Which web, branding, campaign, direct-mail, and annual-report charges of a qualifying advertising agency were taxable?

Subject

Advertising Agencies Exemption

Plain-English summary

Most of the firm's design and advertising charges were nontaxable, but printed promotional goods remained taxable. Producing and hosting websites without transferring tangible personal property was a professional service outside Florida sales tax.

Because more than half of the firm's gross receipts came from advertising materials and services, it qualified as an advertising agency. Its branding, advertising campaigns, and strategic work provided with advertising services were exempt. Direct-mail development and design were exempt, but promotional goods produced for distribution were taxable. For annual reports, separately stated design services were exempt and the printing charge was taxable.

What this means for you

The result turned on both the firm's advertising-agency status and what it delivered. Pure digital or qualifying advertising services received favorable treatment, while produced promotional goods and printing retained their own tax treatment.

Common questions

Q: Were website production and hosting taxable? No, when no tangible personal property was transferred.

Q: Were qualifying advertising services exempt? Yes.

Q: Was annual-report printing taxable? Yes, when separately stated from the exempt design work.

Citations and references

• Fla. Stat. §§ 212.02(15)(a), 212.02(16), and 212.05(1)(a) — sales of tangible personal property
• Fla. Stat. § 212.08(7)(v)1. and (xx) — service and advertising-agency exemptions
• Fla. Admin. Code rr. 12A-1.072 and 12A-1.062 — advertising agencies and information services
• Department of Revenue v. Quotron Systems, Inc., 615 So. 2d 774 (Fla. 3d DCA 1993)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-019

Original ruling text

SUMMARY

QUESTION 1: Are charges for web design services (including
charges for creative development and design, visual
interface, and implementation of a web-site) provided by
Company, an advertising agency, subject to sales and use
tax?

ANSWER 1 - Based on Facts Below: No. Charges for web design
services provided by Company do not involve a transfer of
tangible personal property, and are not subject to sales
tax under Chapter 212.

QUESTION 2: Are charges for corporate branding services
(including charges for creative development and design,
digital production of visual identity, and logotype)
provided by Company, an advertising agency, subject to
sales and use tax?

ANSWER 2 - Based on Facts Below: No. Charges for the
corporate branding services provided by Company, an
advertising agency, are advertising services. Such charges
by an advertising agency are exempt from sales tax pursuant
to s. 212.08(7)(xx). 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.

QUESTION 3: Are charges for advertising campaign services
(including charges for creative development, consultation,
design, and digital preparation and film production)
provided by Company, an advertising agency, subject to
sales and use tax?

ANSWER 3 - Based on Facts Below: No. Charges for
advertising campaign services provided by Company, an
advertising agency, are exempt pursuant to s.
212.08(7)(xx). 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.

QUESTION 4: Are charges for concept and strategic
development services (including charges for creative
development, consultation, design, and digital and
production of corporate collateral communications material)
provided by Company, an advertising agency, subject to
sales and use tax?

ANSWER 4 - Based on Facts Below: No. Charges for the
concept and strategic development services provided by
Company, an advertising agency, are advertising services.
Such charges by an advertising agency are exempt from sales
tax pursuant to s. 212.08(7)(xx). 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.

QUESTION 5: Are charges for direct marketing campaign
services (including charges for creative development,
concept design, and digital production of direct mail
marketing campaigns) provided by Company, an advertising
agency, subject to sales and use tax?

ANSWER 5 - Based on Facts Below: No. Separately stated
charges for the development and design of promotional
materials are exempt from sales and use 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.

QUESTION 6: Are charges for annual report services
(including charges for creative development, consultation,
concept design, digital and print production of annual
reports) provided by Company, an advertising agency,
subject to sales and use tax?

ANSWER 6 - Based on Facts Below: Charges for the annual

report services provided by Company, an advertising agency,
include charges for the design and printing of promotional
materials. Separately stated charges for the development
and design of promotional materials are exempt from sales
and use tax. However, sales tax is due on the separately
stated printing charge.

May 07, 2001

Re: Technical Assistance Advisement 01A-019
Sales and Use Tax - Advertising Agencies Exemption
Sections: 212.05(1)(a); 212.02(15)(a) and (16);
212.08(7)(v)1.; 212.08(7)(xx), F.S.
Rules: 12A-1.072, 12A-1.062, F.A.C.
("Company")
FEI# XX

Dear:

This is in response to your request, dated and received January
30, 2001, for the Department's issuance of a Technical
Assistance Advisement ("TAA") concerning the above referenced
party and matter. Your letter has been carefully examined and
the Department finds it to be in compliance with the requisite
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA and is issued to you under the
authority of section 213.22, F.S.

