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www.taxes.state.mn.us Advertising Creative Promotional Services 133 Sales Tax Fact Sheet Nontaxable advertising services Minnesota Rule 8130.9250, Advertising, is the basis for tise are usually considered to be “nontaxable advertising this fact sheet. The guidelines in the rule apply only when services”: providing advertising services or creative promotional ma- advertising banners magazine ads terials. The most common types of businesses that provide advertising posters newspaper ads these services are: advertising agencies, graphic design stu- audio or visual commer- newspaper inserts dios, desktop publishers, printers, recording and video stu- cials point-of-sale materials dios, and photographers. This rule does not apply when billboard ads print media advertising these businesses are producing other products or forms of brochures radio commercials communication such as surveys, studies, polls, training ma- catalogs sales promotion materials terials or other items that are not advertising. direct mail advertising table tents Nontaxable advertising is creative promotional services that materials television commercials meet three criteria: direct marketing materi- trade journal ads als yellow page ads 1. there is no functional use of the medium except to carry display signs the message, flyers and handouts 2. the agency must be involved in the creation of advertis- Example: An advertiser contracts with an agency to produce ing, and 5,000 brochures. The agency designs the brochure and 3. the agency must have a direct relationship with the ad- hires the printer to do the printing. The printer charges the vertiser. agency $1,000 for printing and $68.75 tax. The customer invoice reads as follows: Creating advertising For creative promotional services: You must create the advertising to be considered a provider Creative design, artwork of nontaxable advertising services. Any of the following and in-house set up $2,392.00 In-house keyline 152.00 activities alone or in combination may contribute to the Printing of brochure 1,068.75 creation of advertising: Agency fee 1,000.00 Total $4,612.75 development of data, concepts or ideas analysis of available media and means to advertise Display equipment. Nontaxable advertising does not in- analysis of present and potential markets clude display equipment. Display booths, point-of-sale dis- study of the products/services to be promoted plays, racks and all other equipment used to display adver- determination of a distribution and sales strategy based tising materials are taxable. on analysis of customer operations Table of contents placement of advertising in the media Nontaxable advertising services............................................... 1 formulation of an advertising plan Key concepts............................................................................ 2 separately stated charges to customers for agency fees, Taxable advertising .................................................................. 3 creativity assessments Agency purchases for agency use (and how exemptions work) 4 Purchases for producing both nontaxable and taxable The words “advertising services” or “creative promotional advertising .......................................................................... 4 services” must be clearly noted on the invoice. The agency Tax responsibilities when businesses are not producing advertising .......................................................................... 5 records must clearly indicate that it directed the creative Exempt publications ................................................................. 6 work for the nontaxable advertising services. Direct pay companies............................................................... 6 Local sales and use taxes........................................................ 6 For example, when the three nontaxable advertising criteria are met, then the following items used to promote or adver- Sales and Use Tax Division – Mail Station 6330 – St. Paul, MN 55146-6330 This fact sheet is intended to help you become more familiar with Minnesota tax Phone: 651-296-6181 or 1-800-657-3777 laws and your rights and responsibilities under the laws. Nothing in this fact sheet Minnesota Relay (TTY) 711 supersedes, alters, or otherwise changes any provisions of the tax law, administrative rules, court decisions, or revenue notices. Alternative formats available upon request. Stock No. 2800133, Revised 6/04 Minnesota Revenue, Advertising (Revised 7/1/09 to reflect the sales and use tax rate change from 6.5% to 6.875%) Key concepts In order to fully understand the remainder Direct relationship is a criteria for de- Office supplies are those materials you of this fact sheet, it is important to under- termining a nontaxable advertising ser- need to operate your business. Color stand these key concepts. vice. The provider must be directly re- pencils, paints, art supplies, all paper not sponsible to the advertiser. A subcontrac- directly used in printing a product, clip art, Advertising is creative promotion. It tor never has a direct relationship. software and invoices are examples of makes you want to buy something, think office supplies. positively about an idea or