Sales, Use and International Tax Activity Update - May 2009

Internet Advertising – Accessed Globally, Taxed Locally

A ruling was requested on various Internet advertising services performed solely outside of New Mexico and some services performed within and without New Mexico for customers who reside in the state. Services performed outside the state were ruled exempt. Where charges for advertising services combined both in state and out of state activities, receipts are to be allocated and the portion of the fees for in state services are taxable.

Issue One
A taxpayer has a proprietary Web site on which consumers can locate people, products and businesses in a specific geographic area. The taxpayer actively solicits businesses in New Mexico to place electronic advertisements on its Web site and receives revenue from those Internet advertising sales. All design work related to the customer’s electronic advertisement is performed at offices outside of New Mexico. The advertisements are also uploaded to the taxpayer’s Internet servers outside of New Mexico.

Issue Two
The taxpayer also sells search-engine advertising services termed WebReach. The purpose of WebReach is to enhance their customer’s exposure on recognized Internet search engines. The taxpayer performs WebReach services both inside and outside of New Mexico for its New Mexico customers. In New Mexico, the taxpayer compiles basic information about the customer’s business, performs the search-term consulting, and advising on the amount to pay per click. The taxpayer then sends the information to a facility outside of New Mexico where the taxpayer designs the customer’s WebReach campaign. The taxpayer then sends the campaign and its cost back to its New Mexico location for discussion and approval by the customer.

Ruling Issue One
The services as described above under issue one were ruled exempt because they were performed outside New Mexico and such an exemption is provided in Section 7-9-13.1 NMSA 1978.

Ruling Issue Two
The services provided as described above under issue two were subject to allocation and tax was due on the amount of gross receipts attributable to the services performed in New Mexico. Regulation 3.2.1.18(C) provides guidance on allocating the receipts.

You can view this ruling at the New Mexico Taxation and Revenue website.

(New Mexico Department of Revenue, Ruling No. 455-09-1, January 20, 2009)

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