Sales Tax Articles
Sales Tax State Activity Update - February 2006
Indiana - Advertising Space a Service?
A Taxpayer protested an audit assessment and argued that its provision of advertising space constituted a service, rather than a rental of space. The crucial difference is that the rental is taxable under Ind. Code ยง6-2.5-4-10, while the provision of a service is not taxable. The Taxpayer's protest was sustained.
Facts
The Taxpayer is engaged in the rental of advertising space. During the years at question, the Taxpayer sold rental space at various Indiana locations. No sales tax was charged on its rentals during the audit period with respect to several advertisers. The Department assessed sales tax on these rentals.
Taxpayers Position
The Taxpayer argues that its provision of advertising space constituted a service, rather than a rental of space. An advertiser provides a copy of its advertisement to the Taxpayer. Upon review by the taxpayer of the advertisement for content and suitability, it is installed in an advertisement display case. Cleaning and maintenance of the display cases is the responsibility of the taxpayer.
Auditor's Position
A detailed auditor's position was not enumerated in this letter of finding. The only statement was that tax was assessed because the transaction was viewed a rental of tangible personal property.
Finding
According to Information Bulletin # 59, the key element in determining whether the transaction is a rental or a service is who controls the property. If the person paying for the use of the advertising space controls the space, the transaction is a rental of the space and is taxable. If the person using the property does not control the property then the transaction is a service.
The person paying for the use of the space has control when that person can determine the location of the advertising space or has the right to direct how the advertising space will be used. The person using the space must have exclusive use of the space.
Other factors indicating control are whether the customer provides upkeep and maintenance of the space, and whether the customer pays for the posting of the advertising material.
Taxpayer's arrangement leads the Department to conclude that the sales in question are those of services rather than rentals of tangible personal property, and accordingly not subject to tax.
View the full text on the Access Indiana Website
(Letter of Finding, No. 04-0154, Indiana Department of Revenue, 01/01/06)
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