What does Virginia Ruling of the Tax Commissioner P.D. 09-3 conclude about Taxpayer prepares direct mail advertising materials?

Subject

Out-of-state direct-mail sales remained interstate commerce

Plain-English summary

Virginia ruled that the out-of-state direct-mail producer did not owe Virginia retail sales or use tax on the described transaction. Customers took title and possession at the producer's out-of-state dock, and risk of loss passed before the materials entered the U.S. mail.

Although some advertising pieces were delivered to Virginia residents, the purchasing customers exercised no ownership right or power over the materials in Virginia. Virginia therefore treated the sale as interstate commerce: title or possession passed outside the state and the purchaser made no Virginia use.

What this means for you

• Contract terms and actual performance must establish where title and possession pass.
• FOB shipping-point language should match risk-of-loss and delivery records.
• Mailing property into Virginia does not alone decide taxability when the purchaser took ownership outside the state and made no Virginia use.
• A change in customer control, title, possession, or delivery obligations can change the result.

Common questions

Did delivery to Virginia residents create Virginia tax?

Not on these facts, because the purchasing customers made no Virginia use.

Where did title and possession pass?

At the producer's dock outside Virginia.

Did risk of loss matter?

Yes. It passed to customers before the materials were transferred to the Postal Service.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-604.
• 23 VAC 10-210-780(A).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-3

Original ruling text

February 4, 2009

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of your client (the "Taxpayer") in which you request a ruling on the application of the retail sales and use tax to direct mail advertising.

FACTS

The Taxpayer is located in * and prepares direct mail advertising materials ("materials") for its customers. The materials are sent FOB shipping point from . Some of the materials may be delivered from the post office to residents in Virginia. The Taxpayer's customers take title and possession of the materials at the Taxpayer's dock in ***. Risk of loss passes to the customers prior to transfer of possession of the materials to the U.S. Postal Service.

RULING

Virginia Code § 58.1-604 imposes "a tax upon the use or consumption of tangible personal property in this Commonwealth." Virginia Code § 58.1-602 defines use as "the exercise of any right or power over tangible personal property to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business."

Title 23 of the Virginia Administrative Code 10-210-780 A provides that:

The tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia.

In this instance, the Taxpayer's customers do not exercise any right or power over the materials in Virginia. The transaction represents a sale in interstate commerce because title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made in Virginia. In accordance with the aforementioned references, the Taxpayer would not be liable for the Virginia retail sales and use tax on the transaction described in the ruling request.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections and regulation 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 ruling, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1835583534.P