organization, Inputs are, for the most part, materials hear about a public concern, or vote for a directly incorporated into the production Functional use is a term used to distin- candidate. It promotes the sale of a prod- of a piece of advertising. The paper a guish nontaxable advertising services uct or a public image. It may be a public brochure is printed on is an input, as is from taxable advertising. It refers to the service announcement or a political mes- the ink used to print it. There are a few medium on which the advertising is pro- sage. inputs, photographs being the most duced. If the medium has a use beyond common, that do not become part of an the promotional message, it has func- Advertising provider is any agency re- actual product. Any tangible component tional use. Advertising that has a func- sponsible to the advertiser for the devel- of advertising that is purchased on a sub- tional use is taxable. opment of promotional materials. For contract is treated as an input. sales tax purposes, there are two differ- Example: A brochure is used only for ent types of advertising: nontaxable ad- Preliminary art is prepared to provide an advertising. If the advertising message vertising services and taxable advertising. advertiser with a variety of promotional is taken away, nothing is left but a Each has different tax consequences. An options. It demonstrates concepts or piece of paper. However, a calendar agency may be hired to provide nontax- ideas that can be pursued in developing with an advertising message on it is able advertising services, taxable adver- the final promotional product. It can be used for both advertising and also date tising products, or both. The provider presented as roughs, mock-ups, visuali- information. If the advertising message does not have to call themselves an ad- zations, comprehensives, layouts, is removed, the calendar still provides vertising agency. In this fact sheet, sketches, drawings, paintings, designs, information about day and month. This agency means any provider of creative storyboards, rough cuts of film and tape, calendar has functional use so it is tax- promotional services. initial audio and visual tracks, and work able. prints. Once the advertiser selects a pro- Advertiser is a firm or person who pur- motional concept, either verbally or in chases advertising. writing, the work of the agency is no longer preliminary art. Example: An advertiser purchases brochures from an agency. Creating your own advertising One-half of the brochures will be used in Minnesota, and When you create advertising for your own use, you must pay one-half will be shipped outside Minnesota for use. The tax on all inputs purchased to make the advertising such as agency should ask the advertiser what portion of the bro- artwork, photos and printing. No tax is due on the time your chures will be used outside Minnesota (50 percent), and own employees spend creating the advertising. document the percentage in its records. The agency may purchase 50 percent of all materials consumed in the pro- An exemption may apply to purchases of certain items used duction of the brochures exempt from the Minnesota sales to create your own advertising if the items will be shipped tax by giving its suppliers a fully completed Certificate of Exemption, Form ST3 (use exemption code N). out of Minnesota (see the next section). Example: A business has a marketing division that creates its Similarly, when an advertiser creates its own advertising, it own advertising materials. Their purchase of artwork, pho- must pay tax on all inputs required to make the advertising tos, software, paper and the necessary equipment to create used in Minnesota. Inputs on advertising used solely out- their advertising is all taxable. Any subcontracted work such side Minnesota may be purchased exempt from tax. To as printing is also taxable. claim exemption on the percentage used outside of Minne- sota, the advertiser must give the supplier a fully completed Nontaxable advertising for use outside Certificate of Exemption, Form ST3 (use exemption code Minnesota N). Generally, an agency must pay sales tax on all the materials used to create nontaxable advertising. However, when non- The exemption for advertising shipped out of state does not taxable advertising is produced for use outside of Minne- apply to purchases of items that are used, but not con- sota, the agency may purchase most inputs for the advertis- sumed, to create or produce nontaxable advertising, since ing leaving the state exempt from the sales tax. To validate the items themselves are not shipped out of state. the exemption, the advertiser must give the agency docu- Example: An agency purchases a photo that is used to pre- mentation specifically stating the portion of the advertising pare an advertising brochure. The brochure will be used that will be used outside of Minnesota. Form STAD, Decla- outside Minnesota. Because the photo itself will not be sent ration of Nontaxable Advertising Used Outside Minnesota, out of state but will be used here in Minnesota to create the brochure, it is subject to tax. is available on our web site. 2 Minnesota Revenue, Advertising Taxable advertising If the advertising has a functional use other than that of the cent exemption on