Requested Advisement

Whether Company should charge sales tax on the services it
provides to its clients.

Discussion of Facts

Company provides a wide range of communications/design services
to meet any or all of its clients' marketing needs. Company
specializes in the creative development and design of web-sites,

corporate branding and communication, advertising campaigns,
concept and strategic development, direct mail marketing and
annual reports. In addition, Company frequently partners with
advertising agencies and public relations firms to provide the
services mentioned above. These services are discussed in
greater detail below:

I. Web-sites: Creative development/design, visual interface and
implementation of web-site.

II. Corporate Branding and Communication: Creative/design,
digital production of visual identity, logotype and/or signature
for advertising and public relations agencies, professional
firms, etc. Projects often include design of graphic guidelines
for implementation of identity standards (either in digital
format or printed).

III. Advertising Campaigns: Creative development, consultation,
design and digital preparation and/or film production for
corporate clients, agencies, public relations firms, etc.

IV. Concept and Strategic Development: Creative development,
consultation, design, digital and/or print production of
corporate collateral communications material.

V. Direct Marketing Campaigns: Creative development,
concept/design and digital and/or print production of direct
mail marketing campaigns.

VI. Annual Reports: Creative development, consultation,
concept/design, digital and/or print production of annual
reports.

Applicable Statutes and Rules

Section 212.05, F.S., provides in pertinent part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state, including the business of making mail

order sales, or who rents or furnishes any of the things or
services taxable under this chapter, or who stores for use
or consumption in this state any item or article of
tangible personal property as defined herein and who leases
or rents such property within the state.

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:
(a) 1.a. At the rate of 6 percent of the sales price of
each item or article of tangible personal property when
sold at retail in this state, computed on each taxable sale
for the purpose of remitting the amount of tax due the
state, and including each and every retail sale.

Section 212.02(15)(a) and (16), F.S., defines the terms "sale"
and "sales price" as follows:

(15) "Sale" means and includes:
(a) Any transfer of title or possession, or both, exchange,
barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration....

(16) "Sales price" means the total amount paid for tangible
personal property, including any services that are a part
of the sale, valued in money, whether paid in money or
otherwise, and includes any amount for which credit is
given to the purchaser by the seller, without any deduction
therefrom on account of the cost of the property sold, the
cost of materials used, labor or service cost, interest
charged, losses, or any other expense whatsoever. "Sales
price" also includes the consideration for a transaction
which requires both labor and material to alter, remodel,
maintain, adjust, or repair tangible personal property....
(Emphasis Supplied)

Section 212.08(7)(v) 1., F.S., provides:

1. Also exempted are professional, insurance, or personal
   service transactions that involve sales as inconsequential

elements for which no separate charges are made.

Section 212.08(7)(xx), F.S., provides:

(xx) Advertising agencies.-1. As used in this paragraph, the term "advertising agency"
means any firm that is primarily engaged in the business of
providing advertising materials and services to its
clients.

2. The sale of advertising services by an advertising
   agency to a client is exempt from the tax imposed by this
   chapter. Also exempt from the tax imposed by this chapter
   are items of tangible personal property such as
   photographic negatives and positives, videos, films,
   galleys, mechanicals, veloxes, illustrations, digital
   audiotapes, analog tapes, printed advertisement copies,
   compact discs for the purpose of recording, digital
   equipment, and artwork and the services used to produce
   those items if the items are:

a. Sold to an advertising agency that is acting as an agent
for its clients pursuant to contract, and are created for
the performance of advertising services for the clients;

b. Produced, fabricated, manufactured, or otherwise created
by an advertising agency for its clients, and are used in
the performance of advertising services for the clients; or

c. Sold by an advertising agency to its clients in the
performance of advertising services for the clients,
whether or not the charges for these items are marked up or
separately stated.

The exemption provided by this subparagraph does not apply
when tangible personal property such as film, paper, and
videotapes is purchased to create items such as
photographic negatives and positives, videos, films,
galleys, mechanicals, veloxes, illustrations, and artwork
that are sold to an advertising agency or produced in-house
by an advertising agency on behalf of its clients.

