Is a company that only delivers other businesses' advertising -- without creating it -- providing a taxable advertising or public relations service?

Plain-English summary

A company (home office in Tennessee, with local representatives across the U.S.) ran a personalized advertising-delivery business for tens of thousands of sponsoring businesses and professionals. Its representatives visited households — people who had moved, newly engaged women, new parents, and new U.S. citizens — and delivered the sponsors' sales messages, handed out imprinted advertising specialty items, and presented invitation cards offering a free "sample" visit to the sponsor. Crucially, the sponsors developed their own messages; the company only provided a little generic guidance and sample cards, and its representatives just delivered the advertising. It asked whether this is a taxable service.

Not taxable as "business public relations services." The regulation defines those as the PREPARATION of materials designed to influence the public on a service recipient's behalf (Conn. Agencies Regs. § 12-407(2)(i)(J)-1(g)). This company is in the distribution of such materials, not their preparation, so it isn't providing taxable business public relations services under Conn. Gen. Stat. § 12-407(2)(i)(J).

Not taxable as "advertising services" either. The advertising-services tax (Conn. Gen. Stat. § 12-407(2)(i)(W)) covers things like layout, art direction, graphic design, and production. DRS interprets it to tax the dissemination of advertising only where the advertiser's business is also the creation of advertising materials for its customers. This company only disseminates — it is not in the business of creating advertising for its customers — so § 12-407(2)(i)(W) doesn't reach it.

Result: the company's services are not subject to Connecticut sales and use tax under either provision.

What this means for you

Distributing advertising is not the same as creating it

Connecticut's advertising and public-relations taxes target creating/preparing the advertising or PR materials. A business that only delivers or disseminates ads that someone else developed generally falls outside both § 12-407(2)(i)(J) and § 12-407(2)(i)(W).

The "also creates advertising" test for dissemination

DRS taxes the dissemination of advertising under § 12-407(2)(i)(W) only when the same firm is also in the business of creating advertising for its customers. If your firm purely delivers, that condition isn't met — but if you both create and disseminate, expect a different analysis.

Keep creation and delivery clearly separated

Because the tax hinges on whether you prepare/create the advertising, it helps to be able to show that the client (or a third party) developed the message and your role was limited to delivery.

Common questions

Q: Is a company that only delivers other businesses' ads providing a taxable service?
A: No. DRS ruled that distributing (not creating) advertising is neither a taxable business public relations service nor a taxable advertising service.

Q: Why isn't it "business public relations services"?
A: Because the regulation taxes the PREPARATION of public-influencing materials, and this company only distributes materials the sponsors prepared.

Q: Why isn't it "advertising services" under § 12-407(2)(i)(W)?
A: Because DRS taxes the dissemination of advertising only where the firm is also in the business of creating advertising for its customers. This firm only disseminates.

Q: What if the firm also designed the ads?
A: Then the analysis could change — creating advertising materials can be taxable. The exemption here rests on the firm doing delivery only.

Citations and references

Statutes and regulations:

• Conn. Gen. Stat. § 12-407(2)(i)(J) (business analysis, management, consulting, and public relations services); Conn. Agencies Regs. § 12-407(2)(i)(J)-1(g) (business public relations services = preparation of materials)
• Conn. Gen. Stat. § 12-407(2)(i)(W) (advertising or public relations services)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 92-3

Original ruling text

Ruling 92-3, Sales and Use Taxes / Advertising Services / Business Public Relations Services

Ruling 92-3

Sales and Use Taxes Advertising Services Business Public Relations Services

FACTS:

The Company provides a personalized advertising service for over 100,000 sponsoring commercial businesses and professionals in the medical, dental, health care, legal and animal care fields. The Company has its home office in Tennessee but employs local managers and representatives throughout the United States.

The Company carries out its business in the local communities through its commission-paid employees (which it refers to as "Representatives"). The Company delivers sales information on behalf of its business and professional sponsors to people who have moved, newly engaged women, new parents and new United States citizens. During these presentations, usually made in the home, the Representative delivers sales messages about the sponsors' goods and services. The Representative also presents the sponsor's imprinted advertising specialty item and an invitation card which offers the call recipient the opportunity to visit the sponsor's place of business and receive a free gift "sample" of the sponsor's products or services. There is some variation in the services provided for professional sponsors. The Company bills the sponsors at a flat rate on a per-household basis.

The only assistance that the Company provides to the sponsors in developing the sponsors' sales messages is to provide them with literature advising them that certain clichés (e.g., "open 24 hours a day" or "sell fresh fruit") are appropriate sales message information, and to provide the sponsors with sample invitation cards used by other sponsors as models to develop the message. The sponsor is responsible for developing the message and the Company's representatives are responsible for its delivery to the call recipients.

ISSUE:

Whether the services rendered by the Company are either taxable business public relations services or advertising or public relations services.

DISCUSSION:

Regulation §12-407(2)(i)(J)-1(g) defines "business public relations services" as including "the preparation of materials, written or otherwise, that are designed to influence the general public or other groups by promoting the interests of a service recipient..." The Company is involved in the distribution of such materials, not in their preparation, and therefore its services are not taxable business public relations services.

Section 12-407(2)(i)(W) of the Connecticut General Statutes imposes sales and use taxes on "advertising or public relations services, including layout, art direction, graphic design, mechanical preparation or production supervision..." The Department has interpreted this statute as intending to impose tax on the dissemination of advertising materials only where the advertiser's business is also the creation of advertising materials for its customers. The Company's service involves only the dissemination of advertising. It is not in the business of creating advertising materials for its customers.

RULING:

The Company's services are not subject to sales and use taxes under §12-407(2)(i)(J) of the Connecticut General Statutes as business public relations services, nor are they subject to sales and use taxes under §12-407(2)(i)(W) as advertising services.

LEGAL DIVISION

March 24, 1992