Q: My company is headquartered in Texas. We advertise our products in a California-based, nationwide trade magazine. We also advertise our products on the Internet. The Internet company supplying the service is also in California.
Is there a use tax liability associated with advertising expenditures? If I incur costs for advertising my products in this magazine, would I owe use tax?
A: Generally speaking, the amounts paid to place advertising on radio, TV, print, and the Internet, are exempt from sales and use tax. Placement of advertising is exempt in both Texas and California. The fact that you are using an Internet company in California to provide the service would not change the outcome.
If you were using artwork or other materials in the preparation of your advertisements, those materials would be subject to tax. You may have been charged sales tax on these materials from your vendor, if not, you would owe use tax on the value paid to the vendor.
A more complete analysis of the facts may change the conclusion. The tax consequences of the materials used as inputs to advertising can be complicated.
Managing Director, PricewaterhouseCoopers LLP
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