Florida Sales Tax Rules
12A-1.072 Advertising Agencies
(1) Definitions. The following terms and phrases when used in this rule shall have the meaning ascribed to them in this subsection, except where the context clearly indicates a different meaning.
(a) “Advertising” is the expression of an idea created and produced for reproduction and distribution through means such as television, radio, Internet, newspapers, newsletters, periodicals, trade journals, publications, books, magazines, standardized outdoor billboards, direct mail, point-of-sale displays, leaflets, brochures, fliers, or package design, and which is designed to promote sales of a particular product or service or to enhance the image of the advertiser. Advertising includes public service messages that are designed to affect the behavior of the public and messages that are political in nature.
(b)1. “Advertising agency” means any firm that is primarily engaged in the business of providing advertising materials and services to clients.
2. Examples.
a. Firms that are primarily engaged in consulting with their clients about marketing and advertising products or services, formulating a marketing plan intended to improve their image or increase their market share, and executing those plans, are considered to be advertising agencies.
b. Firms that are primarily engaged in the business of printing, imprinting, or reproducing tangible personal property and firms that are primarily engaged in the business of photography or broadcasting are not advertising agencies.
c. Firms that primarily specialize in providing pre-press service(s), such as graphic art, color separations, or velox providers are not advertising agencies.
d. Firms that primarily provide audio/visual production or recording services are not advertising agencies.
(c) “Firm” means corporation, sole proprietorship, partnership, or limited liability company.
(d)1. “Primarily engaged in the business of providing advertising materials and services” means more than 50 percent of its gross receipts in the firm’s previous tax year were, or in the first tax year are budgeted to be, from receipts for the sale of advertising materials and services to clients. For purposes of determining whether the firm qualifies under this definition, there shall be deducted from gross receipts amounts paid by the agency on behalf of its client to a third party for charges such as printing, imprinting, reproduction, publishing of tangible personal property, broadcasting advertisements, media placement, or other out-sourced activities before applying the 50 percent test.
2. Example.
Gross Receipts $2,754,217.00
Deduct Outsourced Costs
Printing Costs $726,785.00
Media Costs $779,613.00
Photography $33,950.00
Total Outsourced Costs $1,540,348.00
Difference to apply 50% test $1,213,869.00
50% $606,934.50
If more than $606.934.50 is from advertising services, this company qualifies as an advertising agency.
3. Example.
Gross Receipts $2,754,217.00
Receipts from In-House Printing
(Cannot be deducted because not outsourced) $1,540,348.00
Difference $1,213,869.00
Amount to apply 50% test $2,754,217.00
50% $1,377,108.50
If even the entire $1,213,869.00 is from the provision of advertising services, it is less than 50% of gross receipts. Therefore, this company does not qualify as an advertising agency.
(e) “Advertising materials” means tangible personal property sold to an advertising agency, created by an advertising agency, or sold by an advertising agency during the course of providing advertising services. Examples of advertising materials include: photographs, videos containing images, films containing images, veloxes, galleys, mechanicals, artwork, illustrations, digital audio tapes, analog tapes, compact discs, sketches, layouts, engravings, mats, models, mockups, and digital equipment. “Advertising materials” does not include “raw materials.”
(f) “Raw materials” means materials or media used to create advertising materials. “Raw materials” includes items such as: blank film; blank videotapes; art supplies, such as poster board, paper products, inks, letters, and paints; stock art; stock photography; prerecorded music and sound; stock props; stock costumes; and stock backdrops.
(g) “Advertising services” means services rendered by an advertising agency when designing and/or implementing an advertising campaign to promote a product, service, idea, concept, issue, or the image of a person. This includes services rendered to design and produce advertising materials such as: research; design, layout, preliminary and final art preparation; placing or arranging for advertising: creative consultation, coordination, direction, and supervision; script writing and copywriting; editing; and account management services. However, if an advertising campaign is planned and prepared, but the client elects not to proceed with the production or placement of the advertising, or the client elects to do its own placement of the advertising with the media, the agency will still be considered to have provided advertising services.
(h) “Promotional goods” means tangible personal property used for promotional purposes. Examples of promotional goods include displays, display containers, exhibits, newspaper inserts, brochures, catalogues, direct mail letters or flats, shirts, hats, pens, pencils, key chains, audio tapes, videotapes, compact discs, business cards, or other printed goods or materials.
