Was a separately stated copywriting charge nontaxable when an agency contracted to provide both the mechanical and placement of the media advertising?

Plain-English summary

An advertising agency separately billed for copywriting and for a mechanical that incorporated the copy. The legal memorandum explained when media-related writing could be excluded from the mechanical's taxable price.

Charges for copy written solely for television, radio, newspaper, or other media advertising messages were nontaxable under the stated position. The same applied when copy served more than one purpose and one purpose was a media advertising message.

Those writing charges had to be separately stated from taxable charges. If the agency contracted to provide both the mechanical and placement of the advertising, its separately stated copywriting charge could be excluded from taxable gross receipts.

The opposite applied when the agency sold only the mechanical. In that situation, the copywriting was part of tangible property sold by the agency, and the client's later delivery of the mechanical to the media did not make the charge nontaxable.

What this means for you

Advertising agencies

The contract should clearly identify both media placement and copywriting, and the invoice should separately state the writing charge from taxable mechanical charges.

Media buyers and marketers

The memorandum distinguished an agency hired to place advertising from a vendor that merely sells a finished mechanical.

Accountants and tax professionals

Verify both contractual scope and invoicing. The nontaxable branch required media-related copy and a separately stated charge.

Common questions

Q: Did the rule cover television, radio, and newspaper copy?

A: Yes. The memorandum named those as examples of media advertising messages.

Q: Could multipurpose copy qualify?

A: Yes, when one of its purposes was media advertising, under the position described.

Q: Was separate statement required?

A: Yes. The copywriting charge had to be separately stated from taxable charges.

Q: What if the agency did not provide media placement?

A: Then copy incorporated into the sold mechanical was taxable under the memorandum's other branch.

Citations and references

• California Sales and Use Tax Regulation 1540(b)(4)(E)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 100.0310
• Original supporting opinion: 100.0310 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Francisco Auditing (AAV)

100.0310

Date:

March 27, 1987
4/1/87

From:

Legal (RLD)

Subject:

C--- Inc.
SR -- XX-XXXXXX

D. Cady
D. Chan
A. De Agero
B. Jones
E. Trites
--- Library
New Material Folder

This is in reply to your February 9, 1987 memorandum regarding the application of tax to charges for copy writing by C--- Inc., an advertising agency which is also the retailer of graphic arts. Specifically, you asked whether charges for copy writing are taxable when the copy is incorporated into a mechanical which is used in media advertising. The charge for the copy writing and the charge for the mechanical are separately stated on the taxpayer’s sales invoices. As you know, Sales and Use Tax Regulation 1540 provides at subdivision (b)(4)(E): “Effective January 1, 1975, tax applies to charges for writing copy written solely for use as a part of tangible personal property as to which the agency is acting as a seller. Tax does not apply to such charges in other circumstances or when the agency is acting as agent. “Tax does not apply where copy is furnished to media in manuscript form.” We have taken the position that, if an agency only sells a mechanical to a client and does not contract to furnish the media advertising, the taxable gross receipts of the sale of the mechanical include the charge for the copy writing. In such case, the agency’s charge is for “copy written solely for use as a part of tangible personal property as to which the agency is acting as a seller.” (Reg. 1540, subd. (b)(4)(E), supra.) The client’s furnishing the mechanical to the media does not make the charge for the copy nontaxable. On the other hand, as noted in Tax Counsel Donald J. Hennessy’s July 21, 1981 letter to Mr. P--- J---, charges for copy written solely for media (television, radio, newspaper, etc.)

San Francisco Auditing (AAV)

-2-

June 5, 1970
100.0310

advertising messages or for more than one purpose, one of which is for media advertising messages, are not taxable. Such charges must be separately stated from taxable charges. Therefore, if the agency contracts to furnish the client with both the mechanical and the placement of the advertising, the agency’s separately stated charge for writing the copy is excludable from the gross receipts of the sale of the mechanical. We hope this answers your question; however, if you need further information, feel free to write again.

RLD:sr

100.0310.doc