Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 285 - Taxable and Exempt Sales Determined by Method of Transaction or Usage › Rule 701-285.27 - Advertising Agencies, Commercial Artists, and Designers

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Nontaxable services.
Tax does not apply to charges by
				advertising agencies, commercial artists, or designers for services rendered
				that do not represent services that are a part of a sale of tangible personal
				property, or a labor or service cost in the production of tangible personal
				property. Examples of such nontaxable services are: writing original
				manuscripts and news releases; writing copy for use in newspapers, magazines,
				or other advertising, or to be broadcast on television or radio, compiling
				statistical and other information; placing or arranging for the placing of
				advertising in media, such as newspapers, magazines, or other publications;
				billboards and other facilities used in public transportation; and delivering
				or causing the delivery of brochures, pamphlets, cards, and similar items.
				Charges for such items as supervision, consultation, research, postage,
				express, transportation and travel expense, if involved in the rendering of
				such services, are likewise not taxable.
(2)
Agency fee or
				commission.
When an amount billed as an agency "fee," "service
				charge," or "commission" represents a charge or part of the charge for any of
				the nontaxable services described under 18.27(1), the amount so billed is not
				taxable. Such charge by an advertising agency will be considered to be made for
				nontaxable services.
(3)
Items taxable.
The tax applies to the entire amount charged to
				clients for items of tangible personal property such as drawings, paintings,
				designs, photographs, lettering, assemblies and printed matter. This includes
				the cost of typography and reproduction proofs when the latter is used as part
				of a paste-up, "mechanical" or assembly. Whether the items of property are used
				for reproduction or display purposes is immaterial.
(4)
Preliminary art.
"Preliminary art" as used herein means roughs, visualizations, comprehensives
				and layouts prepared for acceptance by clients before a contract is entered
				into or approval is given for finished art. ("Finished art" as used herein
				means the final art used for actual reproduction by photo-mechanical or other
				processes.) Tax does not apply to separate charges for preliminary art, except
				where the preliminary art becomes physically incorporated into the finished art
				as for example, when the finished art is made by inking directly over a pencil
				sketch or drawing, or the approved layout is used as camera copy for
				reproduction.
The charge for preliminary art must be billed separately to
				  the client, either on a separate billing or separately charged for on the
				  billing for the finished art. It must be clearly identified on the billing as
				  preliminary art, of one or more of the types mentioned in the preceding
				  paragraph. Proof of ordering or producing the preliminary art prior to date of
				  contract or approval for finished art shall be evidenced by purchase orders of
				  the buyer, or by work orders or other records of the seller.
The following situations are examples of when the sale of
				  "finished art" is taxable:
a. Finished
				art which is sold to customers to be used for advertising purposes in
				newspapers, magazines or the like. After the advertiser contracts with the ad
				agency for the development of an advertising message or theme, the agency
				devises ideas (preliminary art) and produces the finished art. The finished art
				is then delivered to the advertiser or to an agent of the advertiser such as a
				printer or publisher who is under contract with the advertiser to publish the
				ad.
b. Finished art which is sold
				to customers, or their agents (e.g., printers), for use in producing printed
				material. The charge for finished art is taxable even though the art work may
				later be returned to the ad agency by the purchaser or the printer or used by
				the customer or the customer's agent to produce a nontaxable item. Since the
				finished art is not a part of the printed materials, the ad agency's customer
				is consuming the material and not buying it for resale, or using it in an
				exempt manner.
c. Finished art
				which is used to produce other tangible personal property sold by the ad agency
				such as letterhead stationery and business cards. The charge for such art is
				taxable as part of the selling price for such stationery or business cards.
				This is true whether or not the agency separately itemizes the charge for such
				stationery or business cards.