the purchase price of the calendars that advertising message, the advertising is taxable. Examples will be used outside Minnesota. of taxable advertising include business cards and specialty advertising, such as buttons, calendars, clocks, frisbees, Direct mail glassware, key chains, matchbooks, notebooks, napkins, Sometimes taxable advertising or other taxable printing is pens, rulers, etc. delivered via direct mail. Direct mail is printed material that meets the three following guidelines: Charging sales tax 1. it is delivered or distributed by U.S. Mail or other deliv- Generally, sales tax applies to the total sales price of tax- ery service; able advertising, including charges for concept, creation, 2. it is sent to a mass audience or to addresses on a mailing development, planning, design, commission, agency fees, list provided by the purchaser or at the direction of the staff time, consultation and retainer fees, delivery charges, purchaser; and and other charges. Exceptions to this rule: 3. the cost of the items is not billed directly to recipients. Preliminary art used in taxable advertising. If an agency Items to be included with the printed material also qualify charges separately for preliminary art on its invoice for as direct mail, if supplied by the purchaser to the direct taxable advertising, the preliminary art charge is not tax- mail seller. (For example, shampoo samples to be included able. Preliminary art is very narrowly defined. It only ap- with shampoo coupons.) Direct mail does not include mul- plies to work done by an agency to present optional con- tiple items of printed material delivered to a single address. cepts for the promotion to the advertiser. Once the adver- tiser agrees, even verbally, to accept an option, any further Direct mail delivery exemption. Charges for delivering or work on the project is taxable. Review and editing that go distributing direct mail are not subject to sales tax as long on between the agency and the advertiser after the concept as the charges are separately stated on the invoice to the is accepted are not part of preliminary art. Also, inputs that purchaser. Delivery charges include charges for transporta- are used to make preliminary art are taxable. tion, shipping, postage, handling, crating, and packing. Taxable advertising used outside Minnesota. The portion Direct mail taxing rules. For sales of taxable advertising of taxable advertising that will be used outside Minnesota that meet the definition of direct mail, the seller must is not taxable whether shipped outside the state by the charge sales tax on the sales price of the advertising that agency or by the advertiser. stays in Minnesota, excluding separately stated delivery charges and preliminary art. Charge the rate of sales tax If the agency ships the taxable advertising out of Minnesota, imposed in the location from which the mail was shipped, it is not subject to Minnesota sales tax. No exemption cer- unless the purchase gives the seller one of the following: tificate is necessary—the agency’s records should indicate that the taxable advertising materials were shipped outside Delivery information – documentation showing the tax- Minnesota. If only a portion is shipped out of Minnesota, the ing jurisdictions where the direct mail will be delivered. agency’s invoice must clearly indicate the portion to be The seller must charge tax according to the delivery in- shipped outside Minnesota. formation provided. Certificate of Exemption, Form ST3, claiming the direct If the agency ships or delivers the taxable advertising to a mail exemption or providing a direct pay number (issued Minnesota location, Minnesota sales tax applies unless the by Minnesota Revenue) – The seller does not charge any advertiser gives the agency a fully completed Certificate of sales tax. It is the purchaser's responsibility to pay use Exemption, Form ST3, (use exemption code N) indicating tax to the appropriate taxing jurisdictions. the percentage of the advertising materials that will be used outside Minnesota. (Note: this exemption is not allowed for Example: Advertiser buys 5,000 calendars from an agency non-advertising items.) located in Minneapolis and provides a mailing list for the agency to use to ship the calendars. The advertiser pro- Example 1: Advertiser buys 1,000 matchbooks from a spe- vides a Form ST3 indicating that 20 percent of the calen- cialty advertising company. The specialty advertising com- dars will be shipped outside of Minnesota, but no other in- pany ships the matchbooks to a location outside Minnesota. formation about the mailing. Twenty percent of the total The specialty advertising company should not charge Min- charge is exempt since that portion will be shipped outside nesota sales tax. of Minnesota. (However, if the agency is registered to col- lect sales tax in the state(s) into which the advertising is Example 2: Advertiser buys 1,000 calendars from an agency shipped, they may be required to collect the other state's to be delivered to their Minnesota office. One-half of the sales tax.) The remaining 80 percent, less separately stated calendars will be given away at a trade show outside of postage charges, is subject to the Minnesota sales tax, the Minnesota and the other half will be given