(1) Definitions. The
following terms and phrases when used in this rule shall have the meaning
ascribed to them in this subsection, except where the context clearly indicates
a different meaning.
(a) "Advertising" is the
expression of an idea created and produced for reproduction and distribution
through means such as television, radio, Internet, newspapers, newsletters,
periodicals, trade journals, publications, books, magazines, standardized
outdoor billboards, direct mail, point-of-sale displays, leaflets, brochures,
fliers, or package design, and which is designed to promote sales of a
particular product or service or to enhance the image of the advertiser.
Advertising includes public service messages that are designed to affect the
behavior of the public and messages that are political in nature.
(b)
1.
"Advertising agency" means any firm that is primarily engaged in the business
of providing advertising materials and services to clients.
2. Examples.
a. Firms that are primarily engaged in
consulting with their clients about marketing and advertising products or
services, formulating a marketing plan intended to improve their image or
increase their market share, and executing those plans, are considered to be
advertising agencies.
b. Firms that
are primarily engaged in the business of printing, imprinting, or reproducing
tangible personal property and firms that are primarily engaged in the business
of photography or broadcasting are not advertising agencies.
c. Firms that primarily specialize in
providing pre-press service(s), such as graphic art, color separations, or
velox providers are not advertising agencies.
d. Firms that primarily provide audio/visual
production or recording services are not advertising
agencies.
(c)
"Firm" means corporation, sole proprietorship, partnership, or limited
liability company.
(d)
1. "Primarily engaged in the business of
providing advertising materials and services" means more than 50 percent of its
gross receipts in the 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. For purposes of determining whether the firm qualifies
under this definition, there shall be deducted from gross receipts amounts paid
by the agency on behalf of its client to a third party for charges such as
printing, imprinting, reproduction, publishing of tangible personal property,
broadcasting advertisements, media placement, or other out-sourced activities
before applying the 50 percent test.
2. Example.
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Gross Receipts
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$2,754,217.00
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Deduct Outsourced Costs
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Printing Costs
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$726,785.00
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Media Costs
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$779,613.00
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Photography
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$33,950.00
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Total Outsourced Costs
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$1,540,348.00
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Difference to apply 50% test
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$1,213,869.00
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50%
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$606,934.50
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If more than $606.934.50 is from advertising
services, this company qualifies as an advertising agency.
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3.
Example.
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Gross Receipts
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$2, 754, 217.00
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Receipts from In-House Printing
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(Cannot be deducted because not outsourced)
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$1, 540, 348.00
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Difference
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$1, 213, 869.00
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Amount to apply 50% test
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$2, 754, 217.00
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50%
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$1, 377, 108.50
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If even the entire $1, 213, 869.00 is from the provision of
advertising services, it is less than 50% of gross receipts. Therefore, this
company does not qualify as an advertising agency.
(e) "Advertising materials" means tangible
personal property sold to an advertising agency, created by an advertising
agency, or sold by an advertising agency during the course of providing
advertising services. Examples of advertising materials include: photographs,
videos containing images, films containing images, veloxes, galleys,
mechanicals, artwork, illustrations, digital audio tapes, analog tapes, compact
discs, sketches, layouts, engravings, mats, models, mockups, and digital
equipment. "Advertising materials" does not include "raw materials."
(f) "Raw materials" means materials or media
used to create advertising materials. "Raw materials" includes items such as:
blank film; blank videotapes; art supplies, such as poster board, paper
products, inks, letters, and paints; stock art; stock photography; prerecorded
music and sound; stock props; stock costumes; and stock backdrops.
(g) "Advertising services" means 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. This includes services rendered to design and produce
advertising materials such as: research; design, layout, preliminary and final
art preparation; placing or arranging for advertising: creative consultation,
coordination, direction, and supervision; script writing and copywriting;
editing; and account management services. However, if an advertising campaign
is planned and prepared, but the client elects not to proceed with the
production or placement of the advertising, or the client elects to do its own
placement of the advertising with the media, the agency will still be
considered to have provided advertising services.
