Creative Promotional Services 133
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
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%)
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
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
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-
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,
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-
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.
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-
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.
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
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
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-
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.
Minnesota Revenue, Advertising