3. The items exempted from tax under subparagraph 2. and
the creative services used by an advertising agency to
design the advertising for promotional goods such as
displays, display containers, exhibits, newspaper inserts,
brochures, catalogues, direct mail letters or flats,
shirts, hats, pens, pencils, key chains, or other printed
goods or materials are not subject to tax. However, when
such promotional goods are produced or reproduced for
distribution, tax applies to the sales price charged to the
client for such promotional goods.

4. For items purchased by an advertising agency and exempt
   from tax under this paragraph, possession of an exemption
   certificate from the advertising agency certifying the
   agency's entitlement to exemption relieves the vendor of
   the responsibility of collecting the tax on the sale of
   such items to the advertising agency, and the department
   shall look solely to the advertising agency for recovery of
   tax if it determines that the advertising agency was not
   entitled to the exemption.

5. The exemptions provided by this paragraph apply
   retroactively, except that all taxes that have been
   collected must be remitted, and taxes that have been
   remitted before July 1, 1999, on transactions that are
   subject to exemption under this paragraph are not subject
   to refund.

6. The department may adopt rules that interpret or define
   the provisions of these exemptions and provide examples
   regarding the application of these exemptions.

Rule 12A-1.062, F.A.C., provides in pertinent part:

(1) The sale of information services involving the
furnishing of printed, mimeographed, multigraphed matter,
or matter duplicating written or printed matter, other than
professional services and services of employees, agents, or
other persons acting in a representative or fiduciary
capacity, are taxable.

(2) Information services furnished to newspapers, radio and
television stations are exempt.

(3) "Information Services" means and includes the services
of collecting, compiling, or analyzing information of any
kind or nature, or furnishing reports thereof to other
persons. The charge for furnishing information services,
such as newsletters, tax guides, research publications, and
other written reports of compiled information, which are
not produced for and provided exclusively to a single
customer, is taxable....

Analysis & Response

Pure service transactions are not generally taxed under Chapter
212, F.S., unless their taxation is authorized under a specific
provision. There are no specific provisions under Chapter 212,
F.S., that assess tax on design or marketing services when those
services do not involve the sale of tangible personal property.
Section 212.08(7)(v)1., F.S., exempts service transactions that
involve the sale of tangible personal property when the tangible
personal property is an inconsequential element of the
transaction. Section 212.08(7)(xx), F.S., provides a specific
exemption for services performed by "advertising agencies."

Effective July 1, 1999, s. 212.08(7)(xx), F.S., provides a
specific exemption for services performed by "advertising
agencies." Section 212.08(7)(xx)1., F.S., defines an
"advertising agency" as "any firm that is primarily engaged in
the business of providing advertising materials and services to
its clients."

Section 212.08(7)(xx), F.S., provides that items and associated
services sold by an "advertising agency" are exempt when they
are sold to a client in the performance of "advertising
services" for that client. Rule 12A-1.072(1)(b)1., F.A.C. (a
copy of which is enclosed with this letter), defines an
"advertising agency" as a firm that is primarily engaged in the
business of providing "advertising materials" and "advertising
services" to its clients. According to Rule 12A-1.072(1)(d)1.,

F.A.C.:

"Primarily engaged in the business of providing advertising
materials and services" means more than 50 percent of the
gross receipts in a 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....

You indicate in your request that more than 50 percent of
Company's gross receipts from the previous tax year were from
receipts for the sale of "advertising materials" and
"advertising services" to its clients. Thus, for purposes of
this TAA, Company satisfies the definitional requirements of an
"advertising agency" under Rule 12A-1.072(1)(b)1., F.A.C.
Accordingly, Company is entitled to any applicable exemptions
under s. 212.08(7)(xx), F.S., and Rule 12A-1.072, F.A.C.

Bearing the preceding discussion in mind, we address the
applicability of the exemptions provided by s. 212.08(7)(xx),
F.S., and Rule 12A-1.072, F.A.C., to the services Company
provides:

I. Web-Sites

With respect to the charges by Company for the production and
hosting of web-sites (as evidenced by the included invoices), it
is not necessary to reach a determination of the applicability
of the exemption provided by s. 212.08(7)(xx), F.S. In
Department of Revenue v. Quotron Systems, Inc., 615 So.2d 774
(3rd DCA 1993), the court held that electronic images that
appear on video display screens are not "tangible personal
property" as defined in s. 212.02(19), F.S., and that
transmission of such images is not a "sale." Thus, charges for
electronic images appearing on a video screen are not subject to
taxation under Chapter 212, F.S.

