How did Texas tax advertising on free driving-guide maps, gift certificates accepted for ads, and later sales of the maps?

Plain-English summary

A publisher sold advertising on city driving-guide maps and distributed the maps free through hotels, restaurants, and chambers of commerce. Advertisers did not control distribution or receive a fixed number of maps. Texas treated the charge as advertising service, not a sale of the maps, so the publisher paid tax on printing and production inputs and did not tax advertisers.

The publisher also accepted restaurant gift certificates instead of cash for advertising. No tax was due when the publisher received a certificate. Tax became due when the certificate was redeemed for taxable items such as restaurant meals, and the redeeming business collected tax on the selling price.

If the publisher sold the maps rather than distributing them free, it had to obtain a permit and collect tax or accept a resale certificate.

Common questions

Were the advertising charges taxable? No under the free-distribution facts.

When was a restaurant gift certificate taxed? When exchanged for taxable items, not when accepted for the advertising charge.

Were sales of the maps taxable? Yes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0913A08

Original ruling text

November 15, 1988

Dear **:

Thank you for your recent letter regarding your tax responsibility for the
"MAP" driving guide map.

The facts you presented in a phone conversation with Thomas Moore are restated
below.

1) COMPANY, is the publisher of the "MAP" driving guide map. The map gives the
location of hotels, restaurants and other attractions located in the city.

2) COMPANY sells advertising space to various businesses, such as hotels and
restaurants.

3) The maps are freely distributed. They are placed in hotels, restaurants and
Chambers of Commerce. They are not distributed only to the advertisers.

4) The advertisers receive no fixed number of maps; they might not receive any
maps.

Response: COMPANY. is selling advertising space, not tangible personal
property. COMPANY should pay tax to the printer on the cost to print the maps
and on all materials and equipment used to provide the service. Tax should not
be collected from the advertisers.

During a second phone conversation, you provided additional facts concerning
the "trade credits" you had mentioned in your letter. The trade credit is
actually a gift certificate which you accept in lieu of cash for advertising
space. Sales tax would not be due when you receive the gift certificate. The
tax is due when the certificate is exchanged for taxable items such as
restaurant meals. The business that accepts the gift certificates as payment is
responsible for collecting and remitting the tax on the selling price of the
items purchased.

You also mentioned in our phone conversation that you were considering selling
the maps to various businesses, such as convenience stores. If you do sell
maps, then you must obtain a sales tax permit. You must collect tax from the
purchaser or accept a properly completed resale certificate.

Rule 3.285 Resale Certificates; Sales for Resale and Rule 3.286 Seller's
Purchaser's Responsibilities are enclosed for your information.

If you have any questions or need more information, please call our toll-free
number 1-800-252-5555. The regular number is 512/463-4600. You may write me at
Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Julie Pesl
Tax Correspondence