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Sales Tax for PPC Marketing Agencies

  • Feb 3, 2017 | Laura McCamy

Pay per click (PPC) advertising is a great way for ecommerce sellers to generate site visits, but it’s not simple. Advertisers need to understand complex algorithms, keywords, long-tail search terms, and more to achieve an effective and economical PPC ad campaign. This is where PPC marketing agencies come in.

As more ecommerce sellers turn PPC to their advantage, the market for PPC marketing agencies continues to grow. If you are one of the enterprising internet entrepreneurs in this promising field, here are a few things you should know about sales taxes.

Sales Tax on Services of PPC Marketing Agencies

There was a time when services were almost never taxable. That time is over. In New Mexico, South Dakota, and West Virginia, all services are taxable unless specifically exempted. Advertising services are not exempt in those states. This means that you need to add state sales tax to the commissions or fees you charge your clients for placing their PPC ads.

Hawaii imposes a General Excise Tax or GET in lieu of sales tax. Since GET is a tax on gross revenue, PPC marketing agencies must pay what is essentially a sales tax on top of their fees.

California, New York, and a number of other states don’t charge sales taxes on advertising services. In these states, the services that PPC Marketing Agencies provide their clients are not subject to sales tax. Tangible personal property (TPP) provided by agencies, such as print materials, are taxable. Finished artwork can also be considered taxable TPP, though your fees for creating drafts are not.

You should keep an eye out for new sales taxes on services in the future, however, as states continue to look for ways to make up for lost sales tax revenue.

Sales Tax and Google Adwords

Google Adwords is the biggest PPC advertising platform, one that PPC marketing agencies can’t ignore. Google does not add tax to Adwords charges in North America (with the exception of Hawaii).

When PPC marketing agencies pay for Google Adwords and then bill the charges to their clients, the taxability of this charge will depend on state laws. Some states require advertising agencies to charge their clients sales tax on tangible personal property, such as brochures, but not on advertising buys.

Commissions for PPC Marketing Agencies

The payment or fee arrangement for PPC Marketing Agencies’ clients can affect sales tax nexus. Like everything in the patchwork quilt of US sales tax laws, the rules about advertising and sales tax nexus vary from state to state.

For example, in Florida, a seller’s advertising that targets Florida residents can be enough to trigger nexus. Once an ecommerce seller has nexus, they must register with the state and collect and remit sales taxes on all sales into that state.

In California, merely buying PPC ads isn’t enough to create nexus. However, if the seller pays for advertising through a commission on sales, this can create click through nexus in the state.

It makes sense for PPC Marketing Agencies to stay on top of affiliate marketing laws from state to state, so they can understand the sales tax implications of their services. Sales tax automation software can help make this task manageable.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Laura McCamy
Avalara Author Laura McCamy