(i)1. “Acting as agent for its clients pursuant to a contract.” In order to purchase advertising materials exempt from tax, the advertising agency must make purchases on behalf of clients pursuant to a contract. A common law principal/agent relationship is not required. The existence of a contract to act as agent for a client may be evidenced in the advertising agency’s book and records by:
a. A written contract clearly stating that the advertising agency will act on behalf of a client as agent; or
b. Documents, such as invoices and purchase orders, by which the agency discloses to its suppliers that it is acting on behalf of a client, regardless of whether the specific client(s) is identified; or
c. Proof of a course of dealing that would establish an agency relationship, such as being on a retainer paid by the client.
2. When the advertising agency is acting on behalf of its clients pursuant to contract, it may purchase advertising materials tax exempt. When tangible personal property purchased by the advertising agency is depreciated or capitalized for accounting or income tax purposes by the agency, or the advertising agency makes use of the property for its own account, the tangible personal property is subject to tax.
(2) Sales of Services. The sale of advertising services by an advertising agency is exempt from tax. The professional service fee charged by an advertising agency for services is exempt from tax. An advertising agency’s professional fee includes agency time or hourly charges, retainer fees, agency mark-up on exempt advertising materials, and media commissions.
(3) Sales of Advertising Materials.
(a)1. The charge by an advertising agency to clients for advertising materials is exempt from sales tax. The exemption applies regardless of the advertising agency’s method of billing, whether the contract reflects a lump sum or separately states the costs of exempt advertising materials and other services and professional fees.
2. When an advertising agency sells promotional goods along with exempt items or services, the taxable items must be separately stated in order for the exempt items to receive the exemption.
(b) Example: The advertising agency prepares and prints a brochure for its client. The preparation of the brochure includes the concept development, design and layout, preparation of advertising materials, including photographs, artwork, and mechanicals, and the printing of the copies of the brochure. The advertising agency pays sales tax on all raw materials used in creating advertising materials. The following are examples of the proper tax treatment for each method of contracting with the charges to the client:
1. The advertising agency contract separately itemizes the components of the brochure as: design, advertising materials, and printing. Sales tax is due only on the charge for printing, including any mark-up. The sales tax must be separately stated.
2. The advertising agency contract combines the charges for the design services and advertising materials into a single charge, but separately states the printing charge, including the mark-up. Sales tax is due only on the charge for printing, including the mark-up. The sales tax must be separately stated.
3. The advertising agency contract combines the charges for the design services, advertising materials, and printing in a single charge. Sales tax is due on the lump sum charge to the client. The sales tax must be separately stated.
(4) Purchases of Advertising Materials by the Advertising Agency.
(a) If an advertising agency is under contract to act on behalf of its clients, the advertising agency may purchase advertising materials or advertising services exempt from tax by extending an exemption certificate to the vendor. The exemption certificate does not entitle the advertising agency to purchase raw materials exempt from tax, even when those raw materials are used to produce advertising materials in-house. A suggested format of the exemption certificate to be issued to the vendor is provided in subsection (10).
(b) Any vendor providing advertising materials to an advertising agency pursuant to this exemption is relieved of the responsibility of collecting tax on the sale of any advertising materials if:
1. The advertising agency presents an exemption certificate certifying the agency’s entitlement to the exemption to the vendor; and
2. The vendor retains a copy of a purchaser’s exemption certificate from the advertising agency in its records until tax imposed under Chapter 212, F.S., may no longer be determined and assessed under Section 95.091(3), F.S.
(c) If it is determined that the advertising agency was not entitled to the exemption, the department shall look only to the advertising agency for any sales tax due on the purchase of advertising materials.
(5) Creation of Advertising Materials by the Advertising Agency. If an advertising agency produces, fabricates, manufactures, or otherwise creates advertising materials in-house for its clients, the sale of such advertising materials to its clients is exempt from sales tax. Further, the advertising agency does not pay use tax on the production, fabrication, or manufacture of such advertising materials used in the performance of advertising services for its clients.
(6) Raw Materials Used in Advertising.
