Is a Sign Company an Advertising Service?

Of course it is, state the authors. But as happened in a recent South Dakota case, the question can only be answered by constructing a carefully worded argument.

The following article originally appeared in the November 1987 issue of Signs of the Times magazine.

By R. James Claus and Karen Claus

The question of whether a sign company is an advertising service was addressed in a recent South Dakota case[1] involving the exemption of advertising services from taxation.[2] This question has no simple answer. It must be viewed from several perspectives. Federal, state and local laws will have widely differing impacts on a case, and the circumstances affecting each case will vary according to the particular set of business and community characteristics and needs which are affected. The federal government has rules and standards that a state is not compelled to accept. The state that does not accept these standards and rules, however, risks considerable penalties. Once before, an agency in South Dakota determined that it was not going to adopt the federal rules concerning signage.[3] The state decided that, under its own police powers, it could do what it wanted. Eventually, the state was told by a federal court that it should regulate an industry under the bounds and conditions as set out by federal legislation or suffer the consequences of losing federal aid. South Dakota was penalized for not following the federal rules and regulations.

A sign service that supplies the full range of signs — political signs, real estate signs, on-premise signs, copy for billboards — is an advertising service, and should be treated as such. It may come down to a 14th Amendment due-process or equal-treatment question. A state should think carefully before challenging federal legislation and interpretation. If the federal government determines that South Dakota is discriminating against a business by defining it differently than it would be defined throughout the rest of the U.S., the state could be penalized for not respecting the interpretations of the federal government.

Many federal cases clearly indicate by reference that signage is an advertising medium and do not even consider it from any other perspective. [4]

In addition, the federal government defines “outdoor advertising services” in the Standard Industrial Classification Code (now known as the North American Industrial Classification System — NAICS)  Section 7312 as: Establishments engaged in the preparation of poster displays, painted and electonic displays on panels, bulletins, and frames, principally outdoors.

Clearly, the government categorizes this along with advertising services. Section 7313 defines advertising representatives to include sign brokers, and Section 7311 defines advertising agencies. Thus, the federal government sees the sign industry’s purpose and function as solely that of advertising, and it should therefore be classified as an advertising service.[5]

The “welcoming” service of greeting newcomers in a neighborhood with promotional literature about area businesses was one service which the court deemed to be misclassified in the U.S. government’s SIC manual.[6] A company providing this service was not listed under the advertising category, but the court held that it was in fact an advertising service. There should be no question about the classification of the sign industry.

Real estate or personal property
Spencer Gifts, Inc. v. Taxation Division Director[7] clearly distinguishes between property, which is taxable, and services, such as the rental of computer information, which is not taxable under New Jersey tax law.

Frequently, in government regulations, the sign industry has been treated as one ubiquitous industry. Under that concept, no legislation can be fair, impartial or non-discriminatory. For purposes of legislation, distinctions are drawn between real estate and personal property. The sign industry does not wholly fit into either category[8] A political sign or a real estate sign fits the tests of personal property; an on-premise sign may be categorized as either realty or personal property;  and a billboard is purely realty.

Development of a service industry
The term “billboard” was derived from “bill posting” which used to be called “boarding” (and still is in Canada and parts of Europe). Neither the size nor the locations were set or permanently established. In the past, people posted bills to advertise products, services and events on sites as available. They did not have pre-set leases. This advertising service is one of the oldest circulated written forms of symbol commercial communication.

Two of the distinguishing features of modern society are standardization and retail or consumer orientation. Signs have developed to keep up with the changing orientations of society. Edward Donnelly of Massachusetts was among the first to standardize signs. A 30-sheet bulletin was simply 30 sheets of paper pasted up on a board. Eight-sheet and 24-sheet bulletins were just what their names imply, as well. Weyerhauser Corp. developed a filament that ran through the paper, which allowed for the pasting of the paper inside the plant. It could then be taken out and folded up on the billboard. Because of this filament, when the paper got wet, it did not disintegrate. The dyes and the inks were also improved with technological advances. Billboards are simply a stable advertising medium. Their development reflects the efforts to make the service of communication more efficient.

Segments of outdoor
The outdoor-advertising industry has two major segments: 1) informational/directional advertising and 2) the standardized medium sector. The second part of the billboard industry is a medium that’s regulated by industry standards, advertising agencies and users. The placement of the structures, space position value (SPV), the traffic count and daily effective circulation (DEC) are verified by third-party organizations.[9] The other advertising effectiveness measures of reach, frequency, cost-per-thousand exposures and readership are continually monitored and verified. The annual volume of revenue reported by the industry is in sales and has nothing to do with the number or value of structures built each year by the industry.

