• Virginia: Marketing Services Including Tangible Personal Property Exempt From Use Tax
  • April 1, 2013 | Authors: David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • On February 20, 2013, the Virginia Tax Commissioner (the “Commissioner”) determined that a taxpayer’s purchase of customized marketing services, which included providing such taxpayer with certain tangible personal property, was a nontaxable service and exempt from use tax.

    The Tax Code of Virginia provides an exemption from the retail sales and use tax for “[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made...” A “true object” test is used to determine whether a particular transaction involving both the rendering of a service and the provision of tangible personal property is an exempt service or a taxable retail sale. If the object of the transaction is to perform services and the tangible personal property provided to the customer is not critical to the transaction, then the transaction may be an exempt service. However, if the object of the transaction is to obtain the tangible personal property produced by the service, then the entire charge for such property and service is taxable.

    The Commissioner determined that based on the language contained in the taxpayer’s contract, the “true object” of the contract was to develop a customized marketing strategy to enable the taxpayer to retain and attract new members to its athletic facility, and that the tangible personal property included in the purchase price of such marketing package, including DVDs, CDS, booklets, and a DVD player, was not critical to the transaction. Therefore, the Commissioner concluded that the taxpayer purchased a nontaxable service from its vendor and was not subject to use tax on the charge for such service.