away in Minne- Minneapolis, Hennepin County and Transit Improvement sota. The advertiser should give the agency a fully com- local sales tax rates. pleted Certificate of Exemption, Form ST3, to claim 50 per- 3 Minnesota Revenue, Advertising Agency purchases for agency use (and how exemptions work) Purchases for agency use 1. grant to the ad agency the ability to bind the exempt en- An agency must pay sales or use tax on purchases of office tity to pay for purchases made by the agency; supplies, equipment and other taxable items or services 2. require that the agency purchase all materials in the used or consumed by the agency to conduct business. name of the exempt entity; 3. require that all contracts, purchase orders and similar writings of the agency shall specifically state that the ex- Purchases of inputs for nontaxable empt entity is obligated to pay for materials purchased; advertising 4. require the agency to disclose its relationship to the ven- An agency generally must pay sales or use tax on the pur- dor of the materials; and chase of all inputs. An agency may subcontract with others 5. require that the agency make no use of the property for to produce part of the nontaxable advertising. Inputs such itself or for any client other than the exempt entity. as assemblies, keylines, paste-ups, videos, layouts, color separations, photographs, film and master tapes are taxable An agency that has been appointed as a purchasing agent when purchased by an agency to produce nontaxable adver- for an exempt entity must provide the vendor evidence of tising. the appointment in order to claim exemption. It must be expressly stated on the purchase order that the agency is When an agency subcontracts with others to write manu- acting as an agent for the exempt entity and that the pur- scripts or copy, develop preliminary art, or to compile sta- chase is authorized by the agreement. The agency must tistical data, these services generally are not subject to tax. give the vendor an exemption certificate in the name of the Inputs used to present these services, however, are taxable. exempt entity, signed by the advertising agency as purchas- Preliminary art is only treated as a nontaxable service when ing agent. it is separately stated on the invoice to the agency. Example: A church contracts with an agency to produce 1,000 Purchases for entities with tax exempt brochures and also 1,000 calendars. A written agreement must be drawn up clearly incorporating the guidelines listed status above. The agreement allows the agency to purchase the Certain organizations are exempt from paying Minnesota inputs for the nontaxable advertising (brochures) exempt sales tax. These include: from sales tax. The inputs to the taxable advertising (calen- dars) are already exempt as purchases for resale. The sale organizations that have received an exempt status num- of both the brochures and the calendars to the church are ber for sales tax from the Department of Revenue, exempt. the federal government, certain local government agencies such as schools and Purchases for taxable advertising hospitals. An agency may purchase items that become an ingredient or component part of taxable advertising exempt for resale. Since these entities are not required to pay sales tax, they To claim exemption, the agency must give an exemption may elect to not pay the tax on the inputs used in their non- certificate to the vendor. taxable advertising. To do this they must appoint the Example: Agency purchases poster board for making calen- agency providing the advertising as their purchasing agent. dars. The agency may purchase the poster board exempt for resale by giving the supplier a fully completed Form For an agency to have a valid purchasing agent agreement ST3, Certificate of Exemption, using exemption code G, re- with an exempt entity, the agreement must: sale. Purchases for producing both nontaxable and taxable advertising Example: An agency buys a ream of paper. Part of the pa- Purchases that are incorporated into the per will be used to produce a nontaxable brochure, and promotional material part will be used to produce a taxable calendar. The pa- When inputs are incorporated, in part, into nontaxable per may be purchased exempt for resale. The agency advertising, and, in part, into taxable advertising, they must report and pay use tax on the portion of the paper used to produce the brochure. It is the responsibility of can all be purchased exempt for resale. The agency must the agency to prorate the portion that is used for the bro- then pay use tax on the portion used to produce nontax- chure and report the appropriate amount of use tax on able advertising. their sales and use tax return. If the agency does not have sufficient evidence to show how the purchase was prorated, use tax is due on the entire purchase price of the ream of paper. 4 Minnesota Revenue, Advertising Purchases that are used but not contract price to the advertiser is $5,000, of which $4,000 (80%) is allocated to produce the brochures, and $1,000 incorporated (20%) is allocated to produce the calendars. 