Are a company's print-and-mail service and its electronic data services (file transfer, address correction, database search) subject to Colorado sales tax?

Plain-English summary

An out-of-state company described a print-and-mail service and three electronic data services. The electronic services transmit data through a virtual private network or secure socket layer, send electronic address corrections, or let clients search and update database information. The company said no tangible material is exchanged for those services. Its print-and-mail service uses paper and envelopes supplied by a print vendor.

The Department treated the request as a General Information Letter because it did not contain the information required for a private letter ruling. It said Colorado taxes tangible personal property and only a limited number of services, then stated that it did not decide the question but that most of the described programs appeared to be services not subject to sales or use tax.

For the print-and-mail service, the result depends on the facts and on the true object of the transaction. Assuming the company contracts with the printer as principal, it may be a reseller of printed material or a service provider that consumes the material. A reseller must collect tax on the client's price, including charges for inseparable services; a service provider owes sales or use tax on its acquisition cost. The GIL makes no specific determination.

What this means for you

Electronic data services

The Department said the described electronic programs appeared to be nontaxable services, but it expressly did not decide that issue. The statement is general guidance about the described programs, not a ruling for every electronic service.

Print-and-mail services

Review the contract and the transaction's true object. The GIL describes different consequences for a reseller of printed material and for a service provider that consumes paper and envelopes. A private letter ruling would be needed for a specific determination.

Common questions

Q: Does this GIL establish a general rule that every electronic service transferring no tangible property is nontaxable?
A: No. The Department said the programs described in this request appeared to be services not subject to sales or use tax, but it did not decide the issue and made no specific determination.

Q: How does the print-and-mail service's tax treatment work?
A: If the company is a reseller, it must collect sales tax on the client's price, including inseparable service charges. If the true object is a service and the company consumes the printed material, it owes sales or use tax on its acquisition cost. The GIL says the facts control.

Q: Can I rely on the letter for my service?
A: No. It is general, nonbinding guidance and says a definitive determination requires a private letter ruling.

Citations and references

Statutes, rules, cases, and publications:

• § 39-26-104, C.R.S. (sales tax on tangible personal property; limited enumerated services)
• Special Regulation 7 (electronic transmission not tangible property); Special Regulation 47 (Printers and Printing); Special Regulation 52 (Service Enterprises)
• A.D. Stores v. Department of Revenue, 19 P.3d 680 (Colo. 2001) (separability); FYI Sales 5 (out-of-state businesses)

Related rulings

• [[gil-09-011-xxxxxxxxxx]] — web-hosted services with no TPP transfer are non-taxable
• [[plr-11-007-private-letter-ruling]] — access-only electronic service is a non-taxable service
• [[plr-11-004-private-letter-ruling-re-direct-mail-advertising]] — printing/fulfillment and resale of mailed materials

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-09-018.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2009-018
March 17, 2009
XXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Re: taxability of services
Dear XXXXXXXXXXX,
This letter is in response to your request for a ruling whether certain products and services provided by your company (“Company”) are subject to sales tax. The Department has promulgated a regulation governing the issuance of general information letters and private letter rulings. A general information letter provides a general overview of the applicable tax law and is not binding on the department. A private letter ruling is a determination of the applicability of tax to a specific set of circumstances and is binding in the department. A party requesting a private letter ruling must provide certain information and remit a fee. For more information about general information letters and private letter rulings, please review Department’s regulation 2435-103.5, C.R.S., which is available on our web site at: www.colorado.gov/revenue/tax. Although you ask for a definitive ruling, your request does not contain the information required for a private letter ruling. I will initially treat your request as one for a general information letter. You may resubmit this request for a private letter ruling. Issue Are the products and services described below subject to Colorado sales tax? Background Your company provides a number of services: XXXXXXXXXX [“Service A”] is a print and mail service that enables clients data file to be downloaded to a print shop. The company’s print vendor receives the customer’s data and letter forms, merge the data with the forms, print and mail the letters. The print vendor provides the paper and envelopes. The Company’s invoice to clients separately states the charges for postage and services. XXXXXXXXXX [“Service B”] is a service that automates movement of data files between client’s system and the Company’s data vendors. Data is transmitted by use of virtual private network

or by the use of secure socket layer technology. There is no tangible material exchanged during this process. XXXXXXXXXX [“Service C”] is an automated electronic process for providing address corrections to mailers provided by the US Postal Service. When USPS receives a mail piece that is undeliverable-as-addressed, an electronic notification is provide to update a client’s record or database. There is no tangible material exchanged between the Company and client. XXXXXXXXXX [“Service D”] is an automated data search enabled by an interface with the Company’s vendor database that allows an exchange of corrected information so clients can electronically update their database. The search enables clients to update their database with information such as new address change, new phone numbers, and Social Security searches. There is no tangible material exchanged. Discussion Colorado levies sales tax on the sale of tangible personal property and only a limited number of services, none of which are relevant to the circumstances you have outlined above. §39-26104, C.R.S. Although the Department does not have a regulation regarding electronic transmission of data, the Department has concluded in a related area that the electronic transmission of computer software is not tangible personal property. See, Special Regulation 7. Although we do not decide here, it appears that most of the programs you offer are services that are not subject to sales or use tax. However, XXXXXXX [Service A] involves the sale of tangible personal property (paper forms and envelopes). Department Special Regulation 47 (Printers and Printing) describes the taxability of printed material and printing services. You can view this regulation as well as many other tax publications and resources on our web site at: www.TaxColorado.com. We assume that the Company’s contract with the print vendor is as a principal and not as an agent of the client. In such cases, the Company’s tax obligation will depend on whether it is a reseller of the printed material to the client, or whether the Company is a provider of a service and the consumer of the printed material. If the Company is reselling the material to the client, then the Company must collect sales tax on the price paid by the client, including any charges for services not separately stated or for service that are inseparable even if separately stated. See, AD Stores v. Department of Revenue, 19 P3d 680 (Colo. 2001) (services that are separable from the sale of goods are not taxable). If the “true object” of the transaction between the Company and client is the provisioning of a service, then the Company will be treated as the consumer of the printed material and is obligated to pay sales or use tax on that material, calculated on its acquisition cost for such goods. See, Special Regulation Sales 52 (Service Enterprises) for a more complete discussion of when a transaction will be treated as a service or as a sale of property. It is not appropriate in the context of a general information letter to provide a specific determination. These issues are often dependent of the facts of the specific case and a definitive determination can only be made in response to a request for a private letter ruling. You may resubmit your request as a request for a private letter ruling. Finally, we note that you are located outside of Colorado. You may wish to review FYI Sales 5 (Sales Tax Information For Out-of-State Businesses).

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Miscellaneous
Pursuant to state law and department regulation 24-35-103.5, the Department will make public a redacted version of this letter. Your letter requesting this general information letter is not made public. I enclose a proposed redacted version of this letter. Please contact me within 60 days from the date of this letter if you have any questions, comments, or objection concerning the redacted letter. I hope this is helpful. As I noted earlier, general information letters provide only a general discussion of applicable law. You may request a private letter ruling which will provide a determination regarding the specific circumstances of your client. Please feel free to contact me if you have any questions. Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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