(a) The purchase of raw materials, whether purchased by an advertising agency or by a person who creates advertising materials for sale to an advertising agency, is taxable.
(b) Example: When a photographer purchases film, the film is taxable when purchased by the photographer. However, when the photographer alters the film to create an image and sells or licenses the image to an advertising agency, the photographer does not collect tax if the advertising agency issues an exemption certificate to the photographer.
(7) Promotional Goods.
(a) When promotional goods are created by an advertising agency, the charge for development of sample promotional goods is exempt from sales tax, whether produced in-house or purchased from a vendor.
(b)1. When promotional goods are produced or reproduced for distribution, the charge for production or reproduction of the promotional goods is subject to sales tax whether or not the client takes physical possession of the promotional goods produced or reproduced for distribution. The advertising agency must register with the Department of Revenue, and collect and remit tax on the transaction. See Rule 12A-1.060, F.A.C.
2. Example: If an advertising agency uses a printer to produce or reproduce a promotional good, such as a brochure, the advertising agency would extend an annual resale certificate (Form DR-13) to the printer, who would not charge sales tax on the invoice to the advertising agency. However, the advertising agency would be required to charge sales tax to a client for the production or reproduction costs of the promotional good, including the advertising agency’s mark-up for printing. The advertising agency would remit the tax to the Department of Revenue.
(c) For newspaper inserts, see Section 212.05(1)(g)2., F.S. For publications exempt from tax, see Section 212.08(7)(w), F.S.
(8) Billboards. The advertising materials and services used in the creation of billboard concepts and mock-ups by an advertising agency are exempt under these provisions. However, the charge for the production of displays is taxable. See Section 212.031, F.S., for the taxability of the lease or license to use billboards.
(9) Sales of tangible personal property by an advertising agency to persons other than its clients are taxable, unless specifically exempted by other sections of Chapter 212, F.S.
(10) The following is the suggested format of the exemption certificate to be issued to the vendor by the advertising agency when purchasing exempt advertising materials:
SUGGESTED PURCHASER’S EXEMPTION CERTIFICATE
ITEMS SOLD TO ADVERTISING AGENCIES
____________________ (Purchaser’s Name) certifies that the advertising materials, meaning materials created for the purpose of providing advertising services including, but not limited to, photographs, videos containing images, films containing images, veloxes, galleys, mechanicals, artwork, illustrations, digital audio tapes, analog tapes, compact discs, sketches, layouts, engravings, mats, models, mockups, and digital equipment services, purchased on or after ________ (date) are purchased by the advertising agency pursuant to a contract to act on behalf of a client or clients, and that the items are created to provide advertising services.
Purchaser further certifies that the items are not raw materials, and the items are not being purchased to produce advertising materials in-house by the advertising agency. “Raw materials” means materials or media used to create advertising materials. “Raw materials” includes items such as: blank film; blank videotapes; art supplies, such as poster board, paper products, inks, letters, and paints; stock art; stock photography; prerecorded music and sound; stock props; stock costumes; and stock backdrops.
The undersigned understands that if such items do not qualify for exemption, the undersigned will be subject to sales and use tax, interest, and penalties. The undersigned further understands that when any person fraudulently, for the purpose of evading tax, issues to a vendor or to any agent of the state a certificate or statement in writing in which he or she claims exemption from the sales tax, such person, in addition to being liable for payment of the tax plus a mandatory penalty of 200% of the tax, shall be liable for fine and punishment provided by law for conviction of a felony of the third degree, as provided in Section 775.082, 775.083, or 775.084, F.S.
_______________________________ | ________________________ |
(Purchaser’s Name – Print or Type) | Florida Sales Tax Number |
| (if applicable) |
________________________________ | ________________________ |
Signature and Title | Date |
________________________________ | ________________________ |
Federal Employer Identification Number | Telephone Number |
(F.E.I.) or Social Security Number
|
|
(Form to be retained in vendor’s records)
Rulemaking Authority 212.08(7)(vv), 212.18(2), 213.06(1) FS. Law Implemented 212.02(4), (12), (16), 212.05(1), (2), 212.06(1), 212.08(7)(v), (vv) FS. History–New 10-7-68, Amended 1-7-70, 6-16-72, 7-20-82, Formerly 12A-1.72, Amended 3-4-01.