80% of the Certain inputs are considered to be used, but do not be- purchase price of the photo ($80) is subject to use tax come a part of the advertising. A good example is a pho- because 80% of the photo is allocated to producing the tograph. After the photo image is transferred to the ad- brochure and the agency must pay tax on the inputs used vertising material, the photo remains. It can be reused. to produce nontaxable advertising. 20% of the purchase price of the photo ($20) is not taxable because 20% of These inputs are treated differently than other inputs: the photo is allocated to producing the calendar, which will be taxed at the time of sale to the advertiser. If the initial use is for nontaxable advertising, tax must be paid on the photo. One contract for both nontaxable and If it is for taxable advertising, it can be purchased ex- taxable advertising empt from the tax (use Form ST3, exemption code G, If a contract between an agency and the advertiser re- resale). quires the creation of both nontaxable and taxable adver- Since these inputs do not leave the state, the exemption tising, and prices are not separately stated, the agency from the tax for nontaxable advertising does not apply. must charge sales tax on the fair market value of the tax- able advertising. Fair market value of the taxable adver- A photograph Example 1: If the initial contract between the agency and the tising must include a fair and appropriate allocation of advertiser is for a calendar, the photo may be purchased the agency’s fee or commission. exempt for resale as part of the cost of producing the calendar and the calendar will be taxed when sold to the Fair market value means the total charges for the taxable advertiser. If the photo is later used to produce a nontax- advertising that the agency would have charged to the able brochure, no additional tax applies, since the taxabil- advertiser if the contract was only for taxable advertising. ity of the photo had already been established. Example: A manufacturer hires an agency to produce em- Example 2: If the initial contract between the agency and the ployee training materials and also some brochures that advertiser is for a nontaxable brochure, the agency must advertise their product. The total invoice amount is pay sales or use tax when it buys the photo. $1,550. The training materials are taxable, the brochures are nontaxable. The fair market value of the training ma- Example 3: If the initial contract between the agency and the terials is determined to be $600. The value of the bro- advertiser is for both brochures and calendars, the chures is $800, which leaves an agency fee of $150. The agency should purchase the photo exempt for resale. tax is computed as follows: The agency must then prorate the portion of the cost of the photo that is used for each type of advertising and Fair market value of taxable item = $600 (value of train- pay use tax on the portion used to produce the bro- ing materials) ÷ $1,400 (value of training materials + bro- chures. Charges should be prorated based on the portion chures) = 43% of the nontaxable advertising charges to the total contract price. If the agency does not have sufficient information Agency fee of $150 x 43% = $ 64.50 to show how the purchase was prorated, use tax is due Taxable training materials + 600.00 on the entire purchase price of the photo, and the sale of Taxable amount 664.50 the calendar is also taxable. Tax rate (6.875%) x .06875 Tax due $ 45.68 An agency purchases a photo for $100 exempt from the tax to produce both brochures and calendars. The total Tax responsibilities when businesses are not producing advertising Individual businesses such as desktop publishers, graphic Certificate of Exemption, Form ST3. Common reasons designers, photographers, printers and recording and video for exemptions are: studios might never provide nontaxable advertising services. These businesses should collect the tax on any product they the item is, or becomes part of, an exempt publication make or service they provide that is sold to an agency to be such as a newspaper, bulletin, flyer or newsletter. An incorporated into nontaxable advertising services. exempt publication must be regularly issued at least four times a year (use exemption code M and write in For many businesses advertising is only one part of the “exempt publication”). business. Much of their business activity is making tan- the item is to be used in another state and is directly gible items, which is taxable. shipped there by the seller. No exemption certificate is necessary, but the seller’s records must clearly show When a business sells tangible items, the total charge to that the item was shipped out of state. Note, advertis- its customer is subject to sales tax. Customers must pay ing is treated differently. the tax unless they give the seller a fully completed sales to qualifying nonprofit organizations (use exemp- tion code E or F). 