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Tax Law

Not on the Same Wavelength: Receipts from Radio Advertising Must Be Sourced to Texas When Broadcast from the State

By Mike Kerman and Amy Nogid

The Texas Comptroller of Public Accounts concluded that a Texas-based national radio network must apportion its advertising receipts based on the ratio of radio stations that license and broadcast its programming from Texas compared to the total number of radio stations that license and broadcast such programming. The taxpayer develops, produces and syndicates radio programming, and generates receipts by incorporating customers’ advertisements into the programming. The taxpayer licenses the programming to radio stations across the country, and uploads the programming to satellites for the radio station licensees to download and broadcast to their respective audiences. The Comptroller found that the taxpayer’s receipts are from the performance of a service and must be sourced to where the service is performed. The Comptroller stated that it is “well-established” that where services are performed depends on the “specific, end-product acts for which the customer contracts,” and not on support activities. Here, the Comptroller determined the end-product act for which the customers contract is the radio stations’ broadcasts of the customers’ advertisements. Thus, the Comptroller concluded that the taxpayer must source its advertising receipts based on where radio stations broadcast the advertisements to their audiences, using the percentage of Texas radio stations that license programming compared to the total number of radio stations that license programming. Tex. Private Letter Ruling No. 143010942 (Apr. 21, 2016).