(A) Revenue collections by agent. Gross receipts from revenues received by an agent for the account of his or her principal are to be reported by the principal. It is immaterial whether the client or customer remits directly to the principal or the agent for transmittal to the principal. The agent is required to report the commission withheld by him or her as compensation for his or her services before remitting to his or her principal and/or any commission paid to him or her after the receipts are remitted to his or her principal. An agent is also required to include in gross receipts other receipts not for the account of his or her principal. No deduction from gross receipts may be taken by the principal for commission paid to or withheld by the agent.
(B) Dollar-for-dollar payments and reimbursements.
(1) Money or property received by an agent for transmittal to a third party on behalf of his or her principal or as a reimbursement of such a transmittal, is not to be reported by the agent as gross receipts, provided the receipt and/or subsequent payment contains no commission, markup or rebate. The dollar-for-dollar requirement of such pass-through payments or reimbursements must be documented in a written agent-principal arrangement or evidenced as a separate item on governing invoices.
(2) Example:
(a) Taxpayer Allen (agent) is retained by Paul (principal) to locate, purchase and arrange delivery of a specific work of art. The agreement provides for a 10% finder’s fee and the reimbursement of certain expenses. Allen finds, inspects and purchases the artwork in Paul’s name and has it delivered. Allen is paid by Paul as follows:
Cost of artwork | $50,000 (remitted to seller) |
Finder’s fee | $5,000 |
Delivery cost | $1,200 (paid to delivery company) |
Allen’s travel expenses | $4,497(actual airfare, lodging and the like) |
Total | $60,697 |
(b) Allen must include the finder’s fee and the reimbursed travel expenses ($6,147) in gross receipts for business privilege tax purposes. The cost of the artwork, and the delivery charge are excluded, since these costs were paid to third parties by Allen on behalf of Paul. Allen’s travel expenses were incurred and paid in connection with services rendered by Allen, but these expenses were not paid to third parties on behalf of Paul and therefore, are not excludable.
(C) Factors to be considered in establishing an agency relationship. A person will be regarded as acting as an agent for the purpose of collecting revenue or receiving reimbursement of an expense on behalf of a principal when all of the following conditions are met:
(1) The contract or agreement between such persons clearly and legally establishes the relationship of principal and agent and is evidenced in writing;
(2) The books and records of the agent show the name of the principal on whose behalf the sale is made or the expense is incurred;
(3) The credit risk is assumed by the actual owner of the property or the person for whom the service is rendered; and
(4) The books and records of the agent show the amount of gross receipts and an itemization of commission due and/or other revenue or expenses.
(D) Manufacturer’s representative. A manufacturer’s representative will be taxed on his or her gross commissions provided he or she does not take title to the property being sold. Persons who take title to the property being sold will be treated as vendors-dealers under the mercantile license tax provisions. No deduction is allowed for commissions paid to independent sales representatives or subagents.
(E) Agent as employee. Income earned as an employee is not subject to the tax. Any agent asserting status as an employee must provide a copy of federal form W-2 and/or such other documentation as the Tax Collector may reasonably require to establish employment. Receipts earned by independent agents are subject to the tax even though such persons qualify as “statutory employees” for purposes of federal income taxation.
(F) Advertising: and marketing agencies. Advertising and marketing agencies must include all gross receipts from consulting services and/or the development and production of marketing programs and materials. No exclusion is allowed for production costs, such as printing. Gross receipts representing the reimbursement of advertising costs incurred by the agency on behalf of its client (principal) may be excluded, provided that the reimbursement is dollar-for-dollar, and the reimbursement is separately stated at cost on the agency’s invoice.
(1) Example 1:
(a) A vendor retains a marketing agency to develop an advertising concept, design a printed flyer, and arrange for the flyer to be distributed as an insert through a newspaper publisher. The marketing agency also subcontracts the printing of the flyer as part of the engagement. The contract between the vendor and the marketing firm clearly establishes a principal agent relationship and provides for a fixed fee of $30,000 for the design, printing and placement of 450,000 flyers, plus the advertising fee paid to the newspaper at cost. The agency incurs costs for subcontracted photography ($1,250), printing ($4,675) and placement fees paid to the newspaper ($18,000). The marketing agency invoices the vendor $48,000, showing the exact cost of the placement fee on the face of the invoice.
(b) The marketing agency may exclude the $18,000 dollar-for-dollar reimbursement of the advertising cost from gross receipts.
(2) Example 2:
(a) Same facts as Example 1, except the marketing agency takes a 15% agency discount on the placement fee, paying the newspaper $15,300, but charges the vendor $48,000, showing the advertising cost as $18,000 on the invoice.
(b) No exclusion from gross receipts is allowed by the agency because the reimbursement was not dollar-for-dollar.
(G) Insurance agents, brokers and underwriters. General agents for insurance companies are required to report as gross receipts the entire commissions received as compensation on policies sold by them directly as well as the overriding commissions received by them upon business produced by brokers and subagents. Brokers and subagents are required to report as gross receipts the commissions received as compensation for their services. No deduction is allowed for commissions paid to solicitors, subagents, brokers or others.
(H) Real estate brokers and agents.
(1) Real estate brokers and agents are required to report as gross receipts the commissions and fees received for services rendered in promoting the purchase, sale, rental and/or management of property for others. Gross receipts include commissions on properties not located in the borough if the transaction is handled through personnel connected to a base of operations in the borough.
(2) Similarly, gross receipts include commissions on transactions managed, controlled or directed through a borough base of operations, even though settlement is conducted at a location outside the borough.
(a) No deduction from gross receipts is allowed for commissions paid by real estate brokers to real estate agents.
(b) If a real estate broker takes title to real property in his or her own name or in a straw name and sells the property, he or she is required to include the gross selling price of the property as taxable receipts, undiminished by the cost of the property or other expenses. However, if the sale qualifies as the sale of a capital asset under the Internal Revenue Code, the cost of the property may be deducted from gross receipts. See § 36.074.
(Ord. 2015-5, passed 4-28-2015)