Is a membership-based press release distribution service — which edits members' news releases, reformats them in wire-service style, and electronically transmits them to media outlets — subject to Texas sales tax, even though it uses telecommunications and data processing to do it?

Plain-English summary

A membership organization ("Company X" in the redacted letter) provides press release distribution services to its members, who are mostly public relations or investor relations executives serving their own clients. Members submit press releases, which Company X's editors review for style, attribution, accuracy, grammar, and other errors (with translation available for international distribution), then reformat in standard wire-service style (AP/UPI) and electronically transmit to selected media outlets — newspapers, wire services, TV/radio stations, magazines, and trade publications, domestically and overseas. Notably, Company X doesn't charge the media recipients anything — its revenue comes entirely from member fees.

The Comptroller found this whole activity not taxable. The key reasoning:

• Company X doesn't transfer any tangible personal property to its paying clients (the members).
• Rule 3.321(a)(5), governing advertising agencies, specifically lists public relations services, media placement services, creative concept development, copywriting, and related secretarial/clerical/communications charges as NOT taxable, unless tied to the sale of other taxable items.
• Company X isn't providing a taxable "information service" either — the paying client (the member) is the one furnishing the actual information, and the media recipients (who might otherwise be seen as receiving information) pay no consideration at all.
• Although Company X uses telecommunications and data processing internally to distribute releases, it isn't SELLING those as separate services to its clients — it's using them as tools to perform its own nontaxable PR/advertising service.

As a provider of nontaxable services, Company X is instead on the hook to pay tax itself on all the taxable items and services (equipment, software, etc.) it uses in performing its work — the tax burden shifts to Company X as a consumer rather than being collected from its members.

What this means for you

Public relations, wire-service, and press release distribution companies

Editing, reformatting, and electronically distributing news releases to media outlets is a nontaxable public relations/advertising service under Rule 3.321(a)(5) — even though you're using telecommunications and data processing infrastructure to actually do the distribution. The key is that you're not SELLING those underlying technical services separately; you're using them as tools within a broader nontaxable PR service.

Companies providing similar internal-tool-based professional services

This letter reinforces a useful general principle: using a taxable-category technology (data processing, telecommunications) as a means to deliver an otherwise-nontaxable professional service doesn't make the whole service taxable — but you (the service provider) still owe tax on your own purchases of that technology as the end consumer.

Accountants and tax professionals

Rule 3.321(a)(5)'s list of nontaxable advertising-agency activities (PR services, media placement, creative concept development, copywriting, secretarial/clerical fees, communications charges) is a good reference point for any client bundling communications technology into a professional advertising/PR service offering.

Common questions

Q: Is a press release distribution/editing service taxable in Texas?
A: No — this letter found it falls within Rule 3.321(a)(5)'s nontaxable public relations/advertising services category.

Q: Does using telecommunications and data processing technology to distribute releases change the answer?
A: No — the company isn't selling those technologies as separate services; it's using them as tools to perform its own nontaxable PR service.

Q: Does the company still owe any sales tax itself?
A: Yes — as a provider of nontaxable services, the company must pay tax on all the taxable items and services it uses to perform its work (it's the end consumer of those inputs).

Q: Can I rely on this letter for my own PR/distribution business?
A: No — a Texas letter ruling can be the basis of a detrimental reliance claim only for the taxpayer it was issued to.

Citations and references

• 34 Tex. Admin. Code Rule 3.321(a)(5) (advertising agencies — public relations services, media placement services, creative concept development, copywriting, and related secretarial/clerical/communications charges are not taxable unless tied to a taxable item sale)

Subject

Press Or News Release/Public Relations Services — Charges

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9710199L

Original ruling text

October 24, 1997

Dear **:

Thank you for your letter of October 16, 1997, concerning the taxability of
public relations services.

Your client, Company X is a membership organization. Company X derives its
revenue from its members, who also are its customers and who pay an annual
membership fee as well as posted rates for the Company X services they request.
The majority of Company X's clients/members are public relations or investor
relations executives who use Company X in connection with providing their own
full range of public relations services to their own clients or organizations.
The media does not comprise any portion of Company X's customer base and no
revenues are derived by Company X from any media organizations.

Press releases submitted to Company X by its members are reviewed by Company X
editors for style, attribution, consistency, apparent errors in substance and
content, grammatical, spelling, typographical and other errors. If
international distribution is required, appropriate translation services are
provided. Issues or questions raised by the copy are usually resolved by
Company X editors in consultation with the originator. Company X reserves the
right to reject releases submitted by members which in the opinion of Company X
editors, do not measure up to generally accepted news standards.

After the editing process and any necessary discussion with the client, the
release is reformatted in approved (i.e., AP or UPI) wire service style.
Depending upon the timing and distribution agreed upon, the full text of the
client's announcement is transmitted immediately, or at a later hour, by
Company X to the selected newspapers, wire services, TV and radio stations,
magazines and trade publications in the United States and overseas via
electronic means.

Company X is a specialized source of news for the media delivering timely news
from original sources in familiar news style and teleprinter or computer
format. Company X is not a vendor to the media. It does not charge the media
recipients for the public relations announcements,
communications costs or receiving equipment.

Company X's expertise and services aid in the effective distribution of its
clients' news releases. A variety of distribution packages are offered so that
each client can have an option as to the best way to promote a particular
story. In addition, Company X contacts editors around the country on a
continuous basis to review their areas of editorial interest so that Company X
can tailor its distribution lists accordingly, enabling the clients' releases
to reach those editors with the most interest in the material. Most operational
employees of Company X have journalism backgrounds and have worked at news
organizations and are familiar with the needs of news organizations. Company X
uses this knowledge to disseminate its clients' releases in a format and
fashion designed to meet editors' needs.

Question: Are the foregoing activities of Company X taxable services under
Texas Sales and Use Tax Law.

Response. Company X is essentially a public relations firm which accepts
announcements of news and current developments from its members, edits the
announcements to comply with commonly accepted media standards, and
disseminates the announcements as news stories to the media. Company X does not
appear to transfer any tangible personal property to any of its paying clients.
Rule 3.321 Subsection (a)(5), concerning advertising agencies, states that
public relations services, media placement services, creative concept
development, writing copy for use in any medium, secretarial and clerical fees,
and telephone, telex, and telegraph charges in connection with advertising
services are not taxable unless related to the sale of other taxable items.

Your client is not providing information services as the paying client is
furnishing the actual information and the receiver of any information is not
giving any consideration.

Although telecommunications services and data processing services are utilized
by your client in the performance of your client's non tangible advertising
services, your client is not selling data processing or telecommunication
services.

As a provider of non taxable services, Company X must pay tax on all taxable
items and services used in the performance of their services.

This opinion is based on the facts presented. Different facts though similar,
may result in different answers.

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, ext. 5-0613. The direct line is 512/475-0613. You may also
write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Policy Division