Is selling advertising space on an Internet on-line service (purely electronic media, no tangible property involved) subject to Utah sales tax, and does that change if the seller also provides ad design services?

Plain-English summary

A business that sold advertising space on the Internet — purely electronic media viewed by people with computer/modem access, with no tangible or real property changing hands — asked the Utah Tax Commission whether that advertising-space business was subject to Utah sales tax. The requester noted that Utah's Legislature hadn't yet settled clear guidelines for this new area but was actively studying it.

The Commission's response acknowledged that on-line computer services were "a rapidly developing field that is not specifically addressed in our tax code," and that the Legislature was expected to address computer-related services in future statutes. In the meantime, interpreting then-current law, the Commission held that selling advertising space in an on-line Internet service is not a taxable transaction for Utah sales and use tax — covering both an initial charge and ongoing monthly fees under a typical advertising contract. The Commission also addressed a related service the business provided: if it designed advertisements for clients, the charge for that design service is likewise not subject to sales tax, though the business itself must pay sales tax on any supplies it purchases in the course of designing or delivering that advertising.

What this means for you

Online advertising businesses reviewing their historical Utah tax treatment

This ruling, alongside companion rulings from the same period (see PLR 95-031 on Internet access and PLR 96-141), documents that Utah did not tax online advertising space sales or associated design-service fees during the mid-1990s, while the legislature was actively studying how to eventually address computer-related services. Confirm whether later statutory changes have altered this position before relying on it for current transactions.

Businesses bundling advertising design services with ad space sales

This ruling draws a distinction worth noting: the design SERVICE charge is exempt, but the business remains liable for sales tax on its own SUPPLY purchases used to create or deliver the design work — the exemption doesn't extend upstream to the seller's own purchases.

Common questions

Q: Are both the setup fee and ongoing monthly fee for internet ad space taxable in Utah?
A: Per this ruling, no — neither an initial charge nor on-going monthly fees for internet advertising space were taxable under then-current Utah sales and use tax law.

Q: If we design the ads ourselves for clients, is that design service taxed?
A: No, the design service charge itself is not subject to sales tax under this ruling — but the business must still pay sales tax on supplies it purchases to create or deliver that design work.

Citations and references

No specific Utah Code or Administrative Rule sections were cited in this ruling's text; the Commission's answer was an interpretation of then-current Utah sales tax law pending anticipated legislative action on computer-related services.

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/95-065.htm

Original ruling text

95-065

Response October 4, 1995

Request

Commissioners

Utah State Tax Commission

210 N 1950 W

Salt Lake City, Utah 84134-0410

Gentlemen:

As per instructions from the auditors at the Tax Commission, I am requesting you to render an advisory decision regarding whether on-line advertising on the Internet is subject to Utah State Sales Tax.

As I understand it, currently there are no clear guidelines. I have been told the State Legislature is looking at this area but as of yet nothing has been decided. This advertising on the Internet consists of strictly electronic media that would be viewed by people with access to the Internet, e.g., via a computer and modem. There will not be any real or tangible property of any kind involved.

I would appreciate receiving a decision as soon as possible. Please send your decision by return mail to the following:

XXXXX

If you have any questions or need more information, please call me at work in Salt Lake at XXXXX. Thank you for your time and assistance in this regard.

Sincerely,

XXXXX

XXXXX

RE: Advisory Opinion - Application of sales tax to sales of advertising space on the Internet.

Dear XXXXX,

We have received your request for an advisory opinion regarding the application of sales or use tax on your sales of advertising space on the Internet. On-line computer services is a rapidly developing field that is not specifically addressed in our tax code. The Utah State Legislature is studying issues like this. and we believe they will address computer-related services in future statutes. In the meantime, we interpret current Utah sales tax law as follows:

1. The sale of advertising space in an on-line Internet service is not a taxable transaction for purposes of the Utah sales and use tax. If your contractual arrangement with your clients includes an initial charge and on-going monthly fees. neither of these charges are taxable.

2. If you provide advertising design services for your clients the charge for that service is not subject to sales tax. However, you must pay sales tax on any supplies purchased for use in the design or delivery of your advertising service.

If you have additional questions. please address them to our Tax Policy Analyst, XXXXX at XXXXX or our Technical Research Section at XXXXX.

For the Commission,

Alice Shearer

Commissioner