May 02, 2016
From KPMG TaxWatch
Recently, the Texas Comptroller issued a private letter ruling in which a taxpayer requested guidance on how to apportion its advertising revenue. The taxpayer, a Texas-based national radio network, developed, produced, and syndicated radio programming, including talk-show programs. The content was broadcast by more than 2,600 radio stations across the country. The taxpayer earned revenue from selling advertising to companies that wished to have their ads broadcast during a particular syndicated program. The ads were incorporated into the programming content in Texas and then uploaded to a satellite for download by the various stations. The taxpayer requested guidance on how it should source its advertising revenues.
A Comptroller’s regulation provides that all advertising revenues of a radio or television station that broadcasts or transmits from a location in Texas constitute Texas receipts. However, the taxpayer was not a radio station, so the regulation did not apply. In the Comptroller’s view, the taxpayer was providing a service. Under Texas law, receipts from performing a service are apportioned to the location where the service is performed. In determining where a service is performed, “the focus is on the specific, end-product acts for which the customer contracts and pays to receive, not on non-receipt producing, albeit essential, support activities.” Here, the end-product was the broadcasting of advertisements from radio stations nationwide. Thus, the Comptroller determined that the taxpayer’s receipts from performing that act should be apportioned based on the locations of the radio stations where the ads were broadcast. Only those receipts from broadcasting advertising from radio stations in Texas would be considered Texas receipts. The taxpayer could determine Texas receipts from national advertising revenue based on the ratio of licensee radio stations in Texas to total licensee radio stations. Please contact Doug Maziur at 713-319-3866 with questions on Private Letter Ruling 143010942 (April 21, 2016).
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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.