Sales Tax Guidance for 'Mad Men'

By:
RICHARD KORETO
Published Date:
Feb 4, 2014

The New York State Department of Taxation and Finance recently stepped into the world of Don Draper, the troubled creative genius in the TV show "Mad Men," with guidance on sales, purchases and other financial issues affecting advertising agencies. In Tax Bulletin TB-ST-10, issued earlier this month, the department clarified what advertising products and services are taxable—the difference between taxable and nontaxable transactions can be subtle.

Generally, advertising sales are not subject to sales tax. The department defines these services as consultation and development of advertising campaigns and the placement of advertisements with the media. Expanding on this, the department notes that any advertising materials an agency creates that it sends to customers by intangible means (such as by electronic media) are not subject to sales tax. Any tangible materials an agency uses to furnish content to the media and turns over to the customer after use are incidental to the sale of advertising services, according to the bulletin, and also are exempt from sales tax.

But the department draws a line: If an advertising agency sells tangible personal property, such as layouts or artwork, to a customer before giving them to the media, the agency is making a sale that is subject to sales tax. Indeed, any outright sales of tangible personal property, including printing plates or films contained on tangible media, are subject to sales tax.

Other Services, Other Rules

The tax department also found that an ad agency's work can fall into its definition of information services. An agency's sale of a personal report containing material derived from information services is not the sale of a taxable information service, said the bulletin. However, if an agency charges only for the purposes of conducting a survey, or if one of its clients authorizes and accepts a bill for such a survey, then the agency has made a sale of a taxable information service.

Purchases that an agency makes fall into another category: when they're used for performing its services, they are retail purchases subject to sales tax. For example, said the bulletin, consider an agency that designs billboards for a customer. Any purchases the agency makes that is used to create the billboards are subject to sales tax. And even though the advertising services themselves are nontaxable, the agency must pay sales on purchases of printing services, for example, used to create those billboards.

However, the bulletin said that agencies should note that the state provides sales tax exemptions, that may be relevant, such as purchases related to producing television and radio commercials and advertisements and developing and producing printed promotion materials.

For further information on taxation in the advertising industry, the bulletin recommends the following official publication:

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