Internet related services, such as producing and/or hosting web
sites, do not constitute the sale of tangible personal property,
and are not subject to Florida sales and use tax, under the
Quotron holding, above. Charges for producing and/or hosting a

web site are considered to be charges for a professional service
and do not constitute a sale, rental, or lease of tangible
personal property. Therefore, such professional service charges
are not subject to Florida sales and use tax, so long as no
tangible personal property is transferred as part of the
transaction.

Accordingly, sales tax should not have been billed on invoices
XXX or XXX.

II. Corporate Branding and Communication

Because Company meets the definition of an "advertising agency,"
as discussed above, the corporate branding and communication
services and associated tangible items charged to its clients
are exempt, provided they are charged to its clients as part of
the sale of "advertising materials" or the provision of
"advertising services" to such clients. "Advertising materials"
are tangible personal property sold to, created by, or sold by
an "advertising agency" during the course of providing
"advertising services." See Rule 12A-1.072(1)(e), F.A.C.
"Advertising services" are 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. See Rule 12A-1.072(1)(g), F.A.C.

The corporate branding and communication services provided by
Company include production of visual identities, logotypes,
and/or signatures for advertising and public relations agencies.
These services appear to qualify as "advertising services" under
Rule 12A-1.072(1)(g), F.A.C. Thus, their sale would be exempt
pursuant to s. 212.08(7)(xx), F.S.

Accordingly, Company was correct in not billing sales tax on
invoices XXX and XXX.

III. Advertising Campaigns

Because Company meets the definition of an "advertising agency"
as discussed above, the "advertising services" and associated
tangible items charged to its clients are exempt. See s.

212.08(7)(xx), F.S.

Accordingly, no sales tax should have been charged on invoices
XXX through XXX.

IV. Concept and Strategic Development

Because Company meets the definition of an "advertising agency,"
as discussed above, the conceptual and strategic development
services and associated tangible items charged to its clients
are exempt, provided they are charged to its clients as part of
the sale of "advertising materials" or the provision of
"advertising services" to such clients. "Advertising materials"
are tangible personal property sold to, created by, or sold by
an "advertising agency" during the course of providing
"advertising services." See Rule 12A-1.072(1)(e), F.A.C.
"Advertising services" are 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. See Rule 12A-1.072(1)(g), F.A.C.

The conceptual and strategic development services provided by
Company include creative development, consultation, design, and
digital and/or print production of corporate collateral
communications material. Their taxability cannot be determined
based solely upon this information whether the conceptual and
strategic development services qualify as "advertising
services," although it is certainly possible. However, your
request indicates that these services were provided in
conjunction with the "advertising services" discussed at III.
above. To the extent such conceptual and strategic development
services are provided as part of "advertising services" they
would qualify as "advertising services" under Rule 12A1.072(1)(g), F.A.C. Thus, their sale would be exempt pursuant
to s. 212.08(7)(xx), F.S.

Accordingly, sales tax should not have been billed on invoices
XXX.

V. Direct Marketing Campaigns

The advertising exemption provided by s. 212.08(7)(xx), F.S.,
does not apply to "promotional goods." Rule 12A-1.072(1)(h),
F.A.C., defines "promotional goods" as tangible personal
property used for promotional purposes, including "direct mail
letters or flats... or other printed goods or materials." Rule
12A-1.072(7)(a), F.A.C., provides that the charge for
development of sample "promotional goods" is exempt from sales
tax. However, the charge for "promotional goods" produced or
reproduced for distribution is subject to sales tax whether or
not the client takes physical possession of such goods. If such
"promotional goods" are sold along with exempt items or
services, the taxable items must be separately stated or the
exempt items are taxable as part of the total sales price. See
Rule 12A-1.072(3)(a)2., F.A.C. The invoices provided by Company
indicate that the charges for the direct mail campaign materials
were billed separately from the developmental costs.

Accordingly, sales tax should not have been billed on invoices
XXX.

VI. Annual Reports

The annual report service provided by Company is comprised of
creative development, consultation, and concept/design services,
as well as printing of the reports themselves. Rule 12A1.072(3)(a) 1., F.A.C., provides that 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." Rule 12A1.02(3)(a), F.A.C., provides additional guidance on this issue:

.... [An] 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:

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....

The annual report service provided by Company in analogous to
the printing of brochures in the example above. Thus, Company
should only have charged sales tax on the printing charge when
it charged its client for the annual report service.

Accordingly, Company should not have charged sales tax on
invoices XXX. Company correctly charged sales tax on invoice
XXX.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
Company. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Case A. Bodiford
Conferee
Control # 44361