Did this 2007 ruling require an out-of-state printer with a Virginia facility to collect tax on direct-mail printing sold to Virginia advertising franchisees?

Subject

Taxpayer must collect tax on its sales of printing to the Virginia franchisees

Plain-English summary

Virginia ruled in 2007 that franchisees providing direct-mail advertising were the taxable users of printing purchased from an out-of-state printer. The franchisees' advertising services to customers were exempt, but their purchases of printed direct-mail items were taxable. Because the printer also owned a Virginia printing facility, the ruling required it to register and collect tax; if it did not, the franchisees owed use tax.

The official ruling begins with a notice that P.D. 10-72 and P.D. 10-73 superseded it. This page therefore describes only the historical conclusion and is not current guidance.

What this means for you

• Do not rely on P.D. 07-110 for current printing or advertising transactions; review its superseding rulings and current law.
• Historically, the ruling distinguished the exempt advertising service from the advertising business's taxable inputs.
• The collection conclusion also relied on the printer's own Virginia facility.

Common questions

Did out-of-state printing and mailing alone make the purchase exempt?

Not under this superseded ruling. It treated the Virginia advertising franchisees' printing purchases as taxable inputs to their services.

Who bore the tax if the printer did not collect it?

The ruling said the Virginia franchisees were liable for use tax on their purchases.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-609.6(5), advertising definition and exemption discussed in the ruling.
• 23 VAC 10-210-40 and 10-210-41(B), advertising businesses and direct-mail inputs.
• Va. Code §§ 58.1-612(C)(1) and 58.1-613, registration and collection provisions applied in 2007.
• P.D. 10-72 and P.D. 10-73, identified by the official text as superseding this ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-110

Original ruling text

Superseded by P. D.s 10-72 and 10- 73 July 19, 2007

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request reconsideration of the ruling issued in Public Document (P.D.) 05-10 (2/3/05) regarding certain transactions involving your client (the "Taxpayer"). The information provided in your letter of August 10, 2006 and in a phone conversation with members of my staff has been considered in this ruling. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a printer and publisher of direct mail advertising. In the scenario presented, the Taxpayer's Virginia franchisees (the "franchisees") contract with Virginia customers for the sale of direct mail advertising packets. The franchisees contract with the Taxpayer for printed materials pursuant to contracts with the Virginia customers. The franchisees direct the Taxpayer to deliver the printed materials to households in Virginia pursuant to the same contracts.

You present two issues to be addressed. You question whether a sale between the Taxpayer and the franchisee is subject to the Virginia sales tax when the printed materials are distributed from out-of-state through the United States Postal Service CUSPS). You also question whether the franchisee is subject to use tax on its purchases from the Taxpayer.

RULING

Virginia Code § 58.1-609.6 5 provides that the retail sales and use tax shall not apply to "[a]dvertising as defined in § 58.1-602." Virginia Code § 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.]

Title 23 of the Virginia Administrative Code (VAC) 10-210-40 defines the term "media" to include "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." Furthermore, Title 23 VAC 10-210-41 B provides, in pertinent part:

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. Therefore, the tax applies to all purchases by an advertising business including . . . printing, including direct mail items , non­customized or stock mailing lists, handbills, brochures, flyers, bumper stickers, posters and similar printed materials whether or not for use in the development of a specific advertising campaign, and whether or not any of such materials are intended for distribution out of state. [Emphasis added.]

In P.D. 93-180 (8/9/03), the taxpayer was a Maryland based company that mailed printed advertising and promotional sales materials on behalf of its customers. The taxpayer had plans to locate an agent in Virginia to solicit orders for these materials, and requested a ruling regarding the tax implications. The taxpayer indicated that the materials would be printed and mailed by a contractor located outside of Virginia. Pursuant to Title 23 VAC 10-210-41 (former Virginia Regulation 630-10-3), the Tax Commissioner determined that if an out-of-state printer is used by a Virginia advertising business, only those materials shipped into Virginia by the printer are subject to tax.

In this case, the Virginia franchisees are providing media advertising services; therefore, the franchisees are the taxable users or consumers of all tangible personal property used in such advertising.

Pursuant to Va. Code § 58.1-609.6 5, Va. Code § 58.1-602 and Title 23 VAC 10­210-41 B, the transaction between the franchisee (an advertising business) and its Virginia customers is exempt because the contract is for professional services in the development and placement of advertising in the media. The transaction between the franchisee and the out-of-state printer is taxable because the franchisee is an advertising business and the taxable user and consumer of all tangible personal property purchased to provide media advertising services. In accordance with Title 23 VAC 10-210-41 B and P.D. 93-180, the retail sales and use tax applies to the franchisees' purchases of printing, including direct mail items.

It is your position, based on the prior rulings in P.D. 01-22, 93-41 and 85-35, that the sale of the printed materials to the Virginia franchisees is exempt because the Taxpayer is out-of-state and distributes the printed materials from out-of-state. As addressed in P.D. 92-36 (4/2.3/92), the interstate commerce exemption is not applicable to the charges for printing purchased by the in-state advertising business from the out-of-state printer. Furthermore, in all the Department's prior rulings, the determination regarding the correct application of the tax centered on the fact that no taxable use of the property was made in Virginia, not on the fact that the tangible personal property was printed out-of-state and distributed from out-of-state. Additionally, in those rulings, the taxpayers purchasing the printed materials were not advertising businesses, as is the case here. The ruling in P.D. 05-10 and the ruling herein do not contradict the prior rulings cited and are consistent with the Department's long-standing policy regarding printing purchases made by advertising businesses in connection with the provision of advertising services. P.D. 00-176 and 97-264 referenced in P.D. 05-10 support the Department's position regarding the application of tax to printing purchased by an advertising business.

In your earlier correspondence, you indicate that the Taxpayer owns a second printing facility in Virginia. Based on this information and pursuant to Va. Code § 58.1-612 C 1, the Taxpayer has sufficient activity in Virginia to require it to register under Va. Code § 58.1-613 and collect tax on its retail sales to Virginia customers. Therefore, the Taxpayer must collect tax on its sales of printing to the Virginia franchisees for their use in media advertising, which includes direct mail items. If the Taxpayer fails to collect the tax, the franchisees are liable for the use tax on their purchases.

This response is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result. The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

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AR/55071P