Director's Rule 5-806
Advertising agencies
Advertisinq agencies
(1) Introduction. Advertising agencies are primarily engaged in the business of rendering professional services, but may also make sales of tangible personal property to their clients or others or make purchases of such articles as agents on behalf of their clients. (See SMC 5.45.040 (C) - Agency). Articles acquired or produced by advertising agencies may be for their own use in connection with the rendition of an advertising service or may be for resale as tangible personal property to their clients.
(2) Business License Tax.
(a) Service and other business activities. The gross income received for advertising services, including commissions or discounts received for articles purchased as agents on behalf of clients, is taxable under the service and other business activities classification. (See Seattle Rule 5-150 for commissions or discounts allowed by printers.) Included in this classification are amounts attributable to sales of tangible personal property, unless charges for such articles are separately stated in billings rendered to clients.
(b) Retailing and wholesaling. The retailing or wholesaling classification applies to articles of tangible personal property sold to persons for whom no advertising service is rendered. In the event that both advertising services and tangible personal property are provided to a client, the revenue from the sale of tangible personal property is taxable under this classification only if it is separately stated from the charges for advertising services in billing statements rendered to such clients.
(c) Manufacturing. The manufacturing classification applies to articles manufactured for sale or commercial or industrial use (see Seattle Rule 5-1 12), and also to interstate sales of manufactured articles if stated separately from charges for advertising services in billings rendered to clients.
(3) Examples. The following examples identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The tax status of each situation must be determined after a review of the facts and circumstances.
(a) ABC advertising provides advertising services to client B. As part of their services, ABC provides consultation, graphic design, and they procure advertising space in a publication on behalf of client B for which they earn a commission. ABC should report its gross income received for the consultation and graphic design services performed under the service and other classification. ABC should also report the commissions earned from purchasing advertising under the service and other business activities classification.
(b) Company ABC above, also provides advertising services to client C. In addition to providing consulting and design services, ABC purchases printed material and other articles of tangible personal property, and resells them to client C. Company ABC does not separate charges for consulting and design services from the sales of tangible goods in their billing statements to client C. Because ABC did not segregate the charges for the resale of tangible personal property in their billing statements to client C, the purchase of the tangible personal property will be considered purchases for consumption by ABC during the course of performing its advertising services, and the total amount billed to client C is subject to tax under the service and other business activities classification.
(c) Company XYZ provides advertising services to their client A, located outside Washington State. As part of their advertising services, XYZ constructs billboards, utilizing their own materials, for client A. XYZ also performs graphic design and other consultation services on behalf of client A. XYZ segregates the billboard charge from the other advertising services they performed when billing client A. XYZ should report their gross income from graphic design and consulting under the service and other classification. The company should report their gross income for the construction and sale of billboards under the manufacturing and retailing classifications, and claim an interstate deduction against the retailing classification. Alternatively, if the client was located in Washington State, XYZ would report the gross receipts for the construction and sale of the billboards under the manufacturing and retailing classifications, and claim the MATC credit against the selling activity under the retailing classification.
(d) Company X provides advertising services to their client Z. X purchases as a principal and not as an agent for client Z, advertising space from a publisher and resells it to client Z. X is primarily responsible for payment to the publisher for the costs of the advertising space. X does not earn a commission for procuring the advertising space as client Z's agent, but rather realizes a profit from this business activity by marking up the cost of the advertising space to client Z. The gross receipts from the resale of this advertising space to client Z are reportable under the service and other business activities classification. In this example, X is not acting as an agent when procuring advertising space for client Z. X is purchasing and reselling the advertising space. Therefore, X does not meet the requirements of an agent pursuant to SMC 5.45.040 (C).
Effective: July 15, 2005
DIRECTOR'S CERTIFICATION
I, Kenneth J. Nakatsu, Director of the Department of Executive Administration of the City of Seattle, do hereby certify under penalty of perjury of law, that the within and foregoing is true and correct copy as adopted by the City of Seattle, Department of Executive Administration.