Must an advertising agency collect New York sales tax when it bills clients for arranging billboard displays and for placing ads in trade journals that aren't sold at newsstands?

Plain-English summary

Stillman Advertising Inc. asked whether it must collect New York sales tax when it bills clients for (1) billboard advertising and (2) placing ads in trade journals not sold at newsstands.

The Department held both are exempt advertising services — but the agency is the taxable consumer of what it buys to perform them.

• Advertising services are exempt. Tax Law § 1105(c)(1) taxes certain information services but excludes the "services of advertising or other agents." Exempt advertising work is consulting on and developing campaigns and placing ads with the media without transferring tangible personal property (TPP) to the client (20 NYCRR § 527.3(b)(5)).
• (1) Billboards — fully exempt. The agency's entire charge to a client for arranging a billboard display — including its markup/agency fee — is exempt as the "services of advertising." And the agency's payments to the outdoor-display company aren't taxable, because that company is itself providing exempt advertising services (Matter of Ruth Outdoor Advertising Co., TSB-H-81(102)S).
• (2) Trade journals — exempt placement. The agency's total fee for producing an ad and placing it in a printed medium without transferring TPP to the client is exempt, itemized or not. The exemption doesn't depend on whether the publication is taxable, how it's distributed, or whether it's for sale.
• The agency's own purchases (it's the consumer). Because an agency buys TPP and services to perform its work, those are retail purchases by the agency (20 NYCRR § 527.3(c)(2)):
  • Artwork, layouts, mechanicals, and printing plates used to produce ads for publications that ARE for sale qualify for the § 1115(a)(12) production (manufacturing) exemption — exempt from state and local tax except New York City — using an Exempt Use Certificate (Form ST-121); the agency in turn gets an Exempt Use Certificate from its client.
  • The same items used for ads in publications NOT for sale are taxable purchases by the agency.
• Certificates and special cases. An exemption certificate must be received within 90 days of delivery/service (§ 1132(c)). Treatment can change if the client is a § 1116 exempt organization or a genuine principal/agent relationship exists — see TSB-M-83(16)S and Greenstone & Rabasca, TSB-A-86(35)S.

What this means for you

An ad agency's placement and campaign fees are exempt in New York — so you don't charge your clients sales tax on them. Consulting, developing campaigns, and placing ads with the media (billboards, print, etc.) without handing tangible property to the client are exempt "services of advertising." That covers the whole fee, markup included.

But you're the consumer of what you buy to do the work, so watch your own purchases. The tax shifts to the agency's inputs. Whether your artwork, layouts, mechanicals, and plates are taxable turns on whether the publication carrying the ad is for sale: production items for for-sale publications get the manufacturing exemption (except in NYC) with Form ST-121; the same items for free/not-for-sale publications are taxable to you.

Mind the certificates and the exceptions. Get exemption certificates within 90 days, and re-check the analysis when the client is a tax-exempt organization or a true principal/agent arrangement applies.

Common questions

Q: Do we charge clients sales tax on billboard advertising we arrange?
A: No. The entire charge — including your fee — is exempt as the services of advertising, and your payment to the billboard/outdoor-display company is also exempt because that firm is providing exempt advertising services too.

Q: What about placing a client's ad in a trade journal that isn't sold at newsstands?
A: Your fee to produce and place the ad in a printed medium (without transferring tangible property to the client) is exempt, whether or not the journal is for sale.

Q: Then where does sales tax actually apply for us?
A: On your own purchases. Artwork, layouts, mechanicals, and plates for ads going into for-sale publications qualify for the production/manufacturing exemption (state and local, except New York City) via Form ST-121; the same items for not-for-sale publications are taxable to you.

Q: Any deadlines or exceptions to remember?
A: Exemption certificates must be received within 90 days (§ 1132(c)), and the analysis can change if your client is a § 1116 exempt organization or a true principal/agent relationship exists.

Citations and references

Statute, regulation, and authority:

• Tax Law § 1105(c)(1) — taxes information services but excludes the services of advertising or other agents acting in a representative capacity
• Tax Law § 1105(c)(3) — referenced for the "services of advertising" treatment of arranging a billboard display
• Tax Law § 1115(a)(5) — exempts newspapers and periodicals; a periodical must, among other criteria, be available for circulation to the public (20 NYCRR § 528.6(c)(1))
• Tax Law § 1115(a)(12) — exempts machinery and equipment used directly and predominantly to produce tangible personal property for sale; artwork, layouts, mechanicals, and printing plates for ads in for-sale publications qualify (Form ST-121; state and local except New York City)
• Tax Law § 1132(c) — an exemption certificate must be received no later than 90 days after delivery of the property or rendition of the service
• 20 NYCRR § 527.3(b)(5), (c)(2) — exempt advertising services (consultation, development, and placement without transferring TPP) and the rule that an agency's purchases to perform its services are retail purchases; §§ 526.6(c)(4) and 528.6(d) treat inputs for not-for-sale publications as taxable
• Matter of Ruth Outdoor Advertising Co., TSB-H-81(102)S; TSB-M-83(16)S (Advertising Agencies); Greenstone & Rabasca Advertising Inc., TSB-A-86(35)S; TSB-M-79(7.1)S (Printing Industry)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a88_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88(30)S
Sales Tax
May 26, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S871208A

