Is selling advertising space in a periodically distributed trade directory taxable, or is it exempt 'media advertising'?

Plain-English summary

A company published an annual directory of trade vendors — sellers of supplies and services used by architects and contractors — and distributed it to subscribers. Vendors were listed for free, but could buy advertising space in the directory. The company asked whether selling that ad space is a taxable "advertising service" under Conn. Gen. Stat. § 12-407(2)(i)(W), or whether it is exempt "media advertising."

It's advertising — but the exempt "media advertising" kind. Selling and displaying ads in the directory clearly fits the broad definition of "advertising services" (all services related to the creation, preparation, production, or dissemination of advertisements, per DRS's Special Notice TSSN-30). But the statute taxes advertising services "not related to the development of media advertising" — meaning media advertising is exempt.

A trade directory is "media." TSSN-30 lists media advertising as ads in newspapers, magazines, radio, TV, cable, billboards, buses, and taxicabs — but says the list isn't exhaustive. DRS's position is that selling space in printed materials distributed on a periodic basis (it gives telephone directories as an example) is media advertising too. This vendor directory — distributed annually by subscription to target groups of businesses — is like selling space in a trade magazine, so it counts as media advertising.

Result: charges for advertising space in the directory are exempt from Connecticut sales and use tax.

What this means for you

Selling ad space in a periodical publication is usually exempt "media advertising"

If you sell advertising space in something distributed on a regular schedule to an audience — a magazine, a newspaper, a telephone book, or (as here) an annual trade directory — Connecticut generally treats that as media advertising, which is outside the advertising-services tax.

"Media" isn't limited to the examples in the notice

TSSN-30's list of media (newspapers, TV, billboards, etc.) is illustrative, not exhaustive. The functional test DRS applied is whether you're selling space in printed materials calculated to be distributed periodically to an audience — which reaches directories that the notice never names.

Creating an ad for a client is different from selling media space

This exemption is about selling the space/placement. Services like designing or producing a specific advertisement for a client can fall on the taxable side of § 12-407(2)(i)(W); the media-advertising exemption is what pulls the sale of periodical ad space out of the tax.

Common questions

Q: Is selling advertising space in a trade directory taxable in Connecticut?
A: No. DRS ruled it is exempt "media advertising" under Conn. Gen. Stat. § 12-407(2)(i)(W), like selling ad space in a trade magazine or telephone directory.

Q: Why is directory ad space "media advertising" when directories aren't on TSSN-30's list?
A: Because that list is illustrative, not exhaustive. DRS treats the sale of space in printed materials distributed periodically to an audience as media advertising, which includes directories.

Q: What makes media advertising exempt?
A: The statute taxes advertising or public relations services "not related to the development of media advertising," so advertising that is media advertising falls outside the tax.

Q: Does it matter that vendors are listed for free but pay for ads?
A: The taxed transaction is the sale of the advertising space, and DRS held that sale is exempt media advertising; the free basic listings aren't a charged service.

Citations and references

Statutes and guidance:

• Conn. Gen. Stat. § 12-407(2)(i)(W) (advertising or public relations services; media advertising excluded), as amended by Public Act 91-3, § 103 (June Spec. Sess.)
• TSSN-30 (DRS Special Notice on Sales and Use Taxes on Advertising and Public Relations Services)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 92-1

Original ruling text

Ruling 92-1, Sales and Use Taxes / Advertising Services

Ruling 92-1

Sales and Use Taxes Advertising Services

This Ruling has been cited by   Ruling 93-8

FACTS:

A company is in the business of publishing, on an annual basis, a directory of vendors selling supplies and services used by architects and contractors in the construction of commercial and residential real property. The directory includes a section where vendors are listed by name, address and service. Vendors are not charged for the listing. In addition, vendors are permitted to purchase space in the directory to advertise their services and supplies. The directory is distributed to subscribers.

ISSUE:

Whether the sale of space in the directory for the purpose of advertising products and services constitutes "advertising," as that term is used in Conn. Gen. Stat. §12-407(2)(i)(W), and if so, whether it is exempt from tax as "media advertising."

DISCUSSION:

Conn. Gen. Stat. §12-407(2)(i)(W), as most recently amended by Public Act 91-3, §103, (June Spec. Sess.), provides, in pertinent part, as follows:

(2) "Sale" and "selling" mean and include: . . . (i) the rendering of certain services for a consideration, exclusive of such services rendered by an employee for his employer, as follows: . . . (W) advertising or public relations services, including layout, art direction, graphic design, mechanical preparation, or production supervision, not related to the development of media advertising or cooperative direct mail advertising . . .

The Department's Special Notice on Sales and Use Taxes on Advertising and Public Relations Services, TSSN-30, addresses a number of issues relating to advertising services. In TSSN-30, "advertising services" is defined to include "all services related to the creation, preparation, production or the dissemination of advertisements." The production and/or display of advertisements in the directory for a consideration is clearly within the definition of advertising services.

Media advertising is also discussed in TSSN-30, where it is defined to mean

advertisements in newspapers and magazines and on radio, television and cable television stations. Media advertising also includes advertisements placed on billboards, buses or taxicabs.

Although this is a generally inclusive list of the various types of media advertising, it is not intended to be exhaustive. The Department's position has been that the sale of space in other forms of printed materials calculated to be distributed on a periodic basis, such as telephone directories, constitutes "media advertising" even though not specifically mentioned in TSSN-30.

In the instant case, the company sells space in a directory listing the names and addresses of trade vendors. This directory is then distributed annually, by subscription, to several groups of businesses which are potential customers of the trade vendors. This is similar to the sale of space in a trade magazine which is designed to be distributed or sold to a target group of businesses or customers.

RULING:

Advertising by trade vendors in a directory which is distributed periodically to subscribers within a group or several groups of businesses, such as architects and contractors, constitutes "media advertising" as that term is used in Conn. Gen. Stat. §12-407(2)(i)(W), and charges for space in such directories are therefore exempt from sales and use taxes.

LEGAL DIVISION

March 20, 1992