When do CDs, videos, and photography qualify for Virginia's advertising sales-tax exemption?

Subject

Photography purchased for possible future use in advertising campaigns is not eligible for the advertising exemption

Plain-English summary

Virginia upheld tax on an advertising company's CD presentation, video testimonial, and photography because the company did not establish the requirements for the advertising exemption. The CD was used by marketing employees as a sales tool in presentations to potential clients, not disseminated to the general public. The Commissioner therefore treated it like the taxable video in P.D. 04-72 rather than exempt media advertising.

The video-shooting and editing charges also remained taxable because the company provided no evidence that the video was made for a specific advertising campaign. The same rule controlled the photography: photography bought for possible use in future campaigns is taxable, and the company did not show that these purchases related to a specific campaign.

The assessment was upheld as issued.

What this means for you

• A presentation used privately by a sales team is not necessarily exempt media advertising.
• Preserve records connecting purchased photography, video, or creative work to a specific advertising campaign.
• Buying creative assets for possible future campaigns does not qualify under the rule applied here.
• The taxpayer bears the practical risk when the record does not show qualifying public dissemination or campaign-specific use.

Common questions

Q: Why was the multimedia CD taxable?
A: The customer used it as a sales tool with potential clients, and there was no evidence it was disseminated to the general public.

Q: Were the video-shooting and editing charges exempt?
A: No. The taxpayer did not show that the video was made as part of a specific advertising campaign.

Q: Does photography always qualify for the advertising exemption?
A: No. The cited regulation says photography purchased for possible future campaigns is taxable; the taxpayer did not connect these photographs to a specific campaign.

Q: What happened to the assessment?
A: It remained correct as issued.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-609.6 5.
• 23 VAC 10-210-41 B.
• Virginia Tax Bulletin 86-12.
• P.D. 87-73 and P.D. 04-72.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-101

Original ruling text

June 18, 2008

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

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period October 2003 through August 2006. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is an advertising company that provides concept, writing, graphic design, mechanical art, photography and production supervision for generating multimedia vehicles. The Taxpayer contests the assessment of tax in the audit on certain invoices for which it contends the advertising exemption applies. The invoices at issue will be addressed below.

DETERMINATION

Virginia Code § 58.1-609.6 5 states, "The retail sales and use tax does not apply to advertising 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 used in such advertising.

Title 23 of the Virginia Administrative Code (VAC) 10-210-41 B interprets the advertising exemption 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 business .... In addition, the tax applies to all purchases by an advertising business of concept, writing, graphic design, mechanical art, photography, etc .... not made pursuant to 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.

Invoice *

The Taxpayer maintains that the transaction at issue represents the sale of a multimedia CD presentation. Relying on Virginia Tax Bulletin (VTB) 86-12 (7/1/86), which provides information regarding the advertising exemption, the Taxpayer contends that the advertisement on the CD is considered "other media" and that the retail sales and use tax does not apply to this transaction.

In Public Document (P.D.) 04-72 (8/24/04), the taxpayer maintained that the nature of the purchase at issue was to obtain the design and implementation of an advertising campaign designed to promote goodwill among the taxpayer's existing and potential customers. The taxpayer asserted that the tangible personal property received (a video) was incidental to the media and communications expertise it received from the communications firm. The Tax Commissioner determined that the video at issue did not qualify as media advertising because the taxpayer used the video to promote its company and products, but did not make it available to or show it to the general public. Rather, the taxpayer used the video as a marketing tool with potential distributors and retailers.

Based on my understanding of the transaction at issue, the Taxpayer's customer used the CD presentation as a sales tool for use by its marketing employees when making sales presentations with potential clients. This scenario is similar to that in P.D. 04-72. Therefore, the sale of the CD presentation is subject to the tax because there is no evidence that the CD is used by the customer for dissemination to the general public. Accordingly, the tax is correct as assessed.

Invoice *

The Taxpayer maintains that this transaction is for shooting and editing of a video testimonial. The Taxpayer contends that the shooting and editing fall under photography and design described in P.D. 87-73 (2/27/87), which provides information regarding the advertising tax exemption.

In order for the charges associated with shooting and editing of the video at issue to be exempt of the tax, the video must be made pursuant to the development of a specific advertising campaign. The Taxpayer has not provided any evidence demonstrating that the video is part of a specific advertising campaign. Accordingly, pursuant to Title 23 VAC 10-210-41 B, the assessment of tax is correct as issued and will not be removed from the audit.

Invoices *, ***

The Taxpayer maintains that these transactions represent purchases of photography. The Taxpayer contends that the photography was purchased for use in the creation of media advertising.

Purchases of photography qualify for the advertising exemption when purchased pursuant to the development of a specific advertising campaign. Photography purchased for possible future use in advertising campaigns is not eligible for the advertising exemption. In this instance, the Taxpayer has not provided evidence demonstrating that the photography was purchased as part of a specific advertising campaign. Pursuant to Title 23 VAC 10-210-41 B, the tax is correct as assessed and will not be removed from the audit.

CONCLUSION

Based on this determination, the assessment is correct as issued. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 30 days of the date of the updated bill.

The Taxpayer should remit payment within 30 days from the date of the bill to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attn: *.

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 determination, you may contact * at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1729999650.P