5 Minnesota Revenue, Advertising sales for the purpose of resale (use exemption code G). Local sales and use taxes sales of items such as package design or product in- structions that become part of a product that will ulti- Local sales or use taxes may apply to your sales and pur- mately be sold at retail (use exemption code A). chases. See Fact Sheet 164, Local Sales and Use Taxes, for an up-to-date list of local taxes. When a business buys inputs that become part of a tangi- ble item it sells, it may purchase these items exempt from Nontaxable advertising: Generally, an agency is the con- sales tax. To do so the business must give its suppliers a sumer of all materials and inputs used to create nontaxable fully completed Certificate of Exemption, Form ST3. advertising. If the agency is located in an area with a local tax, the agency must pay both state and local sales or use A business usually pays tax on all office supplies and tax on those materials and inputs. most equipment used to conduct business. However, if the advertising will be used outside the local See pages seven and eight for examples that contrast the taxing area, that portion of the materials used to create difference between providing nontaxable advertising ser- the nontaxable advertising is exempt from the local tax. vices and the production of tangible items for various To validate the exemption, the advertiser must give the types of businesses. agency documentation specifically stating the portion of the advertising that will be used outside of the local tax- Exempt publications ing area. Form STADL, Declaration of Nontaxable Ad- Certain publications are exempt from the sales tax. vertising Used Outside a Local Government, is available Newspapers or other publications such as advertising on our web site. circulars and catalogs that are regularly issued at average Example: a business in Bloomington hires an agency in intervals of three months or less and distributed to the Minneapolis to create brochures for distribution at the general public are exempt publications. Bloomington business. The Bloomington business gives the agency Form STADL claiming 100% exemption from An agency can purchase inputs that become a part of an Minneapolis tax. The agency pays Minnesota tax on the exempt publication exempt from the tax. To do so, the inputs to the brochure, but Minneapolis tax is not due. agency must give the vendor a fully completed Certifi- Taxable advertising: An agency may purchase all inputs cate of Exemption, Form ST3. Use exemption code M that become part of taxable advertising exempt for resale. and write in “exempt publication.” The sale of taxable advertising is subject to local sales tax if the advertising will be used in the local taxing area. Direct pay companies Companies that hold a Minnesota direct pay number (is- If the taxable advertising is delivered by the seller outside sued by Minnesota Revenue) are not allowed to assign the local taxing area, no local tax is due. The seller their direct pay status to a third party. Therefore, adver- should note on the invoice that the advertising was deliv- tising agencies may not use an advertiser’s direct pay ered outside the local taxing area. number when purchasing inputs for the advertiser’s pro- If the taxable advertising is delivered by the seller in the motional materials. locality with the local tax, but the purchaser has given the seller a fully completed Certificate of Exemption, Form References: ST3 (use exemption code F and write in the name of the M. S. 297A.68, Subd 10, Publications; publication ma- local tax), no local tax is due. terials M. S. 297A.68, Subd 11, Advertising materials Rule 8130.9250, Advertising Other fact sheets you may need: 146, Use Tax for Businesses 163, TV Commercials 164, Local Sales and Use Taxes 169, Photographers and Video Production 170, A Step-by-Step Guide to Filing and Paying Sales and Use Tax Electronically 6 Minnesota Revenue, Advertising Taxable Nontaxable Example 1 Example 2 Example An advertiser contracts with an An ad agency is hired as a An advertiser hires an ad agency Advertising ad agency to develop training subcontractor by another to develop an advertising strategy materials for its sales execu- agency to produce a promo- for a new product line. The ad Agencies tives. Training materials are tional brochure. Since the ad agency develops the message, the taxable. The ad agency charges agency does not have a direct visual concepts, the promotional tax on the entire cost of the relationship with the adver- materials, and strategies to reach project. tiser, it must collect sales tax the targeted audience. The ad on the entire charge for the agency must clearly indicate on brochure. the advertiser’s invoice that it is providing creative work for the nontaxable advertising service. The ad agency must pay tax on all materials and supplies used to complete the contract. The ad agency’s bill to the advertiser is not subject to tax. An advertiser takes the copy The graphic design studio is An advertiser asks a graphic de- Graphic Design and photos it wants used in a hired by an agency to design a sign studio to create a new com- promotional mailer. The studio logo for one of the agency’s pany image. Included in the con- Studios is asked to do the layout and clients. The graphic design tract is development of a logo and color separation work needed studio has no direct relation- a brochure introducing a new to make the mailer ready for ship with the advertiser. It product line. The graphic design the printer. Layout and color must charge sales tax on its studio is providing a nontaxable separation are taxable fabrica- entire charge to the agency.