Did a Virginia direct-mail advertiser owe use tax on postcards printed outside Virginia and mailed without its possession or use in the state?

Subject

Direct-mail advertiser owed no use tax without using postcards in Virginia

Plain-English summary

Virginia held that a direct-mail advertiser did not owe use tax on postcards it never possessed, owned, or controlled in the Commonwealth. The Virginia company designed advertising campaigns and mailing lists, while an out-of-state printer produced the postcards, assembled them into decks, and prepared them for mailing to Virginia homeowners.

Virginia treated an advertiser as the user and consumer of property used to provide advertising services, but that status did not create tax on property the advertiser did not use in Virginia. Section 58.1-604 required a Virginia use. Delivery of printed matter from outside the state to a U.S. Post Office in Virginia did not by itself establish the advertiser's taxable use on the facts presented.

The ruling expressly overturned Public Documents 05-10 and 07-110 to the extent they conflicted with that rule. Because the company had paid tax through a voluntary disclosure agreement, it was entitled to seek a refund by filing amended returns within the statutory three-year period.

What this means for you

• A Virginia advertiser can be the taxable consumer of materials it actually uses in the Commonwealth.
• Being an advertiser alone does not create use tax when possession, title, and control remain outside Virginia.
• Fulfillment and mailing facts matter: who directs, receives, owns, and exercises power over the printed property can change the result.
• Refund relief required timely amended returns and supporting documentation.

Common questions

Did the postcards enter Virginia?

They were mailed to Virginia homeowners, but the advertiser did not take possession, title, or exercise rights over them in Virginia.

Why was there no use tax?

Section 58.1-604 required use in Virginia, and the taxpayer made no such use on the stated facts.

Was a refund automatic?

No. The company had to file amended returns within the three-year period and follow the Department's documentation process.

Citations and references

• Va. Code §§ 58.1-604 and 58.1-1823.
• Virginia Public Documents 05-10 and 07-110, superseded to the extent described in this ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-73

Original ruling text

May 18, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request a ruling on the application of the retail sales and use tax to printed materials purchased from an out-of-state printer. I apologize for the delay in responding to your correspondence.

FACTS

The Taxpayer is a Virginia corporation providing direct mail marketing services to businesses in Virginia. The Taxpayer's principal business is compiling "decks" of full-color advertising postcards that are plastic wrapped and mailed to homeowners in Virginia. The Taxpayer assists the customers in designing the postcards and identifying target demographics, and then arranging for production and mailing of the postcards. The Taxpayer contracts with a printer located outside Virginia. The Taxpayer provides the printer with a mailing list. The printer prints the postcards and prepares them for mailing.

The Taxpayer was assessed tax on the purchase of the printed materials from the out-of-state printer. The Taxpayer entered into a voluntary disclosure agreement with the Department following the issuance of PD 07-110. The Taxpayer requests a refund of use tax paid if its argument, that it is not liable for the tax, is upheld in the ruling issued.

The Taxpayer contends that it is not liable for the sales and use tax on the postcards because it has not made use of the postcards in Virginia. The Taxpayer asserts that it never takes possession of or title to the postcards within Virginia; neither does it exercise any right or power over the postcards within Virginia. Citing several rulings issued by the Tax Commissioner, the Taxpayer contends that the delivery of printed matter by common carrier from outside Virginia to a U.S. Post Office in Virginia does not constitute taxable use of the printed matter within Virginia. The Taxpayer contends that the rulings issued in Public Documents 05-10 (2/3/05) and 07-110 (7/19/07) assert a different ruling regarding printing for advertising businesses.

RULING

Public Documents 05-10 and 07-110 are inconsistent with prior rulings of the Tax Commissioner as they relate to the purchase of printing by a Virginia advertiser from a printer located outside of Virginia. Virginia law deems an advertiser to be the taxable user and consumer of tangible personal property used in providing its advertising services, when the advertiser makes use of such property in Virginia. However, the advertiser would not be subject to the tax on tangible personal property for which it made no use of in Virginia simply because of its status as an advertiser. The advertiser would only be subject to the use tax as authorized by Va. Code § 58.1-604, which requires use to occur within Virginia. Accordingly, to the extent that these public documents are inconsistent with the law and Department policy regarding the mailing of printed matter from outside of Virginia into Virginia, the public documents are overturned.

CONCLUSION

Based on this ruling, the Taxpayer is entitled to a refund of taxes paid to the Department pursuant to its voluntary disclosure agreement. In order to receive the refund, and in accordance with Va. Code § 58.1-1823 the Taxpayer must file amended returns with the Department within "three years, from the last day prescribed by law for the timely filing of the return." Please contact the Department's Office of Customer Services at (804) 367-8037 to discuss the process for filing the amended returns and the documentation required by the Department to issue the refund. Please reference this letter when contacting the Office of Customer Services, as a copy of the letter will have been provided to them.

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 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 Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-30141415565.P

Supersedes P. D. s 05-10 and 07-110

Related Documents

07-110

05-10