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 asked whether four of its offerings are subject to Colorado sales tax:

• Service A — print-and-mail. The client's data file is downloaded to a print shop; the print vendor merges the data with letter forms, prints and mails the letters, and supplies the paper and envelopes. The company's invoice separately states postage and services.
• Service B — automated file transfer between the client's system and the company's data vendors via VPN or SSL. No tangible material exchanged.
• Service C — USPS address correction: when mail is undeliverable-as-addressed, an electronic notification updates the client's records. No tangible material exchanged.
• Service D — automated data search: an interface with a vendor database lets clients electronically update records (new addresses, phone numbers, SSN searches). No tangible material exchanged.

The electronic services (B, C, D) appear to be non-taxable services. Colorado taxes the sale of tangible personal property and only a limited number of enumerated services — none of which apply here (§ 39-26-104). The Department has concluded in a related area that the electronic transmission of computer software is not tangible personal property (Special Regulation 7), and reasoned by analogy that the electronic data services "appear" to be non-taxable services — though it expressly did not decide.

The print-and-mail service (A) is different — it involves tangible goods. Service A puts paper forms and envelopes into the client's hands, so Special Regulation 47 (Printers and Printing) governs. Assuming the company contracts with the print vendor as a principal (not as the client's agent), its tax obligation depends on a reseller-vs-service question:
- If the company is reselling the printed material to the client, it must collect sales tax on the price the client pays — including charges for services that aren't separately stated or that are inseparable even if separately stated (A.D. Stores).
- If the "true object" of the deal is providing a service, the company is the consumer of the printed material and owes sales/use tax on its acquisition cost of that material (Special Regulation 52, Service Enterprises).

The Department said these issues are fact-dependent and that a definitive determination requires a private letter ruling. (It also flagged that, as an out-of-state business, the company should review FYI Sales 5.)

What this means for you

Data-processing and electronic-service providers

If your offering is purely electronic and transfers no tangible personal property, it generally isn't taxable in Colorado — services are taxed only by limited exception, and electronic transmission isn't tangible property (Special Regulation 7). Document the absence of any tangible deliverable.

Print, mail-house, and fulfillment businesses

Once tangible paper/envelopes enter the picture, you're in printing territory (Special Regulation 47). Pin down whether you're a reseller of the printed material (collect tax on the client's price, including inseparable services) or a service provider/consumer (pay tax on your cost of materials). Separately stating services only helps if they're genuinely separable.

Accountants and tax professionals

Two doctrines drive this: tangible vs. electronic (is there any TPP at all?) and, where there is TPP, the true-object / reseller-vs-consumer test (Spec. Reg. 52; A.D. Stores). The principal-vs-agent assumption is load-bearing for Service A. Get a PLR for certainty.

Common questions

Q: Are our electronic file-transfer and address-correction services taxable in Colorado?
A: They appear not to be — no tangible personal property is transferred, and Colorado taxes only goods and a few enumerated services. The Department didn't formally decide, but the analysis points to non-taxable services.

Q: What about our print-and-mail service?
A: That depends. If you resell the printed material, you collect tax on the client's price (including inseparable services). If you're providing a service and consuming the paper, you pay tax on your cost of the materials.

Q: Does separately stating the service charges keep them untaxed?
A: Only if the services are genuinely separable. Inseparable services are taxed even if separately stated, and if you don't separately state the goods price, the services get pulled in too.

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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