(h) "Promotional goods" means tangible
personal property used for promotional purposes. Examples of promotional goods
include displays, display containers, exhibits, newspaper inserts, brochures,
catalogues, direct mail letters or flats, shirts, hats, pens, pencils, key
chains, audio tapes, videotapes, compact discs, business cards, or other
printed goods or materials.
(i)
1. "Acting as agent for its clients pursuant
to a contract." In order to purchase advertising materials exempt from tax, the
advertising agency must make purchases on behalf of clients pursuant to a
contract. A common law principal/agent relationship is not required. The
existence of a contract to act as agent for a client may be evidenced in the
advertising agency's book and records by:
a. A
written contract clearly stating that the advertising agency will act on behalf
of a client as agent; or
b.
Documents, such as invoices and purchase orders, by which the agency discloses
to its suppliers that it is acting on behalf of a client, regardless of whether
the specific client(s) is identified; or
c. Proof of a course of dealing that would
establish an agency relationship, such as being on a retainer paid by the
client.
2. When the
advertising agency is acting on behalf of its clients pursuant to contract, it
may purchase advertising materials tax exempt. When tangible personal property
purchased by the advertising agency is depreciated or capitalized for
accounting or income tax purposes by the agency, or the advertising agency
makes use of the property for its own account, the tangible personal property
is subject to tax.
(2) Sales of Services. The sale of
advertising services by an advertising agency is exempt from tax. The
professional service fee charged by an advertising agency for services is
exempt from tax. An advertising agency's professional fee includes agency time
or hourly charges, retainer fees, agency mark-up on exempt advertising
materials, and media commissions.
(3) Sales of Advertising Materials.
(a)
1. The
charge by an advertising agency to clients for advertising materials is exempt
from sales 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.
2. 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.
(b) Example: The 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:
1. The advertising agency contract
separately itemizes the components of the brochure as: design, advertising
materials, and printing. Sales tax is due only on the charge for printing,
including any mark-up. The sales tax must be separately stated.
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.
3.
The advertising agency contract combines the charges for the design services,
advertising materials, and printing in a single charge. Sales tax is due on the
lump sum charge to the client. The sales tax must be separately
stated.
(4)
Purchases of Advertising Materials by the Advertising Agency.
(a) If an advertising agency is under
contract to act on behalf of its clients, the advertising agency may purchase
advertising materials or advertising services exempt from tax by extending an
exemption certificate to the vendor. The exemption certificate does not entitle
the advertising agency to purchase raw materials exempt from tax, even when
those raw materials are used to produce advertising materials in-house. A
suggested format of the exemption certificate to be issued to the vendor is
provided in subsection (10).
(b)
Any vendor providing advertising materials to an advertising agency pursuant to
this exemption is relieved of the responsibility of collecting tax on the sale
of any advertising materials if:
1. The
advertising agency presents an exemption certificate certifying the agency's
entitlement to the exemption to the vendor; and
2. The vendor retains a copy of a purchaser's
exemption certificate from the advertising agency in its records until tax
imposed under Chapter 212, F.S., may no longer be determined and assessed under
Section 95.091(3),
F.S.
(c) If it is
determined that the advertising agency was not entitled to the exemption, the
department shall look only to the advertising agency for any sales tax due on
the purchase of advertising materials.
(5) Creation of Advertising Materials by the
Advertising Agency. If an advertising agency produces, fabricates,
manufactures, or otherwise creates advertising materials in-house for its
clients, the sale of such advertising materials to its clients is exempt from
sales tax. Further, the advertising agency does not pay use tax on the
production, fabrication, or manufacture of such advertising materials used in
the performance of advertising services for its clients.
(6) Raw Materials Used in Advertising.
(a) The purchase of raw materials, whether
purchased by an advertising agency or by a person who creates advertising
materials for sale to an advertising agency, is taxable.
