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.
W. Val Oveson
Managing Director, PricewaterhouseCoopers LLP
See previous “Ask the Experts” columns:
A FAS 133 Excercise
Recognizing Upfront Fees
Proving Tax-exempt Status
The ABCs of OECD
Credentials for Credit
Big Five Audits and Venture Funding
GAAP for Private Firms
Insurance for E- business Infrastructure
401(k) Brokerage Links
Navigating the Rough Waters of Sales Tax
Ask the Experts is a weekly column that aims to help finance executives like you find answers to difficult questions.
Submit your questions by E-mailing them to [email protected]. Unfortunately, we cannot answer all questions individually.
While we will enlist professionals to try to answer your questions, Ask the Experts is meant only to create a dialogue on the topics. Consult legal or financial professionals before acting on any of the advice given by our expert panel.