How did California apply use tax when an out-of-state printer mailed promotional material from Pennsylvania or routed it through a California bindery, mailing house, or post office?

Plain-English summary

An out-of-state printer/mailer presented three promotional-mail scenarios involving pieces produced in Pennsylvania.

In the first scenario, the printer placed direct-mail pieces in the mail in Pennsylvania for free delivery to recipients. California treated title as passing when the pieces entered the mail, so the customer's use occurred outside California and California use tax did not apply. The opinion gave the same result whether or not the customer otherwise had California nexus.

In the second scenario, the printer drop-shipped catalog inserts to a California bindery or mailing house hired by the customer. California said the customer used the inserts in this state by sending them from California. Use tax applied to all of the inserts, including those later mailed to recipients outside California, and the answer did not depend on whether the customer otherwise had California nexus.

In the third scenario, the printer shipped the promotional pieces to a California post office for mailing to in-state and out-of-state recipients. California gave the same answer as in the second scenario.

The opinion did not end the analysis there. It directed the requester to Regulation 1541.5, which could exempt qualifying printed sales messages if they were specially ordered, mailed or delivered through the specified channels, and received free by another person who became their owner.

What this means for you

Printers, direct-mail marketers, and tax professionals

Where the material enters the delivery stream can control. Mailing from outside California was treated differently from routing pieces into a California bindery, mailing house, or post office. Then separately test every element of the printed-sales-message exemption.

Common questions

Q: Did California use tax apply when the printer mailed the pieces from Pennsylvania?

A: No. The opinion treated title and the customer's use as occurring outside California.

Q: What if catalog inserts went first to a California bindery or mailing house?

A: California said use tax applied to the entire shipment, including pieces later mailed out of state, unless an exemption applied.

Q: Did the customer's California nexus change those answers?

A: No. The opinion said the described results applied whether or not the customer otherwise had nexus in California.

Q: Did the opinion conclusively grant the printed-sales-message exemption?

A: No. It told the requester to review Regulation 1541.5 and its conditions.

Citations and references

• California Revenue and Taxation Code § 6201
• California Sales and Use Tax Regulation 1541.5

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 432.0073
• Original supporting opinion: 432.0073 PDF

Original ruling text

432.0073

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

November 21, 1991

Mr. A--- S. W--XXX East --- Avenue
---, -- XXXXX
Dear Mr. W---:
This is reply to your August 29, 1991 letter regarding the application of sales and use tax to sales by your client under the cases you described as follows: “Case I A) A printer/mailer produces and mails in Pennsylvania direct mail promotional material pieces for Customer A based on Customer A’s mailing list at no cost to the ultimate recipients. Printer/mailer and Customer A both have nexus in your state. Does the printer/mailer have to charge Customer A tax on the pieces mailed to recipients within your state? B) Same facts as above except: Customer A does not have Nexus in your state but printer/mailer does. Does the printer/mailer have to charge Customer A tax on the pieces mailed to recipients within your state? Revenue and Taxation Code section 6201 imposes the California use tax on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. Under the facts of this case, the printer places the promotional material in the mail outside California. We have taken the position that the depositing of promotional material in the mail out-of-state passes title at that time. Therefore, under the facts you provide here, the use of the property by Customer A occurs outside the state, and the California use tax does not apply to the use.

Mr. A--- S. W---

-2-

November 21, 1991
432.0073

“Case II
A) A printer produces catalog insert pieces in Pennsylvania for Customer A and drop ships them via common carrier to a bindery/mailing house in your state contracted by Customer A. Printer has Nexus in your state. The printed pieces will be incorporated into a catalog by the bindery/mailing house and will be mailed based on Customer A’s mailing list at no cost to the ultimate recipients. Some pieces will be mailed to recipients within your state; other pieces will be mailed to recipients out of your state. Customer A has Nexus in your state. Does the printer have to charge Customer A tax on the entire drop shipment in your state? Does the printer have to charge Customer A tax only on the pieces which will be mailed to recipients within your state? B) Same facts as above except: Customer A does not have Nexus in your state but printer does. Does the printer have to charge Customer A tax on the entire drop shipment in your state? Does the printer have to charge Customer A tax only on the pieces which will be mailed to recipients within your state?” Under the facts of this case, Customer A makes the use of the catalog insert pieces in this state by sending the printed materials to the recipients from this state. Use tax applies to such use of the property including the materials which are shipped outside California by Customer A or Customer A’s agent. Such is the case whether or not Customer A is engaged in business in this state or whether or not Customer A has any other nexus within this state. However, we are sending a copy of Sales and Use Tax Regulation 1541.5, Printed Sales Messages, which provides an exemption from sales and use tax for the sale or use of printed sales messages which are: (1)

Printed to the special order of the purchaser;

(2)

Mailed or delivered by the seller, the seller’s agent or a mailing house acting as the agent for the purchaser, through the United States Postal Service or by common carrier;

(3)

Received by any other person at no cost to that person who becomes the owner of the printed material.

Mr. A--- S. W---

-3-

November 21, 1991
432.0073

We suggest that you review the regulation to determine whether the printed materials qualify as printed sales messages as defined. “Case III A)

A printer/ mailer produces in Pennsylvania direct mail
promotional material pieces for Customer A and ships the pieces via common carrier to a post office in your state for mailing to recipients both within your state and out of your state at no cost to the ultimate recipients. Printer/mailer has Nexus in your state. Customer A has Nexus in your state. Does the printer/mailer have to charge Customer A tax on all the pieces mailed from your state? Does the printer/mailer have to charge Customer A tax only on the pieces mailed to recipients within your state?

B)

Same facts as above except:
Customer A does not have Nexus in your state but
printer/mailer does. Does the printer/mailer have to charge Customer A tax on all the pieces mailed from your state? Does the printer/mailer have to charge Customer A tax only on the pieces mailed to recipients within your state?”

Our answer is the same as in response to Case II.
We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr