Is a company's charge for designing, printing, and distributing door-hanger marketing materials subject to Colorado sales tax?

Plain-English summary

A company designs, prints, and distributes door-hanger marketing materials for clients: it takes the client's artwork, develops a marketing strategy, sends the artwork to a printer, then has independent contractors hang the printed material on potential customers' doors (free to those customers), and audits delivery. It charges clients a lump sum covering development, printing, audit verification, and distribution. It asked three questions: is the charge taxable, which separately stated charges count, and can it buy the printing tax-free for resale?

The Department's framework (all "would likely" — this is general guidance, not a determination):

1. The lump-sum charge is taxable because the printed material is the "true object." Colorado taxes tangible personal property but generally not services. When a retailer sells taxable goods together with nontaxable services for a lump sum, "the sales tax is calculated on the lump sum price if the true object of the transaction is the taxable goods." The Department "would likely view the printed marketing materials as the true object … because the marketing material is what the client truly desires."

2. Separately stating charges doesn't automatically make services tax-free — it depends on separability. "[E]ven if the price for the taxable goods and services are separately stated, the price for the services is included in the tax calculation if the sale of the goods and services are not separable." Two things make them inseparable: services that go into making custom/made-to-order goods (§ 39-26-102(12)), and the retailer requiring the buyer to also purchase the nontaxable services. So:
- Creative development tied to designing the printed piece → "an inseparable part of the manufacturing or fabrication of the material" → included in tax.
- Marketing development about how, where, and when to distribute (not the design) → "likely … separable" → not taxed, unless the buyer is required to buy it as part of the goods.

3. Buying the printing from the printer is an exempt purchase for resale. "Company's purchase of printed materials from the printer appears to be a nontaxable wholesale purchase for resale" (§ 39-26-102(19)(a)).

The Department cited Special Regulation 52 (true-object/lump-sum) and its prior PLR 11-004. Because this is a GIL, it lays out the rules but makes no binding determination.

What this means for you

Print, advertising, and direct-mail/door-hanger companies

If what your client ultimately wants is printed material, expect the whole transaction to be taxable as a sale of goods — even bundled with design and distribution. To keep genuinely separable services untaxed, (1) make sure they're truly optional (not required to get the printing), (2) separately state them, and (3) recognize the line the Department draws: design of the printed piece is inseparable (taxable), while strategy about how/where/when to distribute can be separable. You can buy the actual printing from your printer tax-free as a purchase for resale, since you're reselling the printed material to your client.

Businesses buying marketing/printing services

A lump-sum "marketing campaign" that delivers printed pieces will generally be taxed as a sale of goods. Ask your vendor to separate out true distribution/strategy services if they qualify — but design work folded into the printed product stays taxable.

Accountants and tax professionals

Classic true-object / mixed-transaction analysis under Special Regulation 52: lump sum taxed when goods are the true object; separately stated services still taxed when inseparable, i.e., custom-fabrication services (§ 39-26-102(12)) or services the buyer is required to purchase. Design-of-the-good vs. distribution-strategy is the separability fault line. Resale purchases of the printing are exempt (§ 39-26-102(19)(a)). Compare PLR 11-004 and the advertising/printing themes in CO PLR 17-010 (cooperative direct mail).

Common questions

Q: Is a lump-sum charge for printed marketing material taxable in Colorado?
A: Generally yes. When the true object of the transaction is the printed goods, the entire lump-sum price is taxable, even though it includes services.

Q: If I separately state the design and distribution charges, are those tax-free?
A: Not automatically. Separately stated services are still taxed if they're inseparable — for example, design/creative work that goes into making the custom printed piece, or any service the buyer is required to purchase along with the goods.

Q: What services might be separable (and not taxed)?
A: Marketing development about how, where, and when to distribute the material — as opposed to designing the printed piece — would likely be separable, unless the buyer is required to buy it as part of the goods.

Q: Can I buy the printing from my printer tax-free?
A: Yes. The Department said buying the printed material from the printer appears to be a nontaxable wholesale purchase for resale, because you resell the material to your client.

Q: Is this letter binding?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no specific determination and uses "would likely" throughout. For a binding answer, request a private letter ruling.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities and counties set their own rules.

