Private Letter Ruling

Ruling Number:P-2003-014
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Photographic and video services and products.
Approval Date:03/10/2003

Office of Policy & Research

March 10, 2003


Thank you for your recent letter. I apologize for the fact that you had to send a follow-up letter to the one sent last June. The address used in the letters include "PO Box 12001." This is the department's address for tax returns and payments. Associates who open returns are charged with depositing tax payments as quickly as possible. While the earlier letter should have been forwarded to this office, using the address contained in the footer of this letter for policy questions should help to assure a more timely response in the future.

You represent XXXX. ("XXXX") XXXX is a Kansas company that provide photographic and video services and products. Customer include retailers, advertising agencies, and other businesses. You ask how XXXX should collect sales tax on its services and products. Most of your questions are answered in a Question and Answer for Photographers that was published last year. It states:

While this Q & A answers most of your questions, the sales tax law treats advertisers as consumers. This is because advertising agencies are not required to collect sales tax from their customers for advertising services. This is reflected in K.S.A. 2001 Supp. 79-3606(nn), which exempts: "except as otherwise provided by this act, all sales of services rendered by an advertising agency or licensed broadcast station or any member, agent or employee thereof." For XXXX, this means that it must collect sales tax on all charges billed to an advertising agency. The "except as otherwise provided" exception in (nn) is for sales of multiple units of tangible personal property by advertising agencies to clients, such as 1,000 posters, 500 printed t-shirts, or 5,000 key chains. When an advertising agency fabricates such items for a customer, the agency should charge sales tax on the customer billings.

Your letter contains several Fact Situations in which you describe XXXX's activities and ask how sales and use taxes applies. In Fact Situation 1, XXXX produces a thirty-second television advertisement for a Kansas grocery store. XXXX delivers the master tape to the store in Kansas. XXXX should collect sales tax on the total amount that is charged to the consumer without any deductions. The first paragraph of the Q & A explains why: "Sales tax applies to the total charge for aerial photographs, security photographs, films, and similar items produced under a contractual agreement which includes design time and similar labor charges." XXXX is required to pay sales tax on everything that it buys for the shoot, except the blank tape for the master tape: "In determining the selling price, no deduction may be taken for charges such as sitting fees or for ancillary expenses such as travel time and related expenses, telephone calls, salaries or wages, models, and other similar expenses, whether or not these expenses are separately stated in billings to purchasers."

Fact Situation 2 is the same as Fact Situation 1, except that the video is being prepared for an advertising agency in Kansas who receives a "master tape" from XXXX. As with the Fact Situation 1, XXXX is required to collect tax on the full amount changed to the consumer --- in this case the advertising agency. As in Fact Situation 1. XXXX is required to pay sales tax on everything that it buys and uses for the shoot. As in the first fact situation, XXXX may claim exemption when it purchases the blank tape that becomes the master tape and is physically delivered to the advertising agency.

Fact Situation 3 is the same as Fact Situation 1, except that the master tape is shipped to a store in Missouri via the United States Mail or common carrier, such as UPS or Fed Ex. In this case, the paragraph number (6) of the Q & A applies. It explains that when films or prints are delivered to another state, the transaction is treated as a sale in interstate commerce and no Kansas tax applies. Conceptually, the exemption as a sale in interstate commerce results from treating photographers as fabricators of tangible personal property. Had the department treated photography as a taxable service rather than as the fabrication and sale of tangible personal property, taxation of photographers would have been fundamentally different and very little of the Q & A would apply.

As with Fact Situation 3, Fact Situation 4 involves producing a video tape for a grocery store located outside Kansas. Again, the master tape is delivered to an address outside Kansas. As with Fact Situation 3, no Kansas sales or use tax is due on the transaction since the tape is considered to have been sold in interstate commerce. It makes no difference that XXXX receives payment for the tape from a business in Kansas. Again, as is the case in the other numbered Fact Situations, XXXX is required to pay sales tax on everything it buys except for the blank tape that is used for the master tape and transferred to the consumer.

Your letter cites to Information Guide 19-87-3, for "Advertising Agencies and Related Businesses." This guide on can be found in several tax services, which present it as stating current department policy. However, the department has revoked Information Guide 19-87-3. It should not be relied on or followed.

I hope that I have answered all of your questions. If you need to discuss anything further, please call me at 785-296-3081. This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Date Composed: 03/12/2003 Date Modified: 03/12/2003