How did Texas tax an advertising agency's outsourced audio masters, tape copies, shipping, print production, commissions, and agent purchases?

Plain-English summary

Producing a master audio tape for a specific client was a nontaxable service, whether done by a recording studio or advertising agency. Duplicate tapes were taxable. The agency could buy dubs with a resale certificate and collected tax when delivered in Texas; shipping and handling on those sales was taxable, while copies mailed outside Texas were not.

When acting as the client's agent under Rule 3.321, the agency paid suppliers' tax on taxable purchases, leases, or rentals, and its commission or handling fee was not taxable. When not acting as agent, it could buy taxable client-resale items with a resale certificate, but paid tax on items it retained or used.

A separately stated agency commission remained nontaxable when the agency was not acting as agent.

Common questions

Was creation of a client-specific audio master taxable? No.

Were duplicate tapes taxable? Yes when delivered in Texas.

Why did agent status matter? It determined whether the agency paid tax to suppliers or bought taxable items for resale to the client.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0938B06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 9, 1988

Dear *****:

Thank you for your letter concerning sales tax applicable to
advertising charges.

As I understand from our telephone conversation, you have done
several radio commercials for clients. The work is jobbed out
and you have no in-house production.

The recording studio is considered to be providing a service and
will be responsible for tax on taxable items purchased to perform
the services. The charge for producing a master audio tape is not
taxable. This also applies to advertising agencies creating
masters for a specific client.

The advertising agency is considered an agent for the purchase of
these services. Therefore, an advertising agency would not be
required to collect tax on the charges in connection with the
creation of a master for a specific client.

However, the charge for dubs is subject to tax. You may give a
resale certificate to the recording studio (post-production
studio) in lieu of tax on the charge for dubs. You will then
collect tax from your client on the amount charged for the dubs if
the dubs are delivered to a location in Texas. Shipping and
handling charges in connection with the sale of the dubs are
taxable. The charge for the dubs is not taxable when you or the
post-production studio mail the dubs to a location outside Texas.

You stated that the photographer charges and print production
charges all relate to print production (billboards, magazine ads,
display units, etc.). You also said that the work is jobbed out.

If you are acting as agent for your client as defined in Rule
3.321(a)(1), you are responsible for paying sales tax to the
supplier on the purchase, lease, or rental of any taxable items.
The commission or handling fee the agency charges to the client is
not taxable. Please refer to Rule 3.321(b).

If you are not acting as agent for your client, you may issue a
resale certificate to the supplier on any taxable items purchased
for resale to your client. All taxable items purchased, leased,
or rented by the agency, but not sold to the client are taxable to
the agency at the time of purchase. The agency commission fee
would not be taxable if separately stated from the charge for the
taxable items.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

If you have any questions or need more information, please call
our toll-free number 1-800-252-5555. My extension is 3-4666. You
may write to me at Tax Correspondence, Comptroller of Public
Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence