Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
100.0000 ADVERTISING AGENCIES, COMMERCIAL ARTISTS AND DESIGNERS—Regulation 1540
(a) IN GENERAL
100.0016 Advertising Agency Acting as Agent. Many advertising agencies estimate the purchases they make on behalf of their clients and bill their clients for the estimated cost of these purchases. If the advertising agency bills the client an amount including tax that is more than the amount of the invoice from the vendor to the advertising agency, is the amount in excess of the actual cost considered as a mark-up of the price for the tangible personal property that it transfers to its client? If so, under what circumstances is the advertising agency considered as the agent for its clients?
In order to qualify as an agent making purchases on behalf of its client, the advertising agency must disclose the price charged by the vendor. Sales and Use Tax Regulation 1540(c)(2)(C) explains that when an advertising agency invoices its client for tangible personal property provided by the advertising agency without separately stating the amount paid to the supplier for that property, the advertising agency is the retailer of the tangible personal property sold to its client.
When the vendor delivers the tangible personal property and then issues its invoice to the advertising agency, the operation of subdivision (c)(2)(C) is avoided by simply issuing a "final" bill to the client that separately states the amount paid by the advertising agency to the vendor. If the excess of the estimated price versus the actual price is credited back to the client, the vendor is considered to be acting as an agent and the advertising agency will have made the purchase on behalf of its client. If the overcharge is not disclosed by the advertising agency, then subdivision (c)(2)(C) will apply to make the advertising agency the retailer. The billing of the estimated cost for the tangible personal property is not the factor that makes the advertising agency the retailer in the transaction, rather, it is the failure of the advertising agency to separately state for its client the amount billed by the vendor. 4/22/03. (2004–1).