Were fees for coupon advertising on cash-register tape and the related design setup charge taxable in Texas?

Plain-English summary

The business bought blank cash-register tape, sold coupon advertising printed on the back, paid an outside service to print it, and paid retail stores to use the finished tape. The Comptroller characterized the business as providing a nontaxable advertising service rather than selling coupons or tape.

Because the tape and printing were inputs to the service, the business could not give a resale certificate when buying them. It had to pay sales tax on the materials and printing costs.

The periodic fee for advertising space was nontaxable. If the separate setup fee paid for artwork or design fabricated by the business's employees, however, the business had to collect tax on that fee's selling price.

Common questions

Was the periodic advertising-space fee taxable? No.

Could the business buy the tape and printing with a resale certificate? No.

Was the setup fee taxable? It was taxable if it was a charge for employee-fabricated artwork or design.

Citations and references

The reproduced letter cites no numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8601L0693A08

Original ruling text

January 28, 1986

Dear ***:

Thank you for your letter of January 14, 1986, concerning the sale of
advertising on the back of cash register tapes.

Situation: *** purchases blank cash register tape and then sells
advertising space on the backside of the cash register tape. It is
understood that the purchase of cash register tape is a taxable transaction
and a resale certificate could be used. The issue is whether the sale of
advertising space is taxable. The "advertisement" used on such space is not
news of a general character or interest, but rather coupons which offer
discounts to the user. These coupons are produced and printed to the customer's
specification. ** charges $*/quarter for each advertising
space and a first time $* fee for set-up costs of each design.
* then has the "advertisements" printed on the backside of the cash
register tape by an outside service. The cost of printing and the sales tax
incurred on the printing services are paid by * and are not charged
directly to the customer. * contractually pays retail stores
$****/month to use the printed cash register tapes.

Response: *** is providing a non-taxable advertising service.
They are not selling coupons or cash register tapes; they are, instead,
providing a form of advertising. A resale certificate may not be used
when purchasing cash register tape or printing services. ***** must
pay sales tax on the materials used and printing costs incurred in providing
the service.

If the $*** fee is a charge for employee-fabricated artwork or design,
** should collect sales tax on the $* selling price. The
$****/quarter fee for advertising space is not subject to sales tax.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division