* advertising service. The graphic tion labor. Since the graphic design studio must clearly indicate design studio did not create the on the advertiser’s invoice that it is promotional concept, it must providing the creative work for the collect sales tax on its entire nontaxable advertising service. charge to the advertiser.* The studio must pay tax on all materials and supplies used to complete the contract. The stu- dio’s bill to the advertiser is not subject to tax. An advertiser goes to a photog- An agency hires a photogra- An advertiser goes to a photog- Photographers rapher to have some photo- pher to do the photography for rapher to have some promotional graphs made of a product dis- a promotional brochure it is posters made. The photographer play. The advertiser prepares creating for an advertiser. The creates the design concept, hires the display and provides the photographer charges the someone to write the copy, de- back-drop and setting. The agency sales tax on the entire velops and manages the entire photographer collects tax on charge for the photographs filming and printing process. the total charge for the photo- since it is not working directly The photographer must clearly graphs.* with the advertiser.* indicate on the advertiser’s in- voice that she is providing the creative work for the nontaxable advertising service. The photog- rapher must pay tax on all mate- rials and supplies (such as the film, color separation) used to produce the poster. The photog- rapher’s bill to the advertiser is not subject to tax. * Electronic delivery. When the final graphic design or photography is transferred electronically to the client, with no physical transfer of prints, negatives, discs, or other tangible items, the entire charge is exempt. The invoice must clearly state that the graphic design or photography is transferred electronically. No exemption certificate is necessary. 7 Minnesota Revenue, Advertising Taxable Nontaxable Example 1 Example 2 Example An advertiser goes to a desktop An agency subcontracts with a The desktop publisher develops Desktop publisher to have some adver- desktop publishing firm for the the concept for the brochures and tising brochures done. The layout of a catalog. The desk- advises the advertiser on color of Publishing advertiser has a rough hand- top publisher charges the paper, type of print, graphics, etc. written copy of how the bro- agency tax on the entire bill. The desktop publisher must chure should look. Advertiser clearly indicate on the advertiser’s consults with desktop pub- invoice that he is providing the lisher and selects the color of creative work for the nontaxable paper, type of print, and some advertising brochure. As such, the graphics. The desktop pub- desktop publisher must pay tax on lisher will set up the brochure all materials and supplies (such as and have it printed. The desk- paper and ink) used to produce the top publisher charges tax on brochures. The bill to the adver- the entire amount of the bill, tiser is not subject to tax. including charges for typing, setup, layout and the subcon- tracted printing. An advertiser goes to a print An agency subcontracts with a The printer, in this case, develops Printing shop to have some advertising printer to print brochures for the concept for the flyers and ad- flyers printed. Advertiser has a one of its advertising clients. vises the advertiser on color of rough handwritten copy of The printer charges tax on the paper, type of print, graphics, etc. how the flyer should look. entire amount of the bill, in- The printer clearly indicates on the Advertiser reviews sample cluding charges for typing, advertiser’s invoice that he is pro- books and selects the color of setup, layout and printing. viding the creative work for the paper, type of print, and some nontaxable advertising flyer. The graphics. The printer will set printer must pay tax on all materi- up the flyer and print it. The als and supplies (such as paper and printer charges tax on the en- ink) used to produce the flyers. tire amount of the bill, includ- The printer’s bill to the advertiser ing charges for typing, setup, is not subject to tax. layout and printing. An advertiser goes to a re- An agency subcontracts with a An advertiser goes to a recording Recording cording studio to have a radio recording studio to produce a studio to have a radio commercial commercial made. The adver- radio message for a promo- made. The recording studio pro- Studios tiser gives the recording studio tional campaign of one of the vides the creative work to develop the script for the commercial. agency’s clients. The recording the concept of the commercial. The recording studio hires studio must charge the agency The recording studio must clearly voice talent and makes the sales tax on the entire charge indicate on the invoice that it is commercial. The recording for the recording since it is not providing the creative work for the studio charges tax on the entire working directly with the ad- nontaxable radio commercial. The amount of the bill, including vertiser. recording studio must pay tax on charges for voice talent and all materials and supplies (such as background music. the tape) used to produce the commercial. The recording stu- dio’s bill to the advertiser is not subject to tax. 8 Minnesota Revenue, Advertising
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