Must a firm that writes radio news advertorials and places them on stations charge sales tax when it emails the client an MP3 copy?

Plain-English summary

The Petitioner (a NYC company) creates radio "news advertorials" -- financial-market-style advertisements -- for U.S. public companies (NYSE/NASDAQ-listed). It buys air time, writes the script, sends it to an independent producer who makes an MP3 voice-over, forwards that to the radio station to air, and afterward emails the client a copy of the MP3 for the client's records.

The Office of Counsel concluded the advertorials are not taxable:

• Furnishing information is enumerated -- but advertising is excluded. Sales tax can apply to the furnishing of information (sections 1105(c)(1), 1105(c)(9)). However, section 1105(c)(1) expressly excludes "the services of advertising or other agents or other persons acting in a representative capacity."
• What "advertising services" means. Under 20 NYCRR 527.3(b), advertising services are consultation and development of advertising campaigns, and placement of advertisements with the media without the transfer of tangible personal property -- and those are excluded from tax.
• This firm fits. Because the Petitioner develops the ads and places them with radio stations, its service is advertising and is not subject to sales tax -- and emailing the client an MP3 copy of the aired ad doesn't change that.

What this means for you

Ad agencies / media-placement firms

For this petitioner, writing radio advertorials and placing them with radio stations was an advertising service excluded from sales tax. The opinion does not decide the tax treatment of other media or advertising arrangements.

A digital copy for records is fine

Emailing the client an MP3 (or other file) copy of the finished, aired ad for its records didn't make this a taxable sale of property or information. The substance was the advertising service. (Be careful, though, if a deliverable becomes the product the client is really buying -- the analysis can shift.)

Common questions

Q: Why were this petitioner's radio advertorials not taxable? A: It developed the ads and placed them with radio stations, so the Department applied the advertising-services exclusion in section 1105(c)(1). The opinion does not address print advertisements or other providers.

Q: I email clients an MP3 of the finished ad -- does that make it taxable? A: No. Providing a copy of the aired advertorial for the client's records doesn't change the nontaxable advertising character of the service.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law section 1105(c)(1) (information services; exclusion for advertising agents)
• Tax Law section 1105(c)(9) (online sale of information)
• 20 NYCRR section 527.3(b) (advertising-agency services excluded from tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a15_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(10)S
Sales Tax
March 23, 2015

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S121210B

The Department of Taxation and Finance received a Petition for Advisory Opinion from REDACTEDREDACTEDREDACTEDREDACTED “Petitioner”. Petitioner asks whether it is required to charge its clients sales tax for their purchase of news advertorials, which are created by Petitioner and delivered to the clients in an MP3 format. We conclude that the sales of the news advertorials are not subject to sales tax. Facts Petitioner is registered to do business in New York State and has its office in New York City. The company sells radio news advertorials that it creates for American companies that are listed on the New York Stock Exchange and the NASDAQ. A news advertorial is similar to a financial markets advertisement. The news advertorials are aired on various radio stations headquartered in New York and, potentially, the advertorials could be heard nationally. Petitioner buys air time from radio stations and writes a script for the advertorial. Petitioner then emails the script to an independent producer who prepares an MP3 voice over audio file. The prepared advertorial is then sent back to Petitioner who forwards it to the radio station via e-mail for air time the next day. After the advertorial has been aired on the radio, Petitioner emails the client a copy of the MP3 audio file for the client’s records. Analysis New York State and local sales tax is imposed on the receipts from every retail sale of all tangible personal property, unless otherwise exempted, and on the receipts from every sale of certain specified services. See Tax Law §§ 1105 and 1115. One of the services subject to sales tax is the furnishing of information. See Tax Law § § 1105(c)(1), 1105(c)(9). The creation and sale of the advertorials qualifies as the furnishing of information, which is an enumerated service. Tax Law § 1105(c)(1), however, excludes “the services of advertising or other agents or other persons acting in a representative capacity. . . .” Section 527.3(b) of the Sales and Use Tax Regulations provides, in part, as follows: “[f]ees for the services of advertising agencies or other persons acting in a representative capacity are excluded from the tax. Advertising services consist of consultation and development of advertising campaigns, and placement of

-2-

TSB-A-15(10)S
Sales Tax
March 23, 2015

advertisements with the media without the transfer of tangible personal property.” 20 NYCRR § 527.3(b) Because Petitioner develops the ads and places them with radio stations, Petitioner’s service constitutes advertising that is not subject to sales tax.

DATED: March 23, 2015

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.