Which advertising-agency services are exempt from Kansas sales tax and which are taxable?

Plain-English summary

An advertising agency asked how Kansas sales tax applies to its work. Under K.S.A. 79-3606(pp), "all sales of services rendered by an advertising agency or licensed broadcast station or any member, agent or employee thereof" are exempt from sales tax (except as otherwise provided). So in general the agency's services are not subject to tax.

The Department drew two important lines:

• The agency is a consumer of its inputs. When it buys typesetting, artwork, printing, and the like to perform its nontaxable service, it must pay sales tax to those vendors.
• Selling tangible output makes the agency a retailer. When the agency steps out of providing professional services and sells the "fruits of its labor" (tangible personal property) to the final consumer, it is acting as a retailer and must collect and remit Kansas sales tax on the total gross receipts.

The Department enclosed a non-exhaustive guide list classifying common tasks:

• Exempt: Consulting; Copy Writing; Copy Editing; Art Direction; Design; Advertising (media charges for space/time bought on behalf of clients).
• Taxable: Keyline (camera-ready artwork for printers); Illustration; Typesetting; Photography; Printing; Videography.

It reiterated that on exempt services, the agency must pay sales/use tax on the items it uses to perform them.

What this means for you

Running an advertising agency in Kansas means separating your exempt professional services from the taxable tangible products you deliver.

• Pure services are exempt. Consulting, writing, editing, art direction, design, and placing media are treated as exempt agency services.
• Producing tangible deliverables is taxable. Keyline, illustration, typesetting, photography, printing, and videography — where you produce and hand over finished tangible output — are taxable, and you collect tax on the total gross receipts of that sale.
• You pay tax on your inputs for exempt work. When you buy typesetting, artwork, printing, etc. to deliver an exempt service, you owe sales/use tax on those purchases as the consumer.
• Use the list as a guide, not gospel. The Department called its list a guide that is "not intended to be all-inclusive," so classify each engagement on its actual facts.

Common questions

Are advertising-agency services taxable in Kansas?
Generally no — K.S.A. 79-3606(pp) exempts services rendered by an advertising agency. But tangible output the agency sells to the final consumer is taxable.

Which specific tasks are taxable?
Per the Department's guide list: keyline, illustration, typesetting, photography, printing, and videography.

Which tasks are exempt?
Consulting, copy writing, copy editing, art direction, design, and media advertising (space/time bought for clients).

If a service is exempt, do I owe any tax?
Yes — on your inputs. You must pay sales/use tax on the items you use to perform the exempt service.

Citations and references

• K.S.A. 79-3606(pp) — exempts, except as otherwise provided, all sales of services rendered by an advertising agency or licensed broadcast station or any member, agent, or employee thereof.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-21.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 18, 1998

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RE: TTTTTTTTTT

Dear Mr. TTTTTTTTTT:

We wish to acknowledge receipts of your letter dated December 22, 1997, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(pp) exempts from sales tax: “except as otherwise provided in this act, all sales of services rendered by an advertising agency or licensed broadcast station or any member, agent or employee thereof.”

In general, the services provided by your client are not currently subject to sales tax. If your client purchases as part of their nontaxable service; typesetting, artwork, printing, and etc., the advertising agency must pay the sales tax to the vendor or vendors which provided the service of typesetting, artwork, printing, and etc. In addition, when your client steps out of the arena of providing “professional services” and sell to the final consumer the fruits of his labor, the client is now acting as a retailer, and his sales of tangible personal must have Kansas sales tax collected and remitted on the total gross receipts.

I have enclosed a list of services that your client's company might provide to their customers. This list should be used as a guide, and is not intended to be all-inclusive:

Consulting Exempt One-to-one and group client discussions;

Copy Writing Exempt Writing original test brochures, ads, press releases, scripts, etc.;

Copy Editing Exempt Editing/revising/proofing text given to you by a client;

Art Direction Exempt Supervision of work-in-process;

Design Exempt Creating visual images of graphic ideas for client approval;

Keyline Taxable Producing camera-ready artwork for printers to use;

Illustration Taxable Producing finished visual images or graphics;

Typesetting Taxable Producing type galleys to be used in camera-ready keylines for printers;

Photography Taxable Taking photographs, developing film, printing photos;

Printing Taxable Printed brochures, instructional and trade show materials, flyers, etc.;

Advertising Exempt Media charges for space or time purchased on behalf of clients;

Videography Taxable Taping and editing programs on videotape for clients.

Please be advised that on services that are exempt from sales tax, your client must pay sales/use tax on items used to perform said services.

If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 03/04/1998 Date Modified: 10/10/2001

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