How is a publisher of free community magazines taxed on printing costs, advertising sales, and bartered ad space in Kansas?

Plain-English summary

A company contracts with local business organizations to publish community-information magazines and earns its revenue by selling advertising in them to the organizations' members. The organizations don't reimburse any publishing costs. The company asked how these transactions are taxed.

Printing the free magazines — the publisher is the consumer. Under K.A.R. 92-19-12(d), anyone who prints or produces and distributes publications free of charge is the final user or consumer of all materials used to produce them, and must pay sales tax on those materials. So:

• If the magazine is printed in Kansas, the company pays Kansas sales tax to the printer.
• If the magazines are printed out of state, the company remits compensating use tax based on the printing cost of magazines shipped into Kansas — and shipping charges are included in the taxable cost (K.S.A. 79-3702(a), where "purchase price" includes "the actual cost of transportation").
• The company gets a use tax credit for another state's sales tax properly paid to the out-of-state printer (K.S.A. 79-3704(c)).
• Because the company's sales agents operate in Kansas, it must register for compensating (use) tax purposes (K.S.A. 79-3702(h)).

Bartered advertising is taxable. The company sometimes trades advertising space for hotel room rentals and car rentals. Those trades are subject to sales tax: Kansas defines "gross receipts" as the total selling price "in money, credits, property or other consideration valued in money" (K.S.A. 79-3602(h)), so the tax base is the fair rental value of the room or vehicle.

What this means for you

Publishers of free / controlled-circulation publications

You are treated as the end consumer of what you print when you give the publication away. Pay Kansas sales tax to a Kansas printer, or self-assess use tax (including freight) when the printing happens out of state — with credit for tax properly paid to that state.

Out-of-state printing

Track the printing cost plus shipping of magazines delivered into Kansas and remit use tax on that amount. Register for compensating use tax if you have people (like ad-sales agents) operating in Kansas.

Barter and trade deals

Swapping ad space for rooms, vehicles, or other goods/services isn't tax-free. The trade is taxable on the fair value of what you receive, because "gross receipts" includes property and other consideration, not just cash.

Common questions

Q: We give our magazine away free. Do we charge our advertisers sales tax?
A: The ruling doesn't tax the ad sales; it treats you as the consumer of the printing. You pay sales tax to a Kansas printer, or use tax if the printing is out of state.

Q: Our magazines are printed out of state. What do we owe Kansas?
A: Compensating use tax on the printing cost of magazines shipped into Kansas, including the shipping charges, with a credit for another state's tax properly paid.

Q: We trade ad space for hotel rooms and rental cars. Is that taxable?
A: Yes. Barter is taxable; the tax base is the fair rental value of the room or vehicle you receive.

Q: Do we have to register for use tax?
A: Yes — because your sales agents operate in Kansas, you must register for compensating use tax purposes.

Q: Does this ruling apply to my business?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department taxes free publications and bartered advertising.

Citations and references

• K.A.R. 92-19-12(d) — treats a person who prints/produces and distributes publications free of charge as the final user or consumer of the materials, who must pay sales tax on all materials used to produce the publication.
• K.S.A. 79-3702 — the compensating (use) tax provisions; subsection (a) includes "the actual cost of transportation" in purchase price, and subsection (h) requires registration where sales agents operate in Kansas.
• K.S.A. 79-3704(c) — allows a credit against Kansas use tax for another state's tax already properly paid on the property.
• K.S.A. 79-3602(h) — defines "gross receipts" to include consideration "in money, credits, property or other consideration valued in money," making bartered advertising taxable at fair value.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2003-032

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 28, 2003

XXXX
XXXX
XXXX

RE: Your letter dated May 13, 2003

Dear XXXX:

Thank you for your recent letter. Your company contracts with the local business organizations in Kansas to publish magazines that contain information about the community. Your company generates revenue from selling advertising in the magazines to the organization's members. The various organizations do not reimburse your company for any of the publication's costs. You ask how these transactions should be taxed under the Kansas retailers' sales tax act.

Taxation of free publications, such as the ones you describe, is controlled by paragraph (d) of K.A.R. 92-19-12:

(d) Each person who prints or produces and distributes publications, free of charge, is regarded as the final user or consumer of all materials used to print or produce the publication. For tax purposes, the printer or publisher shall pay sales tax on all purchases of materials used to print or produce the publication.
If a person prints or publishes tangible personal property for sale to consumers, and also prints or publishes publications which are distributed free of charge, a person may purchase all materials used in the printing and publishing process exempt from sales tax. When a person prints or publishes the publication for distribution free of charge, that person shall include the cost of all exempt materials purchased for use in printing or producing that publication on the sales tax return and impose sales tax on that amount.

This provision requires your company to pay Kansas sales tax to the printer of the magazine, if the magazine is printed in Kansas. If the magazines are printed outside Kansas, you should remit use tax to the department based on the printing cost of the magazines that are shipped to the various Kansas organizations. Shipping charges should also be included as part of the cost that is subject to use tax. See K.S.A. 79-3702(a). ("Purchase price" includes "the actual cost of transportation.") Your company is allowed a use tax credit for the any other state's sales taxes that was properly paid to the out-of-state printer. See K.S.A. 79-3704(c) ("The provisions of this act shall not apply: . . . (c) In respect to the use, storage or consumption of any article of tangible personal property the sale of use of which has already been subjected to a tax equal to or in excess of that imposed by the act whether under the laws of this state or of some other state of the United States. . . .") Please note that because your sales agents operate in Kansas, your company is required to register for compensating use tax purposes. See K.S.A. 79-3702(h).

You indicate that company sales agents occasionally barter advertising space for hotel room rentals and for car rentals. These transactions are subject to sales tax. Under Kansas law, "gross receipts" is defined as the total selling price "in money, credits, property or other consideration valued in money. . . ." K.S.A. 79-3602(h). The tax base should be the fair rental value of the room or vehicle.

I hope that I have answered all of your questions clearly. If you have any addition questions, please call me at 785-296-3081 and we can discuss them. This is private letter ruling. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this ruling.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 05/29/2003 Date Modified: 05/29/2003

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