Sales Tax Articles
Sales Tax State Activity Update - March 2005
Direct Mail Taxable in Virginia
The Virginia Tax Commissioner ruled that advertising packets distributed in Virginia from within the state are subject to sales tax. Advertising packets distributed from outside Virginia-to-Virginia customers are subject to use tax. Advertising material stored in Virginia for less than twelve months and distributed outside Virginia are exempt.
Facts
The taxpayer is a printer and publisher of direct mail advertising. In Virginia the taxpayer has franchisees that sell direct mail advertising material to retailers and service providers. All printing, sorting, insertion, and mailing are done from the taxpayer's facility located outside of Virginia. The advertising material is distributed to the Virginia residents through the U.S. Postal Service.
The taxpayer also has a printing facility in Virginia, but it does not provide any service to the Virginia franchisees. As a result the taxpayer distributes advertising material to Virginia residents.
Issues and Rulings
- Are the sales to Virginia franchisees taxable sales in Virginia?
Title 23 Virginia Administrative Code (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 business. Therefore, the tax applies to all purchases by an advertising business including, without limitation, the following items: . . .printing, including direct mail items, non-customized 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 . . . .
In Public Document (P.D.) 00-176 (10/5/00), the taxpayer was a printer and mailer of direct mail advertising. The advertising was sold by the taxpayer's franchisees, primarily through contracts with retailers and local service providers. The Department held that direct mail advertising supplements and coupons, when produced by an advertising business, have always been taxable in accordance with Title 23 VAC 10-210-41 B. The taxpayer was required to pay tax on the direct mail items.
In P.D. 97-264 (6/13/97), the taxpayer printed, packaged and direct mailed retailer coupons, marketing materials and advertising materials for retail and service businesses through a franchise operation. Pursuant to Title 23 VAC 10-210-40 and Title 23 VAC 10-210-41 B, the Department found that the taxpayer's franchisees were advertising businesses and that the taxpayer's sales of printed coupons to the franchisees were taxable sales of tangible personal property.
In the situation presented, the Taxpayer's advertising is sold by the Virginia franchisees through contracts with Virginia customers. The Virginia franchisees are considered advertising businesses. Accordingly, pursuant to the regulation and public documents referenced above, the Taxpayer's sales of the direct mail advertising packets to the Virginia franchisees are taxable sales of tangible personal property.
- Do the Virginia franchisees owe use tax on the advertising packets distributed from out of state to Virginia residents through the U. S. Mail?
Relying on Public Documents 01-22 (3/21/01), 93-41 (3/4/93) and 85-35 (2/28/85), you maintain that the Virginia franchisees do not owe use tax because they do not exercise any right of power or control over the advertising packets in Virginia. The regulation and public documents referenced above apply in this instance. If the Taxpayer does not collect sales tax on the direct mail advertising packets, the Virginia franchisees are required to remit the use tax on these items.
- Does the fact that the Taxpayer now has a printing facility in Virginia have any effect or bearing on the taxation of the sales to Virginia franchisees?
In this instance, the existence of the Virginia facility has no bearing on the taxation of the sales to the Virginia franchisees because the Taxpayer is required to remit the sales tax with regard to these sales.
- Are the printing services provided by the Virginia facility to non-Virginia franchisees for distribution outside of Virginia exempt?
In this instance, the exemptions would apply to the printing services provided by the Virginia printing facility. Virginia Code § 58.1-609.6 4 would apply so long as the printed materials are stored in Virginia for 12 months or less, and the materials are distributed for use outside Virginia. Virginia Code § 58.1-609.6 5 would apply because the printed materials at issue constitute advertising pursuant to Va. Code § 58.1-602.
You can view the full ruling here.
(Virginia, Ruling of the Commissioner, P.D. 05-10, February 3, 2005)
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