Rhode Island Code of Regulations › Title 280 - Department of Revenue › Chapter 20 - Division of Taxation › Subchapter 70 - Sales and Use Tax › Part 42 - Advertising Agencies and Materials (280-RICR-20-70-42) › Section 280-RICR-20-70-42.5 - Advertising Agencies

Current through June 14, 2024
A. Specific
				 Applications
1. Charges for an initial
				 consultation for discussion of ideas that do not specifically include tangible
				 personal property are not taxable. Generally, these charges are for advising a
				 client on advertising issues such as the means of advertising and desired
				 markets. These charges must be reasonable and billed as an initial consultation
				 charge by an account management or consultation division of the ad
				 agency.
2. Account Management
				 Service Fees and Retainers which oversee the management of client accounts
				 only, are not considered a service in connection with a sale of tangible
				 personal property, and therefore are not subject to tax. This is considered non
				 creative time and includes staff time to manage client accounts throughout the
				 agency, as well as obtaining space and time for ads to run through media
				 outlets. In addition, fees based on an hourly billing rate or by project are
				 not subject to tax unless they are directly related to the creation or
				 producing of finished art or other tangible personal property.
3. Preliminary Art. "Preliminary art" means
				 roughs, visualizations, layouts and comprehensives, title to which does not
				 pass to the client, but which are prepared by an advertising agency, commercial
				 artist or designer solely for the purpose of demonstrating an idea or message
				 for acceptance by the client before a contract is entered into or before
				 approval is given for preparation of finished art to be furnished by the
				 agency, commercial artist or designer to its client. To determine the tax
				 status of "preliminary art", refer to §§
											42.5(B)(3)(c)  and   42.5(C)(1)(b)     of this Part.
4. Finished Art.
				 "Finished art," means the final art used for actual reproduction by
				 photomechanical or other processes; or for display purposes including charts,
				 graphs, and illustrative materials not reproduced. Tax applies to the total
				 charges made by advertising agencies, commercial artist or designers to their
				 clients for finished art produced by them.
5. Advertising Copy. Tax does not apply where
				 copy is furnished to media in manuscript form.
6. Commercials in the Form of Discs or Tapes.
				 Where a local advertising agency contracts with a producer or studio for the
				 production of a commercial (in the form of disc or tape) to be used on a radio
				 or T.V. station, the total amount which such producer or studio charges such
				 advertising agency for such disc or tape is subject to the tax.
7. Commissions. Media Commissions derived by
				 agencies for placement of advertising are not taxable whether paid by the
				 medium, by another agency, or by the client. The placing of advertising is not
				 a service that is a part of a sale of tangible personal property. Supplier
				 commissions paid to agencies by suppliers are not taxable receipts of the
				 agencies. Examples of such nontaxable commissions would be commissions paid to
				 an agency by a premium manufacturer (or distributor) or a direct-by-mail
				 supplier.
8. Fees. The term "fee"
				 as used herein means a general over-all fee or retainer encompassing all agency
				 services performed for the client. Such fees may be fixed or based on agency
				 costs and are generally in lieu of commissions, fees added to purchases, and
				 separate time charges added to jobs or agency projects or any combination
				 thereof.
a. Fees added by an ad agency to a
				 total billing which includes items as to which the ad agency is a retailer and
				 other items acquired as agent, are taxable in accordance with the ratio between
				 the charges for the items as to which the agency is a retailer and acting as an
				 agent (see Example in §
												42.5(D)     of
				 this Part).
b. Fees added to a
				 total billing encompassing taxable and non-taxable items is not taxable if the
				 agency has acted as an agent for its client with respect to the acquisition of
				 tangible personal property acquired for the client from outside sources,
				 provided the taxable items are billed at the same amount paid to the
				 supplier.
c. If an agency which has
				 acted as agent for its client fails to bill the items as to which it is a
				 retailer at their fair market selling price, the fee added to the billing is
				 taxable in accordance with the ratio between the taxable and non-taxable
				 charges.
9. Retouching.
				 Retouching ordinarily constitutes a step in the process of preparing
				 photographs or other artwork for reproduction, and is done to improve the
				 quality of the reproductions. Tax applies to charges for photo retouching
				 unless it can be clearly demonstrated that the retouching is done only for the
				 purpose of repairing or restoring a photograph to its original
				 condition.
10. Items Purchased by
				 Agency or by Artist or Designer. An advertising agency, artist, or designer is
				 the consumer of tangible personal property used in the operation of its
				 business. Such property may include stationery, ink, paint, tools, drawing
				 tables, T-squares, pens, pencils and other office supplies. Tax applies to the
				 sale of such property to the agency, artist or designer.
a. The agency, artist, or designer is the
				 retailer of, and may purchase for resale, any tangible personal property that
				 it resells before use, or that becomes physically an ingredient or component
				 part of tangible personal property sold by it prior to use. Such property may
				 include illustration board, paint, ink, rubber cement, flap paper, and wrapping
				 paper.
b. An advertising agency,
				 artist, or designer is the consumer of property such as photographs and art
				 which it uses in the preparation of tangible personal property as to which it
				 is acting as a retailer unless, prior to any use having been made of the
				 property, the property is sold or becomes an ingredient or component part of
				 other tangible personal property sold. The agency, artist, or designer may
				 purchase for resale photographs and art, which, prior to any use, are sold or
				 become physically an ingredient or component part of other tangible personal
				 property that is sold by the agency, artist or designer.
c. The term "ingredient or component part of
				 other tangible personal property" includes only those items that become
				 physically incorporated into the property sold and not those, which are merely
				 consumed or used in the production of the property sold. A photograph, for
				 example, does not become an ingredient or component part of property sold
				 merely because the image of the photograph is reproduced as part of the
				 property sold. A photograph or art is regarded as having been used when a
				 reproduction is made from the photograph or art.
11. Electronic Media. Media furnished
				 electronically by an agency to a client or to the agency by a supplier is not
				 subject to a Sales or a Use Tax as it is not tangible personal
				 property.