Citations and references

Statutes, rules, and references:
- § 39-26-104, C.R.S. (sales tax); § 39-26-202, C.R.S. (use tax)
- § 39-26-102(12), C.R.S. (charges for services rendered in making custom or made-to-order goods are included in the sales tax calculation)
- § 39-26-102(19)(a), C.R.S. (wholesale purchase for resale)
- 1 CCR 201-5, Special Regulation 52 (lump-sum sales of taxable goods plus services; true-object test)
- PLR 11-004 (Department private letter ruling on marketing materials)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-17-008.pdf

Original ruling text

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

GIL-17-008

April 3, 2017
XXXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
Re: Marketing Material
Dear XXXXXXXXXXXXX,
You submitted on behalf of a client (“Company”) a request for guidance on whether sales
or use tax applies to Company’s marketing material.
The Colorado Department of Revenue (“Department”) issues general information letters
and private letter rulings. A general information letter provides a general overview of the
relevant tax issues, but is not binding on the Department. A private letter ruling provides a
specific determination for a specific set of facts, is binding on the Department but not on
the taxpayer, and requires payment of a fee. For more information about general
information letters and private letter rulings, please see Department Rule 1 CCR 201-1,
24-35-103.5.
The Department treats this request as a general information letter. It is important to
remember that general information letters, such as this one, are general discussions of tax
law and are not binding on the Department. If Company would like the Department to
issue a private letter ruling on the issue raised here, Company can submit a request and
pay the fee in compliance with Department Rule 1 CCR 201-1, 24-35-103.5.
Issue
1. Does sales tax apply to Company’s marketing material?
2. Are deductions allowed for creative development, costs of independent contractors,
freight, and audit services if these items are separately stated on the Company’s
invoice to its client?
3. Can Company or an independent contractor purchase printed materials exempt as a
purchase for resale?
Background
Company is engaged in the business of designing, creating, and delivering marketing
materials. Clients hire Company to create and distribute marketing material to the client’s
potential customers by leaving the material at the customer’s location (door hanger

material). Clients supply Company with finished artwork that will be used in printed
advertisements. Company works with clients to develop a marketing strategy and then
sends the finished artwork to a printer. The printed material is then given directly to
independent contractors who deliver the material to the potential customers. Customers
receive the door hanger material at no cost. Company’s employees perform audits to
verify that the material is delivered to potential customers. Company charges clients a
lump sum price based on the number of door hanger material. The price includes the cost
for development of the printed material, printing cost, audit verification, and the cost of
independent contractors.
Structure of Analysis
To determine whether Company’s transactions are subject to sales tax, the Department
will examine the following questions:
1. Is a charge for printed marketing materials and various other activities subject to sales
tax pursuant to § 39-26-104, C.R.S.?
2. Which separately stated charges for printed marketing material, creative development,
distribution, audit, and shipping are included in the sales tax calculation?
3. Is Company’s purchase of printed material from the printer an exempt wholesale
purchase for resale pursuant to § 39-26-102(19), C.R.S.?
Discussion
Colorado imposes sales and use tax on the sale or use of tangible personal property but
generally not on the sale of services.1 It appears that Company is selling finished
marketing material to clients and, on behalf of clients, distributing the material to potential
customers. When a retailer sells taxable tangible personal property, such as the printed
marketing material in this case, together with non-taxable services for a lump sum price,
then the sales tax is calculated on the lump sum price if the true object of the transaction is
the taxable goods.2 The Department would likely view the printed marketing materials as
the true object of this transaction because the marketing material is what the client truly
desires.
Even if the price for the taxable goods and services are separately stated, the price for the
services is included in the tax calculation if the sale of the goods and services are not
separable. For example, services that go into the making of custom goods or goods made
to order are included in the tax calculation even if the price for such service is separately
stated. The sale of goods and service are also not separable if the retailer requires the
buyer to purchase not only the taxable goods but also nontaxable services.
If most of Company’s creative development is related to the design of the marketing
materials, then the Department would likely view the charge as an inseparable part of the
manufacturing or fabrication of the material and the charge must be included in the sales
tax calculation.3 If the marketing development is not related to the design of printed
material but related primarily to how, where, and when to market the printed material, the
Department would likely view such services as separable from the printed material, unless
1

§§ 39-26-104 and 202, C.R.S.
See Department Rule 1 CCR-201-5, Special Regulation 52.
3
§ 39-26-102(12), C.R.S. (charges for services rendered in the manufacture of custom made
goods or goods made to order are included in the sales tax calculation).
2

2

DR 4010A (06/11/14)

the buyer is required to purchase the services as part of the sale of the tangible personal
property.4
Company’s purchase of printed materials from the printer appears to be a nontaxable
wholesale purchase for resale.5
Miscellaneous
This letter represents the good faith opinion of Department personnel who are
knowledgeable on state taxes issues. However, the Department does not make a specific
determination here on any of the issues raised and the Department is not bound by this
general information letter.
The Department administers state and state-administered local sales and use taxes. This
letter does not address sales and use taxes administered by home-rule cities and homerule counties. You may wish to consult with local governments which administer their own
sales or use taxes about the applicability of those taxes. Visit our web site at
www.colorado.gov/tax for more information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this
redacted letter will be made public within 60 days of the date of this letter. Please let me
know in writing within that 60 day period whether you have any suggestions or concerns
about this redacted letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

4
5

3

See Department Private Letter Ruling PLR-11-004
§ 39-26-102(19)(a), C.R.S.
DR 4010A (06/11/14)