Are marketing consulting and consumer test-market workshops taxable 'business public relations services' in Connecticut?

Plain-English summary

A company helped clients market their products. It assessed how a client was marketing a product, advised on how to market it better, and then ran "workshops" in which ordinary members of the public served as a test market — trying out the new marketing ideas and giving feedback. DRS was asked whether either piece — the marketing advice or the workshops — was a taxable "business public relations service" under § 12-407(2)(i)(J).

Connecticut taxes "business analysis, management, management consulting and public relations services," but the regulation excludes "business marketing services" from the taxable "public relations" category. Those are defined (Conn. Agencies Regs. § 12-407(2)(i)(J)-1(g)) as "the performance of testing, research or analysis of existing or potential consumer markets in connection with the development of particular products … for sale to others by the service recipient, including consulting in connection therewith."

DRS placed both parts of the company's work inside that exclusion:

• The marketing advice was given "directly in connection with the product marketing activities of its clients" — so even though it was consulting, it was marketing consulting, not taxable public relations.
• The workshops existed "essentially for the purpose of analyzing existing or potential consumer markets in connection with the development of particular products" — squarely the excluded market-research/analysis activity.

DRS distinguished Ruling No. 91-17 (also a non-taxable market-research result). There, the taxpayer merely prepared random demographic/geographic samples to the client's specifications. Here the company did more — it consulted on marketing and then tried the ideas out on consumers in workshops — but the outcome was the same: not taxable, because it all fell within excluded business marketing services.

What this means for you

Market-research and marketing-consulting firms

If your work is testing, researching, or analyzing consumer markets to help develop or sell a client's product — and the consulting you provide is tied to that marketing — it generally falls in the excluded "business marketing services" category and isn't a taxable business public relations service in Connecticut. Running consumer test panels or workshops to gather product feedback fits here.

Watch the public-relations vs. marketing line

The exemption depends on the work being marketing/market analysis, not general public relations. Business PR (managing a client's public image, media relations, and the like) remains taxable under § 12-407(2)(i)(J). The more your consulting is tied to a specific product and its consumer market, the more it looks like exempt marketing.

"Doing more than samples" didn't change the result

DRS noted this company went beyond the prior Ruling 91-17 taxpayer (which just built research samples) by also consulting and test-running ideas on consumers. Both were non-taxable — but the reasoning differs, so don't assume any consulting attached to research is automatically exempt; it has to be marketing/market-analysis consulting.

Common questions

Q: Is marketing consulting taxable in Connecticut?
A: Not when it's tied to product marketing and the analysis of consumer markets. The regulation excludes those "business marketing services" from the taxable business-public-relations category.

Q: What about running consumer test-market workshops?
A: Those are exempt too, when their purpose is analyzing existing or potential consumer markets in connection with developing a product — as DRS found here.

Q: How is this different from taxable public relations?
A: Business public relations (image, media, and reputation work) is taxable. Marketing services — testing, researching, or analyzing consumer markets to develop and sell products — are carved out and not taxable.

Q: What was Ruling 91-17 and why distinguish it?
A: In 91-17, the taxpayer prepared market-research samples to the client's specifications and was found non-taxable. DRS distinguished it because this company did more (consulting plus consumer workshops), but reached the same non-taxable result.

Citations and references

Statutes and regulations:

• Conn. Gen. Stat. § 12-407(2)(i)(J) (business analysis, management, management consulting and public relations services)
• Conn. Agencies Regs. § 12-407(2)(i)(J)-1(g) (exclusion of "business marketing services" — testing/research/analysis of consumer markets in connection with product development, including related consulting)

Related guidance (described in prose, not linked):

• Ruling No. 91-17 (non-taxable market-research samples prepared to client specifications; distinguished by this Ruling)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 94-9

Original ruling text

Ruling 94-9, Sales and Use Taxes / Business Public Relations Services / Marketing Services

FACTS:

A company ("Company") provides marketing consulting services which consist of assessing a client's marketing of a product, giving advice on how to better market the product and then conducting "workshops" in which members of the general public are utilized as a test-market to gain feedback about the client's product using some of the new marketing strategies recommended by the Company.

ISSUE:

Whether the service of providing marketing advice and consultation is taxable pursuant to Conn. Gen. Stat. §12-407(2)(i)(J) as a "business public relations service";

Whether the service of conducting "workshops" to test the marketing strategies developed for a client on members of the general public is taxable pursuant to Conn. Gen. Stat. §12-407(2)(i)(J) as a "business public relations service."

DISCUSSION:

Conn. Gen. Stat. §12-407(2)(i)(J) includes in the definition of "sale" and "selling" "business analysis, management, management consulting and public relations services." Subsection (g) of Conn. Agencies Regs. §12-407(2)(i)(J)-1 excludes from the definition of "business public relations services":

business marketing services, which in contrast to business public relations services involve the performance of testing, research or analysis of existing or potential consumer markets in connection with the development of particular products, property, goods or services for sale to others by the service recipient, including consulting in connection therewith.

In Ruling No. 91-17 the Department held that marketing research services are not subject to sales and use taxes. The facts in Ruling No. 91-17 were similar to the instant facts in that the taxpayer there prepared random samples drawn from demographic groups and geographic regions. The distinction between those facts and these, however, is that in Ruling No. 91-17 the marketing samples were prepared according to the client's specifications.

By also assembling and conducting client "workshops," the Company does more than prepare marketing samples. The Company first consults with its client on how to better market the product and then complements this advice with "workshops" in which, among other things, the new marketing ideas suggested by the Company are explored and "tried out" on consumers.

Although the Company provides a great deal of consulting advice to its clients, this advice is given directly in connection with the product marketing activities of its clients. Furthermore, the "workshops" it conducts are essentially for the purpose of analyzing "existing or potential consumer markets in connection with the development of particular products..." Conn. Agencies Regs. §12-407(2)(i)(J)-1(g).

RULING:

The service of providing marketing advice and consultation is not a "business public relations service" subject to sales and use taxes pursuant to Conn. Gen. Stat. §12-407(2)(i)(J).

The service of conducting "workshops" to test a marketing approach on members of the general public is not a "business public relations service" subject to sales and use taxes pursuant to Conn. Gen. Stat. §12-407(2)(i)(J).

Ruling No. 91-17 has been distinguished by this Ruling.

LEGAL DIVISION

May 6, 1994