Does a billing-services company owe Colorado sales tax on the printed bills it produces, or on the separately stated postage it charges to mail them?

Plain-English summary

A company that provides payment and accounts-receivable services — it takes clients' raw financial data and turns it into personalized bills and statements, mostly printed and mailed — asked Colorado two questions: are its charges for producing those printed bills taxable, and is the postage it charges to mail them taxable? The Department said neither is taxable.

The billing work is a service, not a sale of paper. Colorado taxes goods, not most services. When a vendor hands over some tangible property (here, printed bills) as part of performing a service, the Department applies the true-object test: is the customer really buying the paper, or the service? Colorado courts weigh factors like the value of the property versus the service, whether the property could be delivered another way, and the skill needed to produce it. Here the real object is converting financial data into accurate billing information and getting it to the client's customers — essentially bookkeeping/billing services. The paper is incidental. So the charges are for a nontaxable service.

The postage isn't taxable either. Mailing is a form of transportation service, which is presumptively nontaxable. On top of that, transportation charges aren't taxable when the thing being delivered isn't part of a taxable sale. The bills being mailed aren't goods the clients are selling to their customers — they're just bills — so the separately stated postage charge is not subject to tax.

(The Department noted it was not asked to rule on the company's own purchases of paper, ink, and supplies used to perform the service — that's a separate question. See its earlier PLR 16-003.)

What this means for you

Billing, mailing, and print-services companies

If your real product is a service — converting data into documents, statements, or communications — the fact that you hand the customer a printed output doesn't automatically make it a taxable sale of goods. Under the true-object test, paper that's incidental to the service keeps the charge nontaxable. Document this: emphasize the data-processing/skill component and the incidental role of the physical output.

Anyone charging customers for postage

Separately stated postage to deliver items that aren't themselves a taxable sale is treated as a nontaxable transportation charge. Keep postage separately stated, and remember the flip side: if the thing you're delivering is part of a taxable sale of goods, the delivery charge may ride along as taxable. (See Colorado's separately-stated/separable delivery rules.)

Accountants and tax professionals

This is the true-object test from City of Boulder v. Leanin' Tree applied to a service-with-incidental-tangible-output, plus the transportation-charge rule for postage (1 CCR 201-5, Special Rule 18). Two limits to flag: the ruling doesn't address the provider's own taxable purchases of consumables (paper, ink), and the postage analysis depends on the delivered item not being part of a taxable sale. Watch the home-rule-city caveat.

Common questions

Q: Are printed bills and statements taxable in Colorado?
A: Not when they're the output of a billing/data service. The Department treated the printed bills as incidental to the true object — the billing service — so the charges are for a nontaxable service, not a sale of paper.

Q: Is postage I charge customers taxable?
A: In this ruling, no. Postage is a transportation/mail service and is presumptively nontaxable, and it isn't taxable here because the mailed bills weren't part of a taxable sale of goods. Keep it separately stated.

Q: What if the documents I print and mail are products my customer is selling?
A: Then the analysis can change. Transportation charges can become taxable when the delivered item is part of a taxable sale, and a transaction whose true object is acquiring the printed product can be taxable. The facts matter.

Q: Does this mean my purchases of paper and ink are tax-free?
A: This ruling doesn't say that — the Department expressly was not asked about the provider's purchases of paper, ink, and other supplies used to perform the service. That's a separate question (the Department pointed to its PLR 16-003).

Q: Can my business rely on this ruling?
A: No. A private letter ruling binds the Department only for the taxpayer and facts it was issued to, and explicitly cannot be relied on by anyone else. It shows the Department's reasoning, but your facts may differ.

Q: Does this cover city tax too?
A: No. The Department administers state and state-administered local sales and use tax only. Self-collected home-rule cities set their own rules and may tax printing or delivery differently. Check each home-rule city.

