United States

Arizona: Billboard Advertising Not Subject to Transaction Privilege Tax

Jul 27, 2015
From KPMG TaxWatch

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Recently, the Arizona Court of Appeals held that the state’s transaction privilege tax or “TPT” did not apply to a taxpayer’s receipts from the sale of billboard advertising. In reaching this conclusion, the court reversed a tax court summary judgment ruling in favor of the Department of Revenue. The taxpayer owned billboards throughout Arizona and contracted with customers to display their messages on the billboards for consideration. The Department argued that the taxpayer’s sale of billboard advertising constituted the rental of tangible personal property.

Arizona’s TPT is an excise tax that is imposed on the privilege of engaging in certain businesses in Arizona and is measured by gross receipts. One type of business subject to the TPT is the “leasing or renting of tangible personal property.” Under Arizona law, billboards are considered tangible personal property. Further, it was undisputed that the advertisers provided consideration to the billboard owner/taxpayer for the display of the advertising. Thus, the only issue before the court was whether the taxpayer was “leasing or renting” the billboards to the advertiser, which would be a taxable transaction.  In making its determination, the court looked to earlier cases, which focused on whether the taxpayer maintained exclusive use and control over property or yielded such possession and control to its customers. Under the undisputed facts, the court concluded that the taxpayer retained total control over the billboards. For instance, only the taxpayer’s employees were permitted on the billboards to post, repair, or adjust content.  Further, the taxpayer reserved the right to relocate any advertisement to another billboard location of “approximately equal advertising value.” Under these and similar facts, the court concluded that the taxpayer’s customers merely received the right to have a message displayed on the taxpayer’s billboards, rather than the right to possess or control the billboards themselves. The court found further support for its holding based on the legislature’s 1986 express repeal of the TPT on advertising. In the court’s view, by repealing the tax on advertising, the legislature intended that the TPT did not apply to such activities and to interpret billboard advertising to be taxable under the rental classification would thwart the Legislature’s intent.  Please contact Brandon Fulmer at 214-840-2497 with questions on Jones Outdoor Advertising v. Arizona Department of Revenue.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.