If my business buys promotional giveaway items like calendars, matchbooks, or rain gauges to hand out for advertising, do I owe Texas sales tax on them?

Plain-English summary

The Texas Comptroller answered a taxpayer's question about why some advertising-related purchases are taxed and others are not. The Comptroller confirmed that sales of tangible items — rain gauges, imprinted calendars, matchbooks, and similar giveaways — to a business that hands them out as promotional items are subject to sales tax. Buying the physical item is a taxable purchase even though the business's purpose is advertising, not resale or personal use.

By contrast, media advertising is not taxed: a radio or TV station's charge to air a commercial, and a newspaper's charge to run a print advertisement, are not taxable. The letter notes that only new legislation could change that and to change it, and suggests the taxpayer raise the idea with legislative representatives if they want airtime and print-ad charges taxed too.

The letter also flags two related rules for advertising agencies: agencies must pay sales tax themselves on taxable items they purchase to produce a radio or TV commercial or a newspaper advertising insert, and they must collect tax from clients on employee-fabricated art and on items that are resold to clients.

What this means for you

Businesses that buy promotional giveaways

If you buy imprinted or branded items (pens, calendars, matchbooks, rain gauges, and similar tangible goods) to give away for advertising purposes, expect to pay Texas sales tax on that purchase. Giving the item away for free afterward doesn't change that — the taxable event is your purchase of the tangible personal property, described in the ruling's title as "a use not a sale."

Advertising agencies

Agencies owe sales tax on taxable items they buy to produce commercials or print inserts, and separately must collect sales tax from clients on employee-fabricated art and on items resold to clients. Media placement charges themselves (airtime, print space) are not taxable.

Radio, TV, and newspaper advertisers

Charges for running a commercial or print ad are not subject to Texas sales tax under this ruling, and the Comptroller states that would take a change in the law to alter.

Common questions

Q: Do I owe sales tax on promotional items like calendars or matchbooks that I give away for free?
A: Yes. The Comptroller confirms that sales of tangible personal property (rain gauges, imprinted calendars, matchbooks, etc.) to a business that will give the items away as promotional items are subject to sales tax.

Q: Is a radio or TV commercial, or a newspaper ad, taxable?
A: No. The letter states that charges by a radio or TV station to air a commercial, or by a newspaper to run a print advertisement, are not taxable.

Q: What about advertising agencies — do they pay tax too?
A: Yes, on their own purchases. Advertising agencies must pay sales tax on all taxable items they buy to produce a radio or TV commercial or a newspaper advertising insert, and must collect tax from clients on employee-fabricated art and on items resold to clients.

Q: Could media advertising charges become taxable in the future?
A: The letter says taxing airtime and print-ad charges would require legislative action, and suggests contacting legislative representatives if a taxpayer wants that changed.

Citations and references

No statutes, rules, or code sections were cited in the original letter text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9301917L

Original ruling text

January 29, 1993

Dear **:

Thank you for your letter addressing your concerns on the taxability of sales
of tangible personal property used in advertising while media advertising
(radio, TV, and newspaper) escapes taxation.

You are correct: sales of rain gauges, imprinted calendars, matchbooks, etc.,
to a business that will give these items away as promotional items are subject
to sales tax. But, the charge by a radio or TV station to air a commercial or a
charge by a newspaper to run a print advertisement is not taxable.

I need to point out that advertising agencies are required to pay sales tax on
all taxable items purchased to produce a radio or TV commercial or an
advertising insert for a newspaper. In addition, advertising agencies must
collect tax from (clients on employee fabricated art and on items that are
resold to their clients.

Legislative action would be necessary in order to tax charges for airtime by
radio and TV stations to run commercials and the charges by newspapers and
magazines to run print advertisements. You may want to contact your legislative
representatives to discuss this idea.

If you have additional questions or need more information please feel free to
contact Gilbert Zamora. Gilbert can be reached toll-free at 1-800-531-5441,
extension 3-3-4502.

Sincerely,

Mike Doyle
Director, Tax Administration