Citations and references

Statutes and rules:
- § 39-26-104(1), C.R.S. (sales tax on tangible personal property; services generally not taxed)
- 1 CCR 201-5, Special Rule 18 (transportation charges, including postage)

Cases:
- City of Boulder v. Leanin' Tree, Inc., 72 P.3d 361 (Colo. 2003)

Related guidance:
- Colorado PLR 16-003 (similar conclusion; discusses the provider's own purchases of supplies)

Subject

Sales and use tax on printed billing and financial services and postage

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-18-004.pdf

Original ruling text

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

PLR 18-004
July 19, 2018
XXXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: private letter ruling
Dear XXXXXXXXXXX,
You submitted a request for a private letter ruling on behalf of your client, XXXXXXXXX
XXXXXXXXXX (“Taxpayer”), to the Colorado Department of Revenue (“Department”)
pursuant to Department Rule 24-35-103.5. This letter is the Department’s private letter
ruling. This ruling is binding on the Department to the extent set forth in Department
Rule 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to
whom the ruling is made.
Issues
1. Is printed information provided as part of billing and other financial services
subject to sales and use tax?
2. Are postage charges to deliver printed billing or other financial information
service subject to sales or use tax?
Conclusions
1. Taxpayer’s charges for billing and related services are not subject to sales
tax even though printed information provided as part of billing and other
financial services is transferred to billing recipients.
2. Charges for postage to deliver the printed billing or other financial
information service are not subject to sales or use tax.
Background
Taxpayer provides payment solutions and accounts receivable management products
to clients. Taxpayer offers a number of services including secure document creation
and delivery, data analytics and hygiene, electronic billing and archival services, and
online payment tools. The majority of the Colorado sales relate to customization,
validation, and creation of personalized billing or other financial communications

primarily delivered via printed documents mailed via the United States Postage
Service. Taxpayer also offers optional services that provide customers with analytics
and workflow tools. Postage is a separately stated cost on customers’ invoices. A few
clients elect to have their customer communications delivered via email, SMS, or other
electronic methods.
Discussion
Colorado sales tax applies to the sale and use of tangible personal property and, in
general, does not apply to the sale of services.1 When a vendor transfers tangible
personal property to a customer as part of services performed by the vendor for the
customer, the application of sales tax will depend on whether the sale of property and
services are separable and, if not, whether the customer’s “true object” is to acquire the
tangible property, in which case the transaction is subject to tax, or to receive the
service, in which case the transaction is a non-taxable service.
Colorado courts have identified several factors to determine the customer’s true object,
including a comparison of the value of the property in relation to the value of the
service, whether there is an alternative method of transferring the property, the length
of time the property has value, constraints on the customer’s use of the property, how
the customer uses the property, whether the property represents the finished product,
and the skill and expertise needed to produce the property.2 Ultimately, the question is
resolved by whether the transaction is commonly understood to be one for service or
for the sale of property.
The Department concludes that the generation of invoices is most commonly
understood to be a service. Taxpayer performs services similar to what is commonly
referred to as bookkeeping or billing services. The service is converting raw financial
and related data into accurate billing information and to transmit that information to the
client’s customers. The paper on which the information is sent is incidental to the
client’s true object of transmitting billing information to customers.3 Therefore, the
Department rules that Taxpayer’s charges are for services and, therefore, are not
subject to sales or use tax.4
Taxpayer requests a ruling on the application of sales tax to postage. Mail service is a
form of transportation service.5 Transportation service is presumptively a non-taxable
service. Moreover, charges for transportation service are not taxable if the property
being delivered is not part of a taxable sale. The postage in this case is a
transportation charge for delivering paper bills that are not, themselves, being sold by
clients to their customers. Therefore, Taxpayer’s charge to its clients for postage is not
subject to tax.
Miscellaneous
1 §39-26-104(1),C.R.S.

2 City of Boulder v. Leanin’ Tree, Inc., 72 P. 3rd 361 (Colo. 2003)
3 The Department reached a similar conclusion in PLR 16-003.

4 The Department has not been requested to rule on the application of sales or use tax on

Taxpayer’s purchase of paper, ink, and other tangible personal property used by Taxpayer to
perform its services. See, generally, PLR 16-003 for a discussion of this issue.
5 1 CCR 201-5:SR-18. Transportation charges (e.g., charges for postage)
2

DR 4010A (06/11/14)

This ruling is premised on the assumption that Company has completely and
accurately disclosed all material facts and that all representations are true and
complete. The Department reserves the right, among others, to independently
evaluate Company’s representations and assumptions. The ruling is null and void if
any such assumption or representation is incorrect and has a material bearing on the
conclusions reached in this ruling and is subject to modification or revocation in
accordance to Department Regulation 24-35-103.5.
This ruling is binding on the Department to the extent set forth in Department
Regulation 24-35-103.5. It cannot be relied upon by any taxpayer other than the
taxpayer to whom the ruling is made.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling 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 version of the ruling.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the
taxpayer to whom the ruling is made.

3

DR 4010A (06/11/14)