October 13, 2016

Free Publications and the Manufacturing Exemption

A customer does not owe sales tax on the purchase of advertising space in a publication such as a magazine or newspaper. This is true for space in free publications, as well as those that are for sale. A customer does, however, owe tax to an advertising agency or graphic artist on a charge for the ad itself, in the form of “finished art,” that the customer or the agency places in the publication. See Rule 3.312 relating to graphic arts and Rule 3.321 related to advertising agencies.

Although both are publications, a free magazine has different tax responsibilities from those of a free newspaper. The publisher of a free magazine is not considered a manufacturer since its product is not for sale. For this reason, the publisher does not receive manufacturing exemptions on equipment and materials it uses to produce the free magazine and must pay tax on these items.

A newspaper, however, as defined under Tax Code 151.319(f)(2), includes “a publication …for the dissemination of news of a general character and of a general interest that is printed on newsprint and distributed to the general public free of charge at a daily, weekly, or other short interval.” (Newsprint is the low-cost, off-white paper normally used to print newspapers.) Under Tax Code 151.318(t)(2), newspaper publishers qualify for manufacturing exemptions.

For this reason, the publisher of a free newspaper may claim the manufacturing exemption on qualifying equipment and supplies as set out in Rule 3.300 related to manufacturing. Free newspaper publishers may also claim an exemption for packaging supplies as provided in Rule 3.314 relating to wrapping and packaging. Persons printing newspapers may accept an exemption certificate in lieu of the sales tax from the publisher. Under 151.319(f), an advertisement is “news of a general character and of a general interest.” A free publication printed on newsprint and containing only advertisements, therefore, is a newspaper if it is distributed to the general public at a daily, weekly or other short interval. Because it is a newspaper, its publisher is entitled to receive the manufacturing exemptions mentioned above.