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103 KAR 26:120. Advertising agencies.

RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.280, 139.310, 139.330

STATUTORY AUTHORITY: KRS 131.130, 139.710

NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130 and 139.710 authorize the

Department of Revenue to promulgate administrative regulations for the assessment, collec-

ing on radio or television stations, or in newspapers, magazines, or other media.

(2) "Advertising services" means all advertising agency activities involved in the conceptual-

ization, development, production, and refinement of a master advertisement prior to its repro-

duction by the advertising agency or a third party including creative concept development, de-

sign, layout, consultation services, research, script and copy writing, art preparation, public re-

lations, and account management services.

(3) "Master advertisement" means the original advertising material created by the advertis-

ing agency for reproduction as tangible personal property or digital property for the purpose of

display or other advertising uses, such as master commercials, camera ready art, proofs, and

corporate logos.

(a) All tangible personal property or digital property for use in the performance of its adver-

tising services, including the purchase or rental of stock photos and movie footage delivered as

tangible personal property or digital property;

(b) Any materials that become a component of the master advertisement; and

(c) Any tangible personal property or digital property that is incidentally provided to the client

as part of the advertising services.

(2) An advertising agency shall not claim that its purchase of tangible personal property or

digital property is exempt from sales and use tax because the property is to be used in fulfilling

a contract with:

(a) The federal government, state government, or political subdivision thereof;

the performance of its advertising services is exempt from sales and use tax under the:

(a) Raw material, industrial tool, and industrial supply exemption as provided in KRS

139.470(10); or

(b) The machinery for new and expanded industry exemption as provided in KRS

139.480(10).

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(4) If acting in the capacity of a consumer, an advertising agency shall not bill its client for

tax on charges made for advertising services.

Section 3. Advertising Agencies as Retailers After Creation of Master Advertisement. (1) An

advertising agency shall be a retailer of tangible personal property and digital property the ad-

vertising agency sells to its clients or to others on behalf of its clients regardless of whether the

with the Department of Revenue for a retail sales and use tax permit; and

(b) Report and pay the applicable sales or use tax utilizing Revenue Form 51A102, "Sales

and Use Tax Return".

(3) Taxable receipts from an advertising agency’s retail sale of tangible personal property or

digital property shall include all charges for services that are a part of the sale of tangible per-

sonal property and digital property including charges for:

(a) Inbound freight;

(b) Production supervision; or

(c) Print management that directly relate to the sale of particular tangible personal property.

(4) Gross receipts subject to sales tax shall not include periodic print management fees or

(a) Kentucky "Resale Certificate", (Revenue Form 51A105);

(b) Multistate Tax Commission (Uniform Sales and Use Tax Certificate Multijurisdiction);

(c) Streamlined Sales and Use Tax Agreement – Certificate of Exemption (Revenue Form

51A260); or

(d) Other documentation containing the information required by KRS 139.280.

Section 4. Joint Activities by Advertising Agencies. (1) If an advertising agency contracts

with a client to provide both advertising services and the sale of tangible personal property or

digital property, receipts subject to tax shall be determined by the following guidelines provided

the charges for the advertising services are clearly delineated from the charges for the tangible

(b) Receipts from agency fees, service charges, or commissions exclusively for advertising

services shall not be subject to sales tax, including charges for placing advertisements in print,

broadcast, or other media.

(c) The amount separately stated for the tangible personal property or digital property shall

not be less than the fair market value of similar property sold in a similar transaction not involv-

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ing the provision of advertising services.

(2) If an advertising agency contracts with a client to provide both advertising services and

the sale of tangible personal property or digital property and does not clearly delineate the

charges on the customer’s invoice, the total billing amount is subject to tax.

Section 5. Forms. The forms listed herein may be inspected, copied, or obtained, subject to