(b) Example: When a photographer purchases
film, the film is taxable when purchased by the photographer. However, when the
photographer alters the film to create an image and sells or licenses the image
to an advertising agency, the photographer does not collect tax if the
advertising agency issues an exemption certificate to the
photographer.
(7)
Promotional Goods.
(a) When promotional goods
are created by an advertising agency, the charge for development of sample
promotional goods is exempt from sales tax, whether produced in-house or
purchased from a vendor.
(b)
1. When promotional goods are produced or
reproduced for distribution, the charge for production or reproduction of the
promotional goods is subject to sales tax whether or not the client takes
physical possession of the promotional goods produced or reproduced for
distribution. The advertising agency must register with the Department of
Revenue, and collect and remit tax on the transaction. See Rule
12A-1.060, F.A.C.
2. Example: If an advertising agency uses a
printer to produce or reproduce a promotional good, such as a brochure, the
advertising agency would extend an annual resale certificate (Form DR-13) to
the printer, who would not charge sales tax on the invoice to the advertising
agency. However, the advertising agency would be required to charge sales tax
to a client for the production or reproduction costs of the promotional good,
including the advertising agency's mark-up for printing. The advertising agency
would remit the tax to the Department of Revenue.
(c) For newspaper inserts, see Section
212.05(1)(g)2., F.S. For publications exempt from tax, see Section
212.08(7)(w),
F.S.
(8) Billboards. The
advertising materials and services used in the creation of billboard concepts
and mock-ups by an advertising agency are exempt under these provisions.
However, the charge for the production of displays is taxable. See Section
212.031, F.S., for the
taxability of the lease or license to use billboards.
(9) Sales of tangible personal property by an
advertising agency to persons other than its clients are taxable, unless
specifically exempted by other sections of Chapter 212, F.S.
(10) The following is the suggested format of
the exemption certificate to be issued to the vendor by the advertising agency
when purchasing exempt advertising materials:
SUGGESTED PURCHASER'S EXEMPTION CERTIFICATE ITEMS SOLD TO
ADVERTISING AGENCIES
____________________ (Purchaser's Name) certifies that the
advertising materials, meaning materials created for the purpose of providing
advertising services including, but not limited to, photographs, videos
containing images, films containing images, veloxes, galleys, mechanicals,
artwork, illustrations, digital audio tapes, analog tapes, compact discs,
sketches, layouts, engravings, mats, models, mockups, and digital equipment
services, purchased on or after ________ (date) are purchased by the
advertising agency pursuant to a contract to act on behalf of a client or
clients, and that the items are created to provide advertising services.
Purchaser further certifies that the items are not raw
materials, and the items are not being purchased to produce advertising
materials in-house by the advertising agency. "Raw materials" means materials
or media used to create advertising materials. "Raw materials" includes items
such as: blank film; blank videotapes; art supplies, such as poster board,
paper products, inks, letters, and paints; stock art; stock photography;
prerecorded music and sound; stock props; stock costumes; and stock
backdrops.
The undersigned understands that if such items do not qualify
for exemption, the undersigned will be subject to sales and use tax, interest,
and penalties. The undersigned further understands that when any person
fraudulently, for the purpose of evading tax, issues to a vendor or to any
agent of the state a certificate or statement in writing in which he or she
claims exemption from the sales tax, such person, in addition to being liable
for payment of the tax plus a mandatory penalty of 200% of the tax, shall be
liable for fine and punishment provided by law for conviction of a felony of
the third degree, as provided in Section
775.082,
775.083, or
775.084, F.S.
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_______________________________
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________________________
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(Purchaser's Name - Print or Type)
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Florida Sales Tax Number
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(if applicable)
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________________________________
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________________________
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Signature and Title
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Date
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________________________________
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________________________
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Federal Employer Identification Number
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Telephone Number
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(F.E.I.) or Social Security Number
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(Form to be retained in vendor's
records)
