Current through Register Vol. 50, No. 6, December 1, 2023
RELATES TO:
KRS
139.010,
139.200,
139.260,
139.270,
139.280,
139.310,
139.330,
139.470,
139.480,
139.495
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
131.130(1) and
139.710
authorize the Department of Revenue 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 and digital 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 as tangible personal property or digital
property 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 tangible personal property and digital 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 or digital 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 or digital
property;
(b) Any materials that
become a component of the master advertisement; and
(c) Any tangible personal property or digital
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 or digital 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 or digital property for sale. Therefore, an advertising
agency shall not claim that its purchase of tangible personal property or
digital 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(9); 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 and digital 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(1) 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", Revenue Form 10A100, to register with the Department of Revenue
for a retail sales and use tax permit; and
(b) Report and pay the applicable sales or
use tax utilizing Revenue Form 51A102, "Sales and Use Tax Return".
(3) Taxable receipts from an
advertising agency's retail sale of tangible personal property or digital
property shall include all charges for services that are a part of the sale of
tangible personal property and digital 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 personal property or digital property and
paid whether or not there is a transfer of tangible personal property or
digital property in a given fee period.
(5) An advertising agency may purchase
tangible personal property and digital property it sells to or for its clients
as a sale for resale without payment of the tax if the advertising agency:
(a) Provides to its suppliers a properly
completed:
1. Kentucky "Resale Certificate",
(Revenue Form 51A105);
2.
Multistate Tax Commission (Uniform Sales and Use Tax Certificate
Multijurisdiction);
3. Streamlined
Sales and Use Tax Agreement - Certificate of Exemption (Revenue Form 51A260);
or
4. Other documentation
containing the information required by
KRS
139.280; and
(b) Reports and pays the applicable sales or
use tax on their sales of the tangible personal property, digital property, and
services included in
KRS
139.200 utilizing Revenue Form 51A102, "Sales
and Use Tax Return".
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 or digital property, receipts subject to tax shall be determined by
the following guidelines if the charges for the advertising services are
clearly delineated from the charges for the tangible personal property or
digital property on the customer's invoice.
(a) Any transfer of tangible personal
property or digital property for a consideration, other than the master
advertisement and the items described in Section 2(1) 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 or digital 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 or digital 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 or digital property and does not
clearly delineate the charges on the customer's invoice, the total billing
amount shall be subject to tax.
Section 5. Forms. The forms listed herein may
be inspected, copied, or obtained, subject to applicable copyright law, at:
(1) The Kentucky Department of Revenue, 501
High Street, Frankfort, Kentucky 40601;
(2) At a Kentucky Taxpayer Service Center
during business hours; or
(3) On
the department Web site at
http://revenue.ky.gov.
30 Ky.R. 1702;
1904; eff. 2-16-2004; 44 Ky.R. 1097, 1494; eff. 2-2-2018; Crt eff 1-28-2020; 46
Ky.R. 1920, 2389; eff. 6-2-2020.
STATUTORY AUTHORITY:
KRS
131.130,
139.710