The informational/directional advertising industry is similar in purpose. The key difference is that this segment of the industry services a particular business, rather than a product, good or service. In no case does the industry exist for any purpose other than promoting, in the absolute sense of the word, a good, product, service or business establishment. Sometimes there is a need to communicate something from one segment of the commercial, retail or industry economy to another segment or to the consumer. The billboard becomes the medium for that message.

On-premise sign industry
On-premise signs were similarly developed to meet modern standards of efficiency. Medieval signs were anchored to and projected from the buildings which housed the products or services they advertised. Much later, freestanding signs became dominant. In a society with improved building and construction technology, the service of advertising through signage has simply become more effective; it has not changed its service function.

First Amendment protection
Signs are recognized and protected as a form of commercial communication under the First Amendment of the U.S. Constitution. [10] Metromedia v. San Diego,[11] Baldwin v. Redwood City [12] and Linmark Assoc. v. Township of Willingboro,[13] are the leading federal cases which apply First Amendment free-speech protection to billboards, political-campaign signs and real-estate signs, respectively.

The precedent set by Wirta v. Alameda-Contra Costa Transit Dist. [14] was cited in the sign case of Hillside Community Church, Inc. v. City of Tacoma [15] to determine that: Once a municipality or public body enters the field of advertising therefore, the law requires that a showing of “clear and present” danger must be made in order to limit such advertising without conflicting with guarantees of freedom of speech under the First and Fourteenth Amendments. [Emphasis added.]'[16]  Further, the free-speech protection of signs is equated with that of other media, such as newspapers in People v. Armentrout.[17] In interpreting the restrictions on freedom of speech and the press in the contested ordinance, the court noted that the signs in question were constitutionally protected in the same manner as newspapers offered for sale.[18]

South Dakota sign litigation
Even in South Dakota, the courts recognize the rights of signage as a communication function. In the case of Hullinger v. Prahl, [19] one billboard was built to block another. The Supreme Court of South Dakota said the communication of the sign was a protected right, and the offending sign was actionable as a nuisance. This court recognized the sign as a visual-communication right with guaranteed protection. The court would not have recognized this as an advertising service if it did not want to protect the right to communicate with the public. The communication right of outdoor advertising is implicitly established here.

Court recognition of advertising
The term “advertise” is legally defined as:

The act or practice of attracting public notice and attention. It includes all forms of public announcements that are intended to aid, directly or indirectly, in the furtherance or promulgation of an idea, or in directing attention to a business, commodity, service or entertainment. The idea underlying the term has reference not so much to the vehicle of instrumentality used for getting the notice before the public, as to the diffusion of information contained in the notice.[20]

The term “advertise” includes: statements and representations made in a newspaper or other publication, on radio or television or contained in any notice, handbill, sign, catalog, or letter, or printed on or contained in any tag or label attached to or accompanying any merchandise.[21]

In Metromedia, “advertising display signs” had been defined to include any sign that “directs attention to a product, service or activity, event, person, institution or business.” This definition of signs correlates with the legal definition of advertising and indicates they would fall under the ambit of advertising.

There are many other cases in which signs are referred to and classified as advertising. City of Santa Barabara v. Modern Neon Sign Co. solely classified the signs being regulated as “advertising media,” and stated that, under the regulation in question, they would become “valueless” or lose their function.[22] In Winkenwerder v. City of Yakima, the city had entered an “advertising contract” for the placement and maintenance of particular signs.[23]  The same situation was the issue in Hillside Community Church [24] with the exception that the signs in question were referred to as “advertisement material” and were to be removed from buses.

Other advertising media
Signage is comparable to other forms of advertising media in both cost determination and communication function. The cost of advertising is determined by the following criteria or advertising-effectiveness measures: reach, frequency and exposure. Outdoor advertising is sold on this basis. Reach, frequency and exposure are used to determine the rates of painted bulletins and poster panels.[25]

One litigation tool for figuring compensation for lost signage has been to determine the cost of replacing the number of exposures lost.[26] In this case, the number of exposures to the sign was determined with Average Daily Traffic indicators. An advertising campaign was designed to derive the same number of exposures with other media including radio, newspaper and magazine ads. The court in Beaver Dam Raceway[27] recognized the value of this approach and based the damages on the communication ability of the signs. In City of Scottsdale v. Eller Outdoor Advertising Co.[28] the loss of the signs was also compensated in relation to their advertising service.