On December 4, 1987, a Petition for Advisory Opinion was received from Stillman
Advertising Inc., 90 Adams Ave., Hauppauge, New York 11788.
The issues raised are whether Petitioner, an advertising agency, must collect sales tax when
billing clients for (1) billboard advertising and (2) placement of advertisements in trade journals not
sold at newsstands.
Section 1105(c)(1) of the Tax Law imposes tax on certain information services, but excludes
the "services of advertising or other agents, or other persons acting in a representative capacity ... "
Pursuant to the Sales and Use Tax Regulations of the Commissioner of Taxation and
Finance, exempt advertising services consist of consultation and development of advertising
campaigns and placement of advertisements with the media without the transfer of tangible personal
property to the client; purchases of tangible personal property and taxable services by an advertising
agency for use in performing its service are purchases at retail subject to the sales tax. 20 NYCRR
527.3(b)(5), (c)(2).
Issue 1.
When engaged by a client to provide billboard advertising, Petitioner enters in a contractual
agreement with an outdoor display business (Display) who, for a monthly fee, locates and provides
billboard space, executes the desired display by painting or posting paper panels and thereafter
maintains the display during the contract term.
Display's charges, increased by a profit margin or agency fee, are billed by Petitioner to its
client. Petitioner asks whether it must collect sales tax on these receipts.
In accordance with Section 1105(c)(3) of the Tax Law, quoted above, Petitioner's entire
charge to a client for arranging a billboard display is exempt as the "services of advertising".
Moreover, Petitioner's payments to Display are not taxable because Display is itself providing
exempt services. Matter of Ruth Outdoor Advertising Co., Decision of the State Tax Commission,
April 3, 1981, TSB-H-81(102)S.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-88(30)S
Sales Tax
May 26, 1988

Issue 2.
The Tax Law (§1115[a][5]) exempts from tax the sale of newspapers and periodicals. The
Sales and Use Tax Regulations (20 NYCRR 528.6[c][1]) define a periodical as a publication which,
among other criteria, must be available for circulation to the public.
An advertising agency's total fee, whether or not itemized on the billing to the client, for
producing an advertisement and placing it in a printed medium without the transfer of tangible
personal property to the client - is an exempt advertising charge as defined in Regulation 527.3,
supra. The operation of the exemption is not dependent on the selected publication's taxability or
method of distribution, nor is it material whether or not the publication is for sale.
However, it should be noted that determination of the tax status of certain purchases and sales
by an advertising agency requires it to ascertain whether a publication carrying its advertisements
is intended for sale rather than for distribution at no charge or at a nominal amount not reflecting its
true cost.
The Tax Law (§ 1115[a][12]) provides an exemption from sales and use taxes for purchases
of machinery and equipment used directly and predominantly in the production of tangible personal
property for sale by manufacturing. Artwork, layouts, mechanicals, printing plates and similar
materials used to produce advertisements for placement in publications which are for sale are
equipment qualifying for the manufacturing exemption. Accordingly, Petitioner's purchases of such
equipment will not be subject to state and local (except New York City) sales tax if each supplier
is given a properly completed Exempt Use Certificate (Form ST-121). Petitioner in turn must obtain
an Exempt Use Certificate from the client purchasing its services.
Purchases of equipment for use or consumption in the production of advertisements to be
placed in publications which are not for sale are taxable retail sales to the Petitioner pursuant to
Regulation Section 526.6(c)(4) and 528.6(d). See Technical Services Bureau Memorandum, Printing
Industry, May 15, 1980, TSB-M-79 (7.1) S.
Furthermore, if Petitioner produces and sells tangible personal property (mechanicals, paste­
ups, etc.) to a client who will use this property to place advertisements in publications which are
sold, Petitioner need not collect state and local (except New York City) taxes if the client furnishes
an appropriate exemption document.
To be valid, an exemption certificate must be received by the vendor not later than 90 days
after the delivery of the property or the rendition of the service. Tax Law §1132(c).
Finally, it must be pointed out that the tax treatment of both purchases and sales of an
advertising agency may change if its client is an organization exempt from tax pursuant to Tax Law
§ 1116 or if a principal/agent relationship exists between agency and client. In such event review of

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TSB-A-88(30)S
Sales Tax
May 26, 1988
the following Department of Taxation and Finance Publications may be helpful: Technical Services
Bureau Memorandum Advertising Agencies, June 10, 1983, TSB-M-83(16)S; Greenstone &
Rabasca Advertising Inc., State Tax Commission Advisory Opinion, September 9, 1986, TSB-A­
86(35)S.

DATED: May 26, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.