Tax Type
Retail Sales and Use Tax
Description
Photography; Photo developing equipment.
Topic
Taxability of Persons and Transactions
Date Issued
05-08-1998
May 8, 1998
Dear********:
This will reply to your letters in which you seek correction of assessments issued to ***** (the ``Taxpayers'), for various periods from October 1994 through August 1997.
FACTS
The Taxpayers operate retail fashion photography studios. The Taxpayers use make-up artists, hairstylists, and other employees to create the image desired by each customer. The Taxpayers' employees then create a set which serves as the background to shoot the photographs. The photographs are taken and customers select one or more photographs which are used to create portraits that are sold to the customers. The Taxpayers were assessed use tax on the make-up, jewelry, clothing, props, and other items used by the Taxpayers to create the photographic image desired by customers. Use tax was also assessed on the Taxpayers' purchases of film.
The Taxpayers claim that the audit assessments are erroneous because the processing exemption found in Code of Virginia Sec. 58.1-609.3(2) applies to its activities. The Taxpayer maintains that make-up, accessories, props, film, and other items used to create photographs are industrial materials that are used directly in processing. The Taxpayer suggests that film and photographic supplies used to create the photographs are also exempt under Title 23 of the Virginia Administrative Code (VAC) 10-210-300 as chemicals used directly in manufacturing or processing. The Taxpayer was assessed use tax on purchases of promotional brochures and maintains that the exemption for advertising services applies to purchases of the brochures.
DETERMINATION
Processing Exemption
The basis for most of the Taxpayers' appeal is that they are an industrial processor. Title 23 of the Virginia Administrative Code (VAC) 10-210-920(B) defines industrial processors as:
The last paragraph of this same section states:
Film and Photographic Supplies
The Taxpayers state that film and photographic supplies used in the process of creating photographs are exempt under Title 23 VAC 10-210-300. This regulation states that chemicals used directly in processing may be purchased exempt of sales and use tax. Since the Taxpayers are not industrial processors, this exemption does not apply to purchases of film and photographic supplies.
Industrial Materials
The Taxpayers maintain that the materials used to create each portrait are industrial in nature within the meaning of Code of Virginia Sec. 58.1-609.3(2). The Taxpayers state that their business activities constitute a process that produces a final product. Because the Taxpayers are not industrial processors, the exemption for industrial materials used directly in processing does not apply in this case.
Promotional Brochures
The Taxpayers claim that purchases of promotional brochures are exempt under Code of Virginia Sec. 58.1-609.6(5) which provides an exemption for ``[a]dvertising as defined in Sec. 58.1-602.' Code of Virginia Sec. 58.1-602 defines ``advertising' as:
Title 23 VAC 10-210-40 (copy enclosed) defines ``advertising business' as ``any person or group of persons providing `advertising' as defined herein.' As the Taxpayers note, charges for advertising services are exempt from sales and use tax and the advertising business is considered the user and consumer of all purchases of tangible personal property provided as part of its advertising services. However, purchases of advertising materials from a printer or other business that is not an advertising business are taxable to the purchaser because advertising services have not been provided in connection with the sale of the advertising materials.
The department's records indicate that the vendor which sold the Taxpayers the promotional brochures is not an advertising business. However, if the Taxpayers can provide documentation showing that the brochures were purchased from an advertising business as previously defined, these purchases will be removed from the audits. If the Taxpayers are unable to provide this documentation, the assessment will be considered correct. I will allow the Taxpayer sixty days to provide documentation on this issue.
The Taxpayers may send any documentation to*********** in the Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. If no information is received from the Taxpayers, updated notices of assessment will be sent to the Taxpayers and should be paid within thirty days to avoid the accrual of additional interest. If you have any questions, please contact ***** at *****.
Dear********:
This will reply to your letters in which you seek correction of assessments issued to ***** (the ``Taxpayers'), for various periods from October 1994 through August 1997.
FACTS
The Taxpayers operate retail fashion photography studios. The Taxpayers use make-up artists, hairstylists, and other employees to create the image desired by each customer. The Taxpayers' employees then create a set which serves as the background to shoot the photographs. The photographs are taken and customers select one or more photographs which are used to create portraits that are sold to the customers. The Taxpayers were assessed use tax on the make-up, jewelry, clothing, props, and other items used by the Taxpayers to create the photographic image desired by customers. Use tax was also assessed on the Taxpayers' purchases of film.
The Taxpayers claim that the audit assessments are erroneous because the processing exemption found in Code of Virginia Sec. 58.1-609.3(2) applies to its activities. The Taxpayer maintains that make-up, accessories, props, film, and other items used to create photographs are industrial materials that are used directly in processing. The Taxpayer suggests that film and photographic supplies used to create the photographs are also exempt under Title 23 of the Virginia Administrative Code (VAC) 10-210-300 as chemicals used directly in manufacturing or processing. The Taxpayer was assessed use tax on purchases of promotional brochures and maintains that the exemption for advertising services applies to purchases of the brochures.
DETERMINATION
Processing Exemption
The basis for most of the Taxpayers' appeal is that they are an industrial processor. Title 23 of the Virginia Administrative Code (VAC) 10-210-920(B) defines industrial processors as:
-
establishments engaged in the treatment of materials, substances, or other products in such a manner as to render such products more useful or marketable.
The last paragraph of this same section states:
-
establishments which manufacture or process tangible personal property as an incidental part of a retail or service business are generally deemed to be engaged in nonindustrial activities. . . . Such non-industrial establishments also include individuals engaged primarily in providing personal services such as photographers, artists, tailors, and seamstresses. (emphasis added).
Film and Photographic Supplies
The Taxpayers state that film and photographic supplies used in the process of creating photographs are exempt under Title 23 VAC 10-210-300. This regulation states that chemicals used directly in processing may be purchased exempt of sales and use tax. Since the Taxpayers are not industrial processors, this exemption does not apply to purchases of film and photographic supplies.
Industrial Materials
The Taxpayers maintain that the materials used to create each portrait are industrial in nature within the meaning of Code of Virginia Sec. 58.1-609.3(2). The Taxpayers state that their business activities constitute a process that produces a final product. Because the Taxpayers are not industrial processors, the exemption for industrial materials used directly in processing does not apply in this case.
Promotional Brochures
The Taxpayers claim that purchases of promotional brochures are exempt under Code of Virginia Sec. 58.1-609.6(5) which provides an exemption for ``[a]dvertising as defined in Sec. 58.1-602.' Code of Virginia Sec. 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.
Title 23 VAC 10-210-40 (copy enclosed) defines ``advertising business' as ``any person or group of persons providing `advertising' as defined herein.' As the Taxpayers note, charges for advertising services are exempt from sales and use tax and the advertising business is considered the user and consumer of all purchases of tangible personal property provided as part of its advertising services. However, purchases of advertising materials from a printer or other business that is not an advertising business are taxable to the purchaser because advertising services have not been provided in connection with the sale of the advertising materials.
The department's records indicate that the vendor which sold the Taxpayers the promotional brochures is not an advertising business. However, if the Taxpayers can provide documentation showing that the brochures were purchased from an advertising business as previously defined, these purchases will be removed from the audits. If the Taxpayers are unable to provide this documentation, the assessment will be considered correct. I will allow the Taxpayer sixty days to provide documentation on this issue.
The Taxpayers may send any documentation to*********** in the Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. If no information is received from the Taxpayers, updated notices of assessment will be sent to the Taxpayers and should be paid within thirty days to avoid the accrual of additional interest. If you have any questions, please contact ***** at *****.
Rulings of the Tax Commissioner