One difference in on-premise signage is that the advertising cost may be laid out initially for a service that can last up to 15 years. The cost is not necessarily dribbled out yearly or monthly. Signs may, however, be leased and/or require maintenance agreements, which would essentially be budgeted out in a similar fashion to print or broadcast advertising. An on-premise sign doesn’t have to be paid for in one payment. At least half of the on-premise signs in Canada are not owned by the property owner or the lessor. They are leased as an advertising service. That is a characteristic pattern in several U. S. cities as well, including Denver. Almost all bank time/temperature signs are leased, treated solely as advertising tools and fit into advertising budgets.

How much of a medium is an advertising service or a commercial communication device? Newspapers may derive 85% of their revenues from advertisements, yet a newspaper person would say he is in the news business, not in the advertising business. If a newspaper, which may be only 85% advertising, is protected as an advertising service, a pure advertising service such as signage would clearly be classified as an advertising service. Advertising media perform a basic communication function. The purpose of a newspaper or other print media is proclaimed to be freedom of speech and to inform the public. Radio and television stations propose to entertain and inform. The actual purpose of these media is to advertise. The purpose of magazines is to include interesting reading material, so people will see the advertisements.

Signage is perhaps the most pure form of advertising. Signage professes only the function of alerting the public to available products or services.[29] An “entertaining” sign would defeat its own purpose. A similar example is the AlkaSeltzer “plop, plop, fizz, fizz” television commercial. The ad created top-of-the-mind awareness, but had no increasing effect on sales. People remembered the commercial, the actors and the jingle, but did not remember to buy the product. A designer who creates a sign that draws more attention to the format than to the message is similarly self-defeating. Advertising is intended to develop a market for a product or service, not to develop memory of an advertisement’s format.[30]

A few years ago, the advertising industry was under societal scrutiny for using “subliminal” advertising to appeal to the subconscious of the prospective customer. Subtle, “subliminal” advertising has been recognized in all forms of media. Signage has been found to communicate subtle messages and serve the purpose of stimulating recreational, commercial activities such as gambling.[31]

One final parallel between signage and radio and print media was drawn in People v. Osborne.[32] The court concluded that:

. . . the prices of services . . . may be displayed visibly outside of that shop, as well as whispered in the ear of a customer within, and published on the pages of a printed daily, likewise as they may be broadcast by radio into our homes.

Although signage clearly has a realty aspect, it is distinguishable from realty in that its economic life exactly parallels its physical life. Although its potential physical life may be 30 to 40 years, depending on the materials, once the message of a sign becomes obsolete, the sign is removed. For most realty, such as a house or a building, such functional obsolescence may be curable. The building may be used for a purpose other than its original one. A sign, like any other advertisement, maintains value only as long as its message is relevant.

When a sign was regulated so that its function became obsolete, a California court noted, “. . . [the] sign would therefore become valueless as an advertising media.”[33]

External obsolescence, such as being blocked by other signs, trees, etc. . . also affects the economic and physical life of signage. As soon as external obsolescence becomes a major factor, the sign is removed.

Many states include in their compliance agreements with federal highway legislation a definition for “abandoned signs.” Municipalities also include such definitions in their sign codes. Such a definition may read: A sign which no longer correctly directs or exhorts any person, advertises a bona fide business, lessor, owner, product or activity conducted or product available on the premises where such a sign is displayed.[34]

The code may include a section such as the following: any sign which pertains to a time, event or purpose which no longer applies, shall be deemed to have been abandoned . . . An abandoned sign is prohibited and shall be removed by the owner of the sign or the owner of the premises.[35]

The right to use signage is limited as suggested by Asia v. City of Seattle.[36] It was ruled that the contested ordinance was valid and did not violate the scope of protection as, “Appellants did not have the right for all time to use property as a site for an advertising structure.”

The primary and almost exclusive function of a sign company is to offer advertising services. Signs are recognized as an advertising medium under the ambit of First Amendment free-speech guarantees, by definition and reference in federal and state courts, and in comparison with other forms of advertising media. Anyone in the sign business is in the business of supplying a communication service to his customers. While signage may have First Amendment protection, may be real estate or personal property, may be a civil right and may be regulated as other forms of media advertising in a community, the sale of commercial signage is an advertising service.

