide that, "the tax applies to all purchases by an advertising business of concept, writing, graphic design, mechanical art, photography, etc..., not made pursuant to the development of a specific advertising campaign. For example, if an advertising business purchases scenic photographs of Virginia for possible use in future advertising campaigns, the purchase of such photographs will be subject to the tax.' It is the intent of the above regulation to extend the exemption to advertising agencies purchasing from photography businesses which qualify under the definition of "advertising business'. However, when the purchase of photographs are from a photography business not qualifying as an "advertising business' (i.e., not engaged to create media advertising), the purchase is for the use and consumption of the advertising agency and is taxable.
Code of Virginia Sec. 58.1-602 defines the term "retail sale' to mean, "a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter...'. (Emphasis added). Code of Virginia Sec. 58.1-623 provides the application of exemption certificates to sales and leases and provides, "all sales or leases are subject to tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter.'
Application of Tax
Based on the information provided in your letter, the Taxpayer is providing advertising and management consulting services to its Affiliate, a graphics design company. The Taxpayer purchases printing, stock photography and photolab service on behalf of the Affiliate, who in turn, would resell such items to clients for use in media and non-media related advertising jobs. Based on our longstanding policy, the application of the tax hinges on whether the Affiliate is acting in the capacity of an "advertising business,' or reselling items purchased from the Taxpayer to an advertising business. In any event, the Taxpayer would enjoy the resale exemption for tangible personal property purchased for resale to the Affiliate. Any sales to the Affiliate for use in advertising would be taxable based on VAC 10-210-41.B. Any items purchased by the Affiliate which is not used in an advertising campaign, but is resold by the Affiliate, may be purchased from the Taxpayer under a resale exemption certificate, Form ST-10 .
Proper Use of Exemption Certificate
With regard to consulting services and photolab services provided by the Taxpayer, Code of Virginia Sec. 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 sale, the "true object' of the transaction must be examined. See 23 VAC 10-210-4040 (copy enclosed).
If you should have any questions, please contact ***** Office of Tax Policy, at *****.
Dear**************:
This will reply to your letter in which you request a ruling on the sales and use tax treatment of various transactions between ***** (the "Taxpayer') and an affiliate corporation (the "Affiliate').
FACTS
The Taxpayer is an advertising and management consulting firm providing tangible personal property and services to its Affiliate, a graphics design firm. The Taxpayer purchases printing, stock photographs, photolab services, and related items and resells the tangible personal property and services to the Affiliate for use in media and non-media advertising campaigns, or for resale. The Taxpayer is requesting a ruling on the sales and use tax application to various transactions between the Taxpayer and the Affiliate, and the proper use of exemption certificates.
RULING
Statutory and Regulatory Provisions
Title 23 of the Virginia Administrative Code (VAC) 10-210-41.B (copy enclosed) addresses purchases made by advertising agencies and provides that "advertising businesses are engaged in providing professional services and are the users and consumers of all tangible personal property purchased for use in such businesses.' This regulation goes on to provide that, "the tax applies to all purchases by an advertising business of concept, writing, graphic design, mechanical art, photography, etc..., not made pursuant to the development of a specific advertising campaign. For example, if an advertising business purchases scenic photographs of Virginia for possible use in future advertising campaigns, the purchase of such photographs will be subject to the tax.' It is the intent of the above regulation to extend the exemption to advertising agencies purchasing from photography businesses which qualify under the definition of "advertising business'. However, when the purchase of photographs are from a photography business not qualifying as an "advertising business' (i.e., not engaged to create media advertising), the purchase is for the use and consumption of the advertising agency and is taxable.
Code of Virginia Sec. 58.1-602 defines the term "retail sale' to mean, "a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter...'. (Emphasis added). Code of Virginia Sec. 58.1-623 provides the application of exemption certificates to sales and leases and provides, "all sales or leases are subject to tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter.'
Application of Tax
Based on the information provided in your letter, the Taxpayer is providing advertising and management consulting services to its Affiliate, a graphics design company. The Taxpayer purchases printing, stock photography and photolab service on behalf of the Affiliate, who in turn, would resell such items to clients for use in media and non-media related advertising jobs. Based on our longstanding policy, the application of the tax hinges on whether the Affiliate is acting in the capacity of an "advertising business,' or reselling items purchased from the Taxpayer to an advertising business. In any event, the Taxpayer would enjoy the resale exemption for tangible personal property purchased for resale to the Affiliate. Any sales to the Affiliate for use in advertising would be taxable based on VAC 10-210-41.B. Any items purchased by the Affiliate which is not used in an advertising campaign, but is resold by the Affiliate, may be purchased from the Taxpayer under a resale exemption certificate, Form ST-10 .
Proper Use of Exemption Certificate
With regard to consulting services and photolab services provided by the Taxpayer, Code of Virginia Sec. 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 sale, the "true object' of the transaction must be examined. See 23 VAC 10-210-4040 (copy enclosed).
If you should have any questions, please contact ***** Office of Tax Policy, at *****.
Rulings of the Tax Commissioner