Is the sale of advertising space in a free discount-shopper directory subject to New York sales tax?

Plain-English summary

Dolan and Dolan asked, for a client, whether revenues from selling advertising space in the client's discount shoppers directory are subject to sales tax. The client (a New Jersey entity with its principal office in New York) earns its sole income from selling ad space in a directory it publishes several times a year. The directory is distributed free to corporations, which give it to employees as a benefit; there's no charge for distribution or on sales advertisers make to directory users. All ad-space sales close at the client's New York home office.

The Department said the ad-space sales are not taxable:

• Advertising is excluded from the information-services tax. Tax Law § 1105(c)(1) taxes certain information services but excludes the service of advertising.
• The regulation excludes advertising fees. Regulation § 527.3(b)(5) excludes fees for advertising services — consultation, developing advertising campaigns, and placing advertisements with the media without transferring tangible personal property.
• Stillman controls. In Stillman Advertising, TSB-A-88(30)S, an agency's fee for producing an ad and placing it in a printed medium (without transferring TPP) was an exempt advertising charge. The exemption doesn't depend on the selected publication's taxability, its method of distribution, or whether the publication is for sale.
• Result: the sale of advertising space in the shopper directory is not subject to sales and use tax.

What this means for you

Selling advertising is an exempt service, not a taxable information service

New York taxes information services under § 1105(c)(1), but it carves out advertising. Selling advertising space — placing an advertiser's message in your publication — is an exempt advertising service, not a taxable furnishing of information.

Free vs. paid distribution doesn't change the ad-space answer

The exemption for the advertising service stands regardless of how the publication is distributed (free or sold) and regardless of the publication's own tax status. A giveaway shopper directory and a newsstand magazine are treated the same for the ad-space sale.

Watch the line: selling TPP or standalone surveys can be taxable

The exclusion is for the advertising service itself. Separately, an agency's sales of tangible personal property (layouts, printing plates, catalogs, promotional handouts, tapes, films) for its own account are taxable, and a standalone survey separately authorized/billed is judged on its own terms.

Common questions

Q: Is selling advertising space taxable in New York?
A: No. Advertising is excluded from the § 1105(c)(1) information-services tax, and § 527.3(b)(5) excludes advertising-service fees.

Q: Does it matter that the directory is given away free?
A: No. Under Stillman, the advertising exemption doesn't depend on the publication's distribution method or whether it's for sale.

Q: What advertising-related charges can still be taxable?
A: An agency's sales of tangible personal property (e.g., layouts, printing plates, promotional handouts) for its own account, and standalone surveys that are separately authorized and billed.

Q: Is this the same as an information service?
A: No. Information services can be taxable under § 1105(c)(1), but the advertising service is specifically excluded.

Citations and references

Statutes, regulations, and authorities:

• Tax Law § 1105(c)(1) (tax on information services; excludes the services of advertising or other agents acting in a representative capacity)
• 20 NYCRR § 527.3(b)(5) (advertising-service fees excluded from tax; agency sales of TPP for its own account are taxable)
• Stillman Advertising, Inc., TSB-A-88(30)S (agency fee for producing and placing an ad without transferring TPP is an exempt advertising charge, independent of the publication's taxability or distribution)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_66s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (66)S
Sales Tax
October 11, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910829A

On August 29, 1991, a Petition for Advisory Opinion was received from Dolan and Dolan,
Box D, Newton, NJ 07860-0106.
The issue raised by Petitioner, Dolan and Dolan, is whether revenues from the sale of
advertising space in it's client's shopper directory is subject to sales tax.
Petitioner's client is an entity formed under the laws of the State of New Jersey and maintains
its principal office for business within the State of New York. Petitioner's clients sole source of
income is derived from the sale of advertising space in a discount shoppers directory which it
publishes at several intervals throughout the course of the year. The directory itself is distributed free
by Petitioner's client to various corporations which furnish it to their employees as part of their
employee benefits program. There is no charge made for the distribution of the directory or on
account of sales made by advertisers to directory users. The sole source of income derives from the
actual sale of the advertising space within the various directories and all of these sales are
consummated at Petitioner's client's home office within the State of New York.
Section 1105(c)(1) of the Tax Law imposes sales tax on certain information services, but
excludes the sale of the services of advertising from said tax.
Section 527.3(b)(5) of the Sales and Use Tax Regulations provides that:
(5) Fees for the services of advertising agencies or other persons acting in a
representative capacity are excluded from the tax. Advertising services consist of
consultation and development of advertising campaigns, and placement of
advertisements with the media without the transfer of tangible personal property.
The furnishing of a personal report containing information derived from information
services, by an advertising agency, to its client for a fee is not a taxable information
service. However, if an advertising agency is engaged only for the purpose of
conducting a survey or if a survey is separately authorized and billed to the customer,
the taxability of such survey is determined in accordance with the provisions of
subdivision (a) of this section and the other provisions of this subdivision. Sales of
tangible personal property such as layouts, printing plates, catalogs mailing devices
or promotional handouts, tapes or films by an advertising agency for its own account
are taxable sales of tangible personal property.
In Stillman Advertising, Inc., Adv Op Comm T&F, May 26, 1988, TSB-A-88(30)S the
Commissioner advised that an advertising agency's total fee, whether or not itemized on the billing
to the client, for producing an advertisement and placing it in a printed medium, without the transfer
of tangible personal property to the client, is an exempt advertising charge as defined in Regulation

-2­
TSB-A-91 (66)S
Sales Tax
October 11, 1991

527.3, supra. The operation of the exemption is not dependent on the selected publication's taxability
or method of distribution, nor is it material whether or not the publication is for sale.
Accordingly, pursuant to Section 1105(c)(1) of the Tax Law, Section 527.3(b)(5) of the Sales
and Use Tax Regulations and Stillman Advertising, Inc.. supra, the sale of advertising space by
Petitioner's client in its shopper directory is not subject to sales and use tax.

DATED: October 11, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.