Were calendars distributed to federal employees at enrollment fairs exempt Virginia media advertising?

Subject

Calendars were not provided to the not meeting the definition of media advertising

Plain-English summary

A health insurance provider bought calendars from an advertising agency and distributed them at enrollment fairs held by federal agencies for their employees. The insurer argued that the agency supplied design and printing services and should be treated as the user of the property under Virginia's advertising exemption.

Virginia upheld the use-tax assessment. Media advertising must communicate promotional information to the public generally. These enrollment fairs reached a limited audience of federal employees, so the calendars did not qualify as exempt media advertising. The advertising agency was therefore not treated as the end user of the calendars under the exemption.

What this means for you

• Promotional material is not exempt media advertising merely because an advertising agency designed and printed it.
• Virginia focuses on whether the communication is directed to the general public or a limited customer group.
• Materials distributed only at an employer, member, or customer event may remain taxable tangible personal property.

Citations and references

• Va. Code § 58.1-609.6(5), advertising exemption.
• Va. Code § 58.1-602, definition of advertising.
• 23 VAC 10-210-40, definition of media.
• P.D. 02-42, posters visible only to credit-union customers did not qualify as media advertising.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-86

Original ruling text

May 25, 2007

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer"), for the period July 2001 through June 2004. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a health insurance provider. The Taxpayer was audited and assessed use tax on the purchase of calendars from an advertising agency. The calendars were used to promote the Taxpayer's services and were distributed at enrollment fairs held by various federal government agencies in Virginia for their employees. The Taxpayer contends that the advertising agency, as the provider of the design and printing work, is responsible for the sales or use tax as it is the end-user.

DETERMINATION

Virginia Code § 58.1-609.6 5 provides that the tax does not apply to charges for the provision of "advertising" which is defined in Va. Code § 58.1-602 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 and consumer of all tangible personal property purchased for use in such advertising.

The term "media" is defined in Title 23 of the Virginia Administrative Code 10-210-40 to include "newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication." To determine if a particular mode of communication used by an advertising business qualifies for tax exemption as "media advertising," it is necessary to determine whether the communication is intended to provide promotional information to the public generally.

In this instance, the Taxpayer purchased calendars that provide promotional information about its health insurance services. An advertising company provided the design and printing services for the calendars; however, the calendars were distributed to a specific customer base consisting of federal government employees. The enrollment fairs for the Taxpayer's federal employee program are conducted for a limited audience and do not constitute the provision of promotional information to the general public. For this reason, the sale of the calendars to the Taxpayer does not qualify as the sale of exempt media advertising services and the advertising agency is not treated as the end user of the property purchased to design and print the calendars. The use tax was properly assessed on the Taxpayer's purchase of the calendars.

This determination is consistent with the decision rendered by the Tax Commissioner in Public Document (P.D.) 02-42 (4/05/02). In P.D. 02-42, the Tax Commissioner ruled that the provision by an advertising business of posters used to promote the services of certain federal credit unions did not qualify as media advertising. The posters were displayed in credit union locations. The Tax Commissioner determined that, because only credit union customers could view the posters, the posters did not provide promotional information to the general public and did not meet the definition of media advertising.

Based on the above determination, the assessment is correct. An updated bill with interest accrued to date will be sent to the Taxpayer under separate cover. No further interest will accrue provided the bill is paid within 30 days of the date on the bill. The Taxpayer should remit its payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *. If you have any questions concerning payment of the assessment, you may contact at **.

The Code of Virginia and regulation sections cited, along with the public document, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact * in the Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-292105820.i