103 KAR 26:120. Advertising agencies

Link to law: http://www.lrc.ky.gov/kar/103/026/120.htm
Published: 2015

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      103

KAR 26:120. Advertising agencies.

 

      RELATES

TO: KRS 139.050, 139.100, 139.110, 139.120, 139.140, 139.200, 139.260, 139.270,

139.280, 139.310, 139.330

      STATUTORY

AUTHORITY: KRS 131.130, 139.710

      NECESSITY,

FUNCTION, AND CONFORMITY: KRS 131.130 and 139.710 authorize the Revenue Cabinet

to promulgate administrative regulations for the assessment, collection,

refunding, administration, and enforcement of the Kentucky tax laws. This administrative

regulation establishes requirements and guidelines for the application of sales

and use tax to purchases and sales of tangible personal property by advertising

agencies.

 

      Section

1. Definitions. (1) "Advertising agency" means a business engaged

primarily in the professional service of developing strategy, concept, and

design for the placement of advertising on radio or television stations, or in

newspapers, magazines, or other media.

      (2)

"Advertising services" means all advertising agency activities

involved in the conceptualization, development, production, and refinement of a

master advertisement prior to its reproduction by the advertising agency or a

third party including creative concept development, design, layout,

consultation services, research, script and copy writing, art preparation,

public relations, and account management services.

      (3)

"Master advertisement" means the original advertising material

created by the advertising agency for reproduction in tangible form for the

purpose of display or other advertising uses, such as master commercials,

camera ready art, proofs, and corporate logos.

 

      Section

2. Advertising Agencies as Consumers in Creation of Master Advertisement. (1)

An advertising agency shall be the consumer of all the tangible personal

property used in the performance of its advertising services to produce a

master advertisement regardless of whether the property the agency purchases is

acquired in the name or account of the advertising agency or its client. The

tax shall apply to the advertising agency’s purchase of:

      (a)

All tangible personal property for use in the performance of its advertising

services, including the purchase or rental of stock photos and movie footage

delivered as tangible personal property;

      (b)

Any materials that become a component of the master advertisement; and

      (c)

Any tangible personal property that is incidentally provided to the client as

part of the advertising services.

      (2)

An advertising agency shall not claim that its purchase of tangible personal

property is exempt from sales and use tax because the property is to be used in

fulfilling a contract with:

      (a)

The federal government, state government, or political subdivision thereof;

      (b)

Any department, agency, or instrumentality of the federal government, state

government or political subdivision thereof; or

      (c)

A religious, educational, or charitable institution exempt from tax under KRS

139.495.

      (3)

The performance of advertising services shall not constitute manufacturing or

processing production of tangible personal property for sale. Therefore, an advertising

agency shall not claim that its purchase of tangible personal property used in

the performance of its advertising services is exempt from sales and use tax

under the:

      (a)

Raw material, industrial tool, and industrial supply exemption as provided in

KRS 139.470(11); or

      (b)

The machinery for new and expanded industry exemption as provided in KRS

139.480(10).

      (4)

If acting in the capacity of a consumer, an advertising agency shall not bill

its client for tax on charges made for advertising services.

 

      Section

3. Advertising Agencies as Retailers After Creation of Master Advertisement.

(1) An advertising agency shall be a retailer of tangible personal property the

advertising agency sells to its clients or to others on behalf of its clients

regardless of whether the sale is at a marked-up price. This provision shall

include property reproduced from a master advertisement whether the advertising

agency or a third party actually reproduces the materials. This provision shall

not include property described in Section 2 of this administrative regulation

that the advertising agency uses in creating a master advertisement.

      (2)

An advertising agency engaged in business as a retailer shall:

      (a)

Complete a "Kentucky Tax Registration Application", (October 2002)

Revenue Form 10A100, to register with the Revenue Cabinet for a retail sales

and use tax permit; and

      (b)

Report and pay the applicable tax derived from gross receipts utilizing Revenue

Form 51A102, "Sales and Use Tax Return", (July 2003).

      (3)

Taxable receipts from an advertising agency’s retail sale of tangible personal

property shall include all charges for services that are a part of the sale of

tangible personal property including charges for:

      (a)

Inbound freight;

      (b)

Production supervision; or

      (c)

Print management that directly relate to the sale of particular tangible

personal property.

      (4)

Gross receipts subject to sales tax shall not include periodic print management

fees or other retainer fees not related to the sale of particular tangible property

and paid whether or not there is a transfer of tangible property in a given fee

period.

      (5)

An advertising agency may purchase tangible personal property it sells to or

for its clients as a sale for resale without payment of the tax if the advertising

agency provides to its suppliers a properly completed:

      (a)

Kentucky "Resale Certificate" (September 1990), (Revenue Form

51A105);

      (b)

Multistate Tax Commission (Uniform Sales and Use Tax Certificate

Multijurisdiction); or

      (c)

Other documentation containing the information required by KRS 139.280.

 

      Section

4. Joint Activities by Advertising Agencies. (1) If an advertising agency

contracts with a client to provide both advertising services and the sale of

tangible personal property, receipts subject to tax shall be determined by the

following guidelines provided the charges for the advertising services are

clearly delineated from the charges for the tangible personal property on the

customer’s invoice.

      (a)

Any transfer of tangible personal property for a consideration, other than the

master advertisement and the items described in Section 2 of this

administrative regulation used in the creation of the master advertisement, to

a client or a third party on behalf of a client shall be considered a retail

sale of tangible personal property subject to sales tax.

      (b)

Receipts from agency fees, service charges, or commissions exclusively for

advertising services shall not be subject to sales tax, including charges for

placing advertisements in print, broadcast, or other media.

      (c)

The amount separately stated for the tangible personal property shall not be

less than the fair market value of similar property sold in a similar

transaction not involving the provision of advertising services.

      (2)

If an advertising agency contracts with a client to provide both advertising

services and the sale of tangible personal property and does not clearly

delineate the charges on the customer’s invoice, the total billing amount is

subject to tax.

 

      Section

5. Incorporation by Reference. (1) The following material is incorporated by

reference:

      (a)

Revenue Form 10A100 "Kentucky Tax Registration Application For

Withholding, Corporation, Sales and Use Taxes, and Motor Vehicle Tire

Fee", October 2002;

      (b)

Revenue Form 51A102 "Sales and Use Tax Return", July 2003;

      (c)

Revenue Form 51A105 "Resale Certificate", September 1990; and

      (d)

"Uniform Sales and Use Tax Certificate - Multijurisdictional", July

2000.

      (2)

These material may be inspected, copied, or obtained, subject to applicable

copyright law, at the Kentucky Revenue Cabinet, 200 Fair Oaks Lane, Frankfort,

Kentucky 40601, or at any Kentucky Revenue Cabinet Taxpayer Service Center,

Monday through Friday, 8 a.m. to 4:30 p.m. (30 Ky.R. 1702; Am. 1904; eff.

2-16-2004.)