Does a promotional-advertising company owe Texas sales tax on searchlights, inflatables, banners, balloon giveaways, and clowns it provides for grand openings and sales events?

Subject

Searchlights — Advertising Service Vs. Rental

Plain-English summary

A company promoted business sales and grand openings through various forms of promotional advertising -- rooftop cold-air inflatables, searchlights for nighttime promotions, imprinted giveaway balloons, custom rooftop inflatables, helium weather balloons on pennant streamers, banners and signs, indoor/outdoor decorating, clowns and other entertainment, and airplane flyovers with trailing banners. The Company's own experienced personnel handled all installation, operation, and take-down; the Company kept ownership of the promotional items and equipment (except items specifically sold to the customer); and customers were billed a per-day charge covering all materials and labor.

The Comptroller split the answer by item. The charge for imprinting balloons that are given away is taxable, and the sale of balloons is taxable. The rest of the services -- the inflatables, searchlights, custom inflatable sales, weather balloons, banners/signs, decorating, clown/entertainment services, and flyovers -- are nontaxable advertising services. Because those other services are nontaxable, the Company itself must pay tax when it buys the balloons, searchlights, and other equipment it uses to provide them (it can't buy that equipment tax-free for resale, since it isn't reselling the equipment -- it's using the equipment to perform a nontaxable service). The Company must keep collecting and reporting sales tax on any promotional items actually sold or transferred to customers.

On the separate question of clowns and other entertainment, the ruling says sales tax is not owed as an amusement service unless the Company charges the public admission to view the entertainment -- and even then, tax applies only to that admission charge, not to what the Company bills its customer for providing the clowns or a music group.

What this means for you

Promotional advertising and event-marketing companies

If you provide a mix of advertising services (inflatables, searchlights, banners, decorating, flyovers) and also imprint or sell giveaway items like balloons, don't tax the whole per-day bill the same way. Under this ruling, the giveaway imprinting/sale piece is taxable, while the surrounding advertising services are not -- but you owe use tax on the equipment (searchlights, inflatables, etc.) you buy to perform the nontaxable services, since you can't claim a resale exemption on equipment you keep and use rather than sell.

Businesses hiring clowns or entertainers for promotions

Paying a promotional company for clowns or other entertainers at your grand opening or sale event is not a taxable amusement charge, according to this ruling -- unless the public is charged admission to see the entertainment, in which case only that admission fee is taxed.

Accountants and tax professionals

This letter illustrates the Comptroller drawing a line between a nontaxable advertising service and a taxable sale/imprinting of tangible promotional items given away to the public, plus a related equipment-use-tax obligation on the seller/service-provider for property used (not resold) in performing the nontaxable services. Note the letter itself cites no statutes or rules -- it applies existing sales-tax and taxable-services concepts to the specific facts presented and states the result may differ under different facts.

Common questions

Q: Is the Company required to collect Texas sales and use tax on all of its promotional services?
A: No. The charge for imprinting balloons to be given away is taxable, as is the sale of balloons. The other services -- the inflatables, searchlights, custom inflatable sales, weather balloons, banners/signs, decorating, clowns/entertainment, and flyovers -- are nontaxable advertising services.

Q: Does the Company owe any tax on the equipment it uses, like the searchlights?
A: Yes. The Company must pay tax on all balloons, searchlights, and other equipment used to provide its nontaxable services.

Q: Do clowns or entertainers provided at a promotional event count as a taxable amusement service?
A: No, unless a charge for admission is made to the public to view the entertainment. In that case, tax is due only on the admission charge, not on what the Company bills its customer for the clowns or a music group.

Q: Would this same answer apply to a company with different facts?
A: Not necessarily. The letter states the opinion is based on the facts presented, and other facts, though similar, may produce a different result.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9610141L

Original ruling text

October 15, 1996

Dear****:

This is in response to your request for a ruling on the taxability of
transactions that your client ("the Company") provides. The Company is in the
business of promoting business sales and grand openings through various form of
promotional advertising. Some of the services that your client provides are:

A) the providing and setting up of giant, rooftop cold air inflatables with
promotional messages affixed to them;
B) the providing of searchlights for nighttime promotions;
C) the imprinting of giveaway items such as helium balloons and other
promotional materials;
D) the sale and imprinting of rooftop balloons or other custom inflatable
items;
E) the setting up of promotional helium weather balloons attached by
pennant-style steamers above the business;
F) the manufacture and providing of custom and stock banners and signs;
G)indoor and outdoor promotional decorating services, such as indoor balloon
sculptures and other hanging pieces, as well as parking lot decor such as
pennants and flags;
H) the providing of clowns and other entertainment for the promotional event;
I) airplane flyovers with trailing banners and streamers imprinted with a
promotional message.

All installation, operation, and take down are done only by Company's
experienced personnel for the protection of the promotional items., the
structures and the success of the event. Company retains the right of
ownership to all promotional items not specifically sold to the customer and
any and all equipment used by Company to provide the service. Customers are
billed on a per day basis, and the charge includes all materials and labor.
The company collects and remits tax on items transferred to the customer for
their own use and/or for promotional giveaways.

Questions

1. Is the Company required to collect Texas sales and use tax on each of the
   services (A) through (I) above?

Response: The charge for imprinting of balloons (C) to be given away is
taxable, as are the sale of balloons. The other services (A,B and D-I) are
nontaxable advertising services. The Company must pay tax on all balloons,
searchlights and other equipment used to provide their nontaxable services.
The Company must continue to collect and report sales tax on promotinal items
sold/transferred to their customers.

2. N/A

3. When the Company provides clowns or other entertainment to a promotion site
   [(H) above] must it collect sales and use tax on the charges for such personnel
   as an amusement service or any other taxable service?

Response: No. Sales tax would be due only if a charge for admission is made
to the public to view the entertainment. Tax would only be due on the charge
for admission, the charge by the Company to it's customer for the clowns or a
music group would not be taxable.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The direct line
is 512/463-4502. You may also write to Tax Policy Division, Comptroller of
Public Accounts. My Internet address is: [email protected].

Sincerely,
Gilbert Zamora
Tax Policy Division