Frequently Asked Questions
Who is eligible for the Local Advertising Price Exclusion?
The charge must be separate, intended for reimbursement to the purchaser for local ads naming the article and retail location, and must be refunded within a specific timeframe.
How does the Local Advertising Price Exclusion work?
Manufacturers can exclude from the taxable sale price of an article charges for local advertising (radio, TV, newspaper, or outdoor signs) up to 5% of the sales price.
What law authorizes the Local Advertising Price Exclusion?
The Local Advertising Price Exclusion is authorized under IRC §4216(e) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §4216
Source: Internal Revenue Code, Title 26, United States Code
§ 4216. Definition of price(a) Containers, packing and transportation charges.In determining, for the purposes of this chapter, the price for which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of tax imposed by this chapter, whether or not stated as a separate charge. A transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Secretary in accordance with the regulations.
(b) Constructive sale price(1) In generalIf an article is—(A) sold at retail,
(B) sold on consignment, or
(C) sold (otherwise than through an arm’s length transaction) at less than the fair market price,
the tax under this chapter shall (if based on the price for which the article is sold) be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary. In the case of an article sold at retail, the computation under the preceding sentence shall be on whichever of the following prices is the lower: (i) the price for which such article is sold, or (ii) the highest price for which such articles are sold to wholesale distributors, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary. This paragraph shall not apply if paragraph (2) applies.
(2) Special ruleIf an article is sold at retail or to a retailer, and if—(A) the manufacturer, producer, or importer of such article regularly sells such articles at retail or to retailers, as the case may be,
(B) the manufacturer, producer, or importer of such article regularly sells such articles to one or more wholesale distributors in arm’s length transactions and he establishes that his prices in such cases are determined without regard to any tax benefit under this paragraph, and
(C) the transaction is an arm’s length transaction,
the tax under this chapter shall (if based on the price for which the article is sold) be computed on whichever of the following prices is the lower: (i) the price for which such article is sold, or (ii) the highest price for which such articles are sold by such manufacturer, producer, or importer to wholesale distributors (other than special dealers).
(3) Constructive sale price in case of certain articlesExcept as provided in paragraph (4), for purposes of paragraph (1), if—(A) the manufacturer, producer, or importer of an article regularly sells such article to a distributor which is a member of the same affiliated group of corporations (as defined in section 1504(a)) as the manufacturer, producer, or importer, and
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