What Types of Transactions are Subject to Sales Tax in the Media/Advertising Industry?
Missouri sales tax regulations are complicated, and they become extremely obscure when dealing with the sale of media/advertising. Typically considered a service industry, these regulations can affect the way media, advertising and related companies do business. It’s important to clearly understand the way Missouri interprets and enforces the sales tax law.
In general, Missouri regulations state that if a sale involves the transfer of tangible personal property, it is a sale of tangible personal property and is subject to sales tax. This is specifically stated in Missouri Department of Revenue Chapter 103 Sales/Use Tax – Imposition of Tax. Therefore, according to Missouri sales tax law, if you deliver the final product to the client on a tangible piece of property (i.e. DVD), everything that went into that sale, including the services, is taxable.
Missouri specifically says that “preliminary art” is not taxable. So, if it’s not the final product, but instead it’s just a rough cut that you are showing the client before completing the project, it is not taxable. This needs to be explicitly stated on the client invoice.
There are a few caveats. Missouri Letter Ruling 1952 specifically states that if a business transfers the completed recording, film or video electronically through the Internet to a customer, the services are currently not subject to sales tax. This is because there was not a sale of tangible personal property since the final product was delivered electronically and not physically.
To summarize, when determining if a transaction is subject to sales tax, the key is the method of delivery of the final product. To remain competitive in the industry, companies may consider making it a business practice to deliver final products via the internet and avoid the delivery of tangible products. If you must use a DVD, CD, etc., the entire sale then becomes taxable. The client needs to be aware of the implications of receiving the tangible product and the extra cost to them in the form of sales tax.
A good way of making this a business practice is to add a disclaimer to the bottom of your invoices and estimates, stating that it is your practice to deliver the final product though electronic means, and if a tangible delivery method is requested, the client will be charged sales tax on the entire invoice.