New York Advisory Opinion TSB-A-95(33)S: Is a company's charge for creating and running Internet advertisements -- "Virtual Storefronts" displaying a client's products -- subject to New York sales tax?

Plain-English summary

Mike Levy's company, Cyberactive, sets up "Virtual Storefronts" for companies on the Internet -- displaying and describing clients' products in ads that Petitioner creates and runs online. Petitioner asked whether this charge for Internet advertising is subject to New York sales tax.

The Department ruled it is not, provided Petitioner doesn't also sell tangible personal property. Tax Law § 1105(c)(1) taxes information services broadly, but carves out an exclusion for "the services of advertising or other agents, or other persons acting in a representative capacity." The Department's own regulations (20 NYCRR § 527.3(b)(5)) explain that advertising-agency fees for consultation, developing ad campaigns, and placing ads with media are excluded from tax as long as no tangible personal property is transferred; even furnishing a personal report derived from information services to a client for a fee isn't a taxable information service in this context. The regulation draws a sharp line, though: if an advertising agency instead sells actual tangible goods for its own account -- layouts, printing plates, catalogs, mailing devices, promotional handouts, tapes, or films -- THAT is a taxable sale of tangible personal property, separate from the exempt advertising-placement service. Applying this framework to Petitioner's facts -- creating and running ads on the Internet, with no indication of any tangible goods changing hands -- the Department concluded Petitioner's charge for running the Internet advertising is not subject to New York sales tax.

What this means for you

Digital advertising and marketing agencies

Purely service-based advertising work -- creating campaigns and placing ads (whether on the Internet or traditional media) without transferring tangible goods -- generally falls outside New York sales tax under the same advertising-agent exclusion the Department applied to this early internet-advertising business.

Agencies also selling physical marketing materials

If you sell physical items alongside your advertising services -- printed materials, promotional handouts, tapes, or similar tangible goods you provide for your own account -- expect THOSE sales to be taxed separately as sales of tangible personal property, even while your core ad-placement/consultation fee stays exempt.

Common questions

Q: Does this exclusion require Petitioner to be a formally licensed "advertising agency"?
A: The statute and regulation speak more broadly of "advertising or other agents, or other persons acting in a representative capacity" -- the ruling doesn't require any particular licensing or formal agency status, just that the activity itself consists of advertising placement/consultation without a tangible-property sale.

Q: Would the answer change if Cyberactive also designed and sold printed marketing materials for its clients?
A: Yes -- per 20 NYCRR § 527.3(b)(5), sales of tangible items like layouts, catalogs, or promotional handouts by an advertising provider for its own account are taxable sales of tangible personal property, separate from the exempt ad-placement service itself.

Q: Is this ruling still a reliable guide for online advertising today?
A: This is a 1995 opinion addressing an early "Virtual Storefront" model and binds only Petitioner on these specific facts -- modern digital advertising arrangements (data-driven ad platforms, programmatic ad buying, bundled software/analytics services) may raise different tax questions not addressed here.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(1) (information services tax; advertising agent exclusion)
• 20 NYCRR 527.3(b)(5) (advertising agency services excluded from tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_33s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (33)S
Sales Tax
August 14, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950417A

On April 17, 1995, a Petition for Advisory Opinion was received from Mike Levy, 15 Elm
Drive, East North Port, New York 11731.
The issue raised by Petitioner, Mike Levy, is whether advertising on the Internet is subject
to sales tax.
Petitioner's company, Cyberactive, sets up "Virtual Storefronts" for companies on the
Internet. Their clients' products are displayed and described in ads that are created by Petitioner and
run on the Internet.
Section 1105(c)(1) of the Tax Law states that:
(c) The receipts from every sale, except for resale, of the following services:
(1) The furnishing of information by printed, mimeographed or multigraphed matter or by
duplicating written or printed matter in any other manner, including the services of
collecting, compiling or analyzing information of any kind or nature and furnishing reports
thereof to other persons, but excluding the furnishing of information which is personal or
individual in nature and which is not or may not be substantially incorporated in reports
furnished to other persons, and excluding the services of advertising or other agents, or other
persons acting in a representative capacity, and information services used by newspapers,
radio broadcasters and television broadcasters in the collection and dissemination of news.
(emphasis supplied)
Section 527.3(b)(5) of the Sales and Use Tax Regulations states that:
Fees 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
advertisements with the media without the transfer of tangible personal property.
The furnishing of a personal report containing information derived from information
services, by an advertising agency, to its client for a fee is not a taxable information
service. However, if an advertising agency is engaged only for the purpose of
conducting a survey or if a survey is separately authorized and billed to the customer,
the taxability of such survey is determined in accordance with the provisions of
subdivision (a) of this section and the other provisions of this subdivision. Sales of
tangible personal property such as layouts, printing plates, catalogs, mailing devices

-2­
TSB-A-95 (33)S
Sales Tax
August 14, 1995
or promotional handouts, tapes or films by an advertising agency for its own account
are taxable sales of tangible personal property. (Emphasis supplied)
Provided Petitioner does not sell any tangible personal property, its charge for running
advertising on the Internet is not subject to sales tax in accordance with Section 1105(c)(1) of the
Tax Law and Section 527.3(b)(5) of the Sales and Use Tax Regulations.

DATED: August 14, 1995

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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