SPECIALIZED TYPES OF BUSINESS OR PROPERTY

1. (a) Purchases. Purchases by advertising agencies shall be taxed in accordance with the following:

   1. (1) Materials used or consumed in rendering professional services. Advertising agencies that provide professional services are the ultimate consumers of tangible personal property used or consumed by them in the preparation and placing of advertising in magazines, newspapers, and on radio and television when no tangible personal property is tranferred to the purchaser other than proofs or samples for his approval, comment, criticism, information or other similar purposes. Purchases of office supplies, paper, ink, paint, art work from independent artists, engraver’s charges for metal plates, mats and other materials used or consumed in this type of work is subject to tax. For example, an advertising agency is the ultimate consumer of the mats and all other tangible personal property it uses or consumes in the preparation of the mats.
   2. (2) Tangible personal property purchased on behalf of specific clients. Advertising agencies rendering professional services, (that is, market and public relations counseling, copy writing, art or creative direction, placement and supervision of media and graphic arts purchases on behalf of specific clients) shall pay sales tax on all purchases of tangible personal property for specific client accounts to the exact degree that the respective client would be liable if purchasing the materials directly from primary suppliers. Certification that the authorized purchase of specific tangible property falls within any exempt category can originate only with the client and shall be furnished to the agency in writing stating the basis on which exemption is claimed. The agency may then inform the pertinent supplier or suppliers on the client’s behalf, providing a duly executed exemption certificate indicating the basis for the exemption.
   3. (3) Materials purchased for resale. Advertising agencies are entitled to claim the resale exemption on purchases of tangible personal property which they directly resell or incorporate into products which they resell. Circulars, signs, mats, show cards, posters and other similar tangible personal property are deemed to be resold by advertising agencies. For example, when an advertising agency prepares and sells signs to a client, it shall collect tax on the purchase price, but is entitled to claim a resale exemption on materials which become part of the signs. Similarly, when an advertising agency contracts to provide mats to a client who in turn will forward the mats to its dealers throughout the country, the advertising agency shall collect tax on the price charged for the mats, but is entitled to claim a resale exemption on the purchase of the mats from the mat maker. The exemption does not apply to the purchase of the art work, paper and ink, which is used by the agency in preparing the mock-up of the mat for the mat maker since the materials used in preparing the mock-up are not resold to the client.
   4. (4) Limited application of printing exemption. Printing engaged in as a business is included in the definition of manufacturing. See section 201 of the TRC (72 P. S. § 7201) and § 32.32 (relating to manufacturing; processing). The sale of taxable property to an advertising agency is not subject to a claim of exemption on the theory that the purchased property is to be directly used in printing operations unless the agency itself is actually engaged in the business of printing. The exemption is not applicable to purchases by advertising agencies of tangible personal property such as paper, ink, mats, plates and similar property which are used in the preparation of or form a part of mock-ups or similar items which are transferred to printers or other persons for use in reproduction.

2. (b) Sales. Sales by advertising agencies shall be taxed in accordance with the following:

   1. (1) Advertising agencies shall collect tax from their customers on sales of circulars, signs, mats, show cards, posters and similar tangible personal property. If the sale of the property includes a charge for services such as consultant fees or market research fees, and the charge for such services is not separately stated, tax shall be charged on the total purchase price. For example, if an advertising agency contracts to conduct a market research program for a client and supply him with 1,000 advertising displays based on the findings of the research, the charge for the market research program is subject to tax if it is not separately stated from the charge for the displays. Similarly, advertising agencies are not required to collect the tax on services performed in preparing and placing advertising in magazines, newspapers, or on radio and television when no tangible personal property is transferred to the purchaser other than samples for his approval.
   2. (2) Professional services do not include labor, even though it be skilled, which is performed in the preparation of tangible personal property which is sold at retail by the advertising agency. For example, when an advertising agency prepares signs for its clients, a deduction is not permitted for the salary paid to its painter. Similarly, when an advertising agency employs a commercial artist, a deduction for his salary is not permitted from the purchase price charged for his art work which is sold at retail to another advertising agency or person.
   3. (3) Sales of direct mail advertising materials are exempt from tax. See § 31.29 (relating to books, printed matter and advertising materials). Property used or consumed in production of direct mail advertising is subject to tax unless it qualifies for the printing or resale exemption.
   4. (4) The sale at retail of advertising items to persons who distribute them free of charge is subject to tax since the persons are considered the ultimate consumers of the advertising items. For example, when an advertising agency contracts to prepare counters and window displays for a client who distributes the displays free of charge to persons marketing its products, the advertising agency shall collect tax from its client.