Tax Type
Retail Sales and Use Tax
Description
Advertising; Printing; Laser personalization services and stock photographs.
Topic
Taxability of Persons and Transactions
Date Issued
03-12-1998
March 12, 1998
Dear**********:
This will reply to your letter in which you seek correction of the retail sales and use tax audit of ***** (the "Taxpayers') for the period of January 1993 through December 1995 and January 1993 through December 1994, respectively. I apologize for the delay in responding to your letter.
FACTS
The Taxpayers are advertising agencies. The Taxpayers were audited and assessed retail sales and use tax on the sale of laser personalization and mailing services. Laser personalization may consist of data manipulation, laser printing a letter, envelope stuffing and mail shop services. Laser personalization is a form of direct mail marketing used by advertisers and various industries.
The Taxpayers were also assessed tax on stock photographs used in specific media advertising campaigns. The Taxpayer is taking exception to the taxing of laser personalization and mailing services, and the purchase of stock photos.
DETERMINATION
Laser Personalization Services
Code of Virginia Sec. 58.1-609.5.1 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' and for 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, previously VR 630-10-97.1).
Based on a recent ruling of the department, see P.D. 97-387 (9/25/97) enclosed, the taxable status of laser personalization services depends on the facts and circumstances surrounding the provision of printed material to customers. In P.D. 97-387, the laser personalization printing was performed on customer provided letterhead or paper stock. Based on the facts in that case, the department determined the true object of the transaction was the provision of an exempt service. The Taxpayer did not provide any tangible personal property to the customer. The ruling noted that if the person performing the laser personalization provides the actual letterhead or paper stock in addition to the printing services, they would be considered to be selling tangible personal property and would be required to charge the tax on the total charge, including any services provided. An auditor from our District Office will contact the Taxpayer and review your records to determine the Taxpayer's status based on this ruling.
Stock Photographs
VAC 10-210-41.B (copy enclosed, previously VR 630-10-3) 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.' 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 the department's 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.
Based on the above, a representative from the ***** District Office will contact the Taxpayers in order to determine if adjustments to the two audits are necessary. If you should have any questions concerning this determination, please contact ***** Office of Tax Policy, at *****.
Dear**********:
This will reply to your letter in which you seek correction of the retail sales and use tax audit of ***** (the "Taxpayers') for the period of January 1993 through December 1995 and January 1993 through December 1994, respectively. I apologize for the delay in responding to your letter.
FACTS
The Taxpayers are advertising agencies. The Taxpayers were audited and assessed retail sales and use tax on the sale of laser personalization and mailing services. Laser personalization may consist of data manipulation, laser printing a letter, envelope stuffing and mail shop services. Laser personalization is a form of direct mail marketing used by advertisers and various industries.
The Taxpayers were also assessed tax on stock photographs used in specific media advertising campaigns. The Taxpayer is taking exception to the taxing of laser personalization and mailing services, and the purchase of stock photos.
DETERMINATION
Laser Personalization Services
Code of Virginia Sec. 58.1-609.5.1 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' and for 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, previously VR 630-10-97.1).
Based on a recent ruling of the department, see P.D. 97-387 (9/25/97) enclosed, the taxable status of laser personalization services depends on the facts and circumstances surrounding the provision of printed material to customers. In P.D. 97-387, the laser personalization printing was performed on customer provided letterhead or paper stock. Based on the facts in that case, the department determined the true object of the transaction was the provision of an exempt service. The Taxpayer did not provide any tangible personal property to the customer. The ruling noted that if the person performing the laser personalization provides the actual letterhead or paper stock in addition to the printing services, they would be considered to be selling tangible personal property and would be required to charge the tax on the total charge, including any services provided. An auditor from our District Office will contact the Taxpayer and review your records to determine the Taxpayer's status based on this ruling.
Stock Photographs
VAC 10-210-41.B (copy enclosed, previously VR 630-10-3) 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.' 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 the department's 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.
Based on the above, a representative from the ***** District Office will contact the Taxpayers in order to determine if adjustments to the two audits are necessary. If you should have any questions concerning this determination, please contact ***** Office of Tax Policy, at *****.
Rulings of the Tax Commissioner