Photo by Lukas Robertson on Unsplash


1 State of South Dakota Department of Revenue, “In the Matter of the State Sales Tax Liability of James Neon Campbell P/B/A Campbell Sign Company, 155 Commercial Rd., Huron, South Dakota 57350.” 2 Pursuant to SDCL 10-45-2.1. 3 South Dakota v. Volpe, 353 F.Supp. 335 (D.S.D. 1973). 4 See Semler v. Oregon State Board of Dental Examiners 294 U.S. 608 (1935); Premier-Pabst Sales Co. State Board of Equalization, 13 F.Supp. 90 (S.D. Cal. 1935); and Kissinger v. New York Transit Authority 274 F.Supp. 438 (S.D.N.Y. 1967).  5 The Small Business Administration will not loan to media advertisers. It considers them to be outside the ambit of the charter of the SBA. It will still loan to small sign companies, but will not allow loans to large outdoor advertising companies, not necessarily because they are outside the lending capacity, but because the service they supply is classified as a media advertising service. 6 Welcome Wagon International, Inc. v. South Dakota Department of Revenue, S.D. 318 N.W.2d 5 (1982). 7 182 N.J. Super. 179, 440 A.2d 104 (1981). 8 See United Advertising Corp. v. Borough of Raritan, 11 N.J. 144, 93 A.2d 362 (1952) in which the court stated, “The business sign is in actuality a part of the business itself, just as the structure housing the business is a part of it . . ,’ See also Varney and Green v. Williams, 155 Cal. 318, 100 P. 867 (1909), in which an ordinance favored on-premise signage. 9 Claus, R.J. and K.E. Claus, Visual Communication, 43, 49(1971). This book shows how to determine SPY and DEC for a particular location. Available from Collier-Macmillan Canada, Ltd., 1125-B Leslie St., Don Mills, Ontario, Canada. 10 See Virginia Pharmacy Board v. Virginia Citizens Consumer Council, 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976), in which the Court held that speech proposing no more than a commercial transaction enjoys a substantial degree of First Amendment protection.” 11 453 U.S. 490, 101 S.Ct. 2882, 69 L.Ed.2d 800 (1981). 12 540 F.2d 1360 (9th Cir. 1976). 13 431 U.S. 85 (3rd Car. 1977).

14 68 Cal. 2d 51, 64 Cal. Rptr. 430, 434 P.2d 982 (1967). 15 76 Wash. 2d 64, 455 P.2d 350 (1969). 16 455 P.2d at 354. 17 Cal.App.Supp. 761, 1 P.2d 556 (1931). 18 1 P.2d at 560. 19 233 N.W.2d 584 (S.D. 1975). 20 3 Am.Jur.2d (1986). 21 Black’s Law Dictionary (5th Ed. 1979). 22 189 Cal. App. 2d 188, 11 Cal.Rptr. 57, 60 (1961). 23 52 Wash.2d 617, 328 P.2d 873 (1958). 24 supra. 25 See for example, Ackerley Communications of the Northwest, Inc. Rates and Allotments, (September 1, 1986). 26 Beaver Dam Raceway v. Town of Beaver Dam, Civil Decision of Dodge, Memorandum Decision, File 9205. See also Meyer, Susan, “Advertising Campaign for Worden Travel Agency,” Moneyworth Advertising, (December 1, 1986). 27 Beaver Dam Raceway, supra. 28 119 Aria. 86 (App.), 579 P.2d 590 (1978). 29 It might be argued that a sign may be bought for “aesthetic” purposes, or image building. The whole purpose of media advertising is in fact to convey the image of a business, so this argument is self-defeating. 30 Claus, K.E. and R.J. Claus, Small Marketer’s Aid 161: Signs and Your Business (1977). Copies of this aid are available free from the Small Business Administration. 31 See Venturi, R., D. Brown and S. Izenour, Learning from Las Vegas, (1972). 32 17 Cal. App. 2d 771, 69 P.2d 1083, 1087 (1936). 33 City of Santa Barbara v. Modern Neon Sign Co., at 60. 34 Claus, R. James, and Karen E. Claus, Signage and Sign Legislation, Appendix A at 10, (1976). See also Ewald, W. and D. Mandelker, Street Graphics (1971). 35 Id. at 51. 36 4 Wash. App. 530, 482 P.2d 810 (1971).


Wade Swormstedt

Wade Swormstedt

Wade is Executive Director of the Foundation for the Advancement of the Sign Industry. Formerly he was Editor and Publisher of Signs of the Times magazine.

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Posted in 1st Ammendment / Freedom of Speech, Outdoor Advertising, Research, Sign Codes, Signs' Advertising Value, Supreme Court.