Was a lump-sum direct-mail marketing campaign taxable in Florida, and could the marketer buy campaign inputs with resale certificates?

Plain-English summary

Florida treated the company's lump-sum direct-mail marketing campaigns for Florida clients as taxable sales of direct-mail advertising.

The company created investor newsletters and research reports, arranged printing and mailing, licensed mailing-list information, processed response cards and calls, and charged one bundled amount. Because the printed property was essential to the campaign rather than an inconsequential part of a professional service, tax applied to the entire lump-sum charge for Florida clients.

Campaigns sold to out-of-state clients were exempt as out-of-state sales. Separately stated uncancelled postage was also exempt. The company could issue resale certificates to printers, mail houses, mailing-list providers, and other suppliers for property incorporated into the materials it sold. Separate mailing-list sales to Florida purchasers were taxable.

What this means for you

• Bundling creative, response-tracking, mailing, and printed materials into one price did not make the transaction an exempt service.
• The destination and customer location mattered: the ruling taxed Florida-client campaigns but exempted out-of-state sales.
• Postage had to be separately stated to receive the cited exemption.
• Mailing lists were treated as tangible personal property under this 1996 ruling.

Common questions

Q: Was the whole campaign fee taxable for a Florida client?
A: Yes.

Q: Was separately stated postage taxable?
A: No, if it was uncancelled postage separately itemized on the client's bill.

Q: Could the marketer use resale certificates for campaign inputs?
A: Yes, for property incorporated into the direct-mail materials being sold.

Q: Were sales of the company's mailing list taxable?
A: Yes, when sold to a Florida purchaser.

Citations and references

• Fla. Stat. § 212.05 — retail sales of tangible personal property
• Fla. Admin. Code r. 12A-1.001(17)(a) — service transactions
• Fla. Admin. Code r. 12A-1.027(5), (6) — postage and direct-mail services
• Fla. Admin. Code r. 12A-1.034(1) — direct-mail advertising pieces
• Fla. Admin. Code r. 12A-1.038(1), (6) — resale certificates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-023

Original ruling text

Apr 10, 1996

Re: TAA #96A-023
Sales and Use Tax; Direct Mail Advertising.
Rules 12A-1.001, 12A-1.027, 12A-1.034, and 12A-1.038,
Florida Administrative Code.

Dear :

Your letter of June 26, 1995, requested a Technical
Assistance Advisement on the application of Sales and Use Tax to
the activities of your business. Unfortunately, that letter did
not contain enough information to issue a TAA on this matter.
In your letter of July 24, 1995, you provided sufficient
additional information to permit the issuance of this TAA.
Thus, this response to your request constitutes a Technical
Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you under the authority of
Section 213.22, Florida Statutes.

FACTS

XXXX (hereinafter Company), provides a financial
information marketing system for both in state and out of state
clients.

When Company is hired, the client provides Company with an
"information package" which includes disclosure and filing
materials, 10-K reports, financial statements, business plans,
promotional information, annual reports and press releases. The
professionals employed by Company review the information package
in order to prepare promotional materials. The promotional
materials include a four page edition of XXXX (hereinafter
Newsletter) which is devoted solely to the client's company.
The promotional materials also include a four page "brokerage
firm style research report". In addition, the company assists
the client's president or CEO in preparing a letter to accompany
the other promotional materials destined for prospective

shareholders.

Company produces a layout of the promotional materials for
the printer. A layout is a piece of tangible personal property
which is needed by the printer in order to produce the finished
promotional materials. The layout incorporates the finished
text and graphics and shows the format and design of the
finished piece. Company also provides all of the charts, graphs,
photographs, and artwork which are incorporated into the
finished product.

Once the final layout is produced, Company hires an instate printer to produce the needed copies from the layout. The
printer delivers all of the promotional materials directly to an
in-state mail house hired by Company.

The mail house addresses Newsletter using a laser printer.
The mailing list, which is effectively being licensed to the
client, is usually derived from two sources. Approximately 15%
of the list is provided by Company from its own data bases. The
remaining portion of the list is purchased from mailing list
providers located throughout the United States. The mailing is
then sent out through the U.S. Mail.

When Newsletter is received by an individual, assuming the
mailing isn't trashed, he has two avenues through which he may
respond. First, each copy of Newsletter contains a business
reply card. According to the promotional material sent to
prospective clients:

"The [Newsletter] business reply card is addressed to our
post office in XXXX and collected daily. Specific bar
codes and Postal FIM codes expedite the processing time of
all our returns. Each business reply card is also encoded
with our own alpha-numeric code and printed as a state-ofthe-art UPC barcode. This code is scanned in to our data
base to provide a wealth of information quickly and
efficiently. We are then able to produce detailed reports
that provide information regarding the quantity of
response, cost per response, quality of the various lists
used, and other information that is analyzed in order to

continuously improve our service. The cards are then
distributed as per the client instructions.

"The business reply card is strategically designed to make
it effortless for the investor to respond quickly. All
that is necessary is filling in their home and office
telephone numbers. Their name, address, and internal code
are already printed on the cards. In a matter of seconds,
the card is ready for the mail, no postage necessary!"

In the alternative, those receiving the Newsletter may
choose to respond by calling an 800 number. Your literature
states:

"Potential investors who take the time to call the 800
number have obviously been quite motivated by [Newsletter]
and are seeking immediate information. The ability to
facilitate that response in a satisfactory and accelerated
manner is critical. [Company] works in unison with a
highly qualified answering service to accommodate these
interested individuals.

"The many benefits of our professional answering service
include courteous and prompt handling of calls by
competent, fully trained operators. The service is
frequently checked to verify that our high standards are
being met. [Company] has also implemented various
incentive programs with the operators to ensure superior
service. Another advantage is that the investor will not
feel like he or she is being screened by a broker or
salesman upon initial contact.

"The national toll-free 800 number is used only for
responses to [Company's] direct mail promotions and each
client has an exclusively assigned 800 number that is not
duplicated for any other client. All calls to that number
are answered "[Newsletter]." Operators obtain information
from the caller which includes name, address, phone
numbers, and the proprietary code information printed on
[Newsletter]. The operator then asks the caller if they

are interested in receiving free, no-obligation information
on the client company and if they would like to receive a
free subscription to [Newsletter]. The process is
efficient, professional, and painless.

"Telephone responses are faxed to our headquarters daily,
and then forwarded by fax to a brokerage or sales office as
per the instructions of the client. This step often
includes sorting by state to comply with blue-sky laws or
dividing responses for multiple recipients.

"The incoming calls are scrutinized for source, quality,
quantity, and cost. Determinations are then made as to the
future usage of the respective list sources. This step is
another measure we take to ensure success for all our
clients."

Company forwards the responses to the mailing house which
sends out response packages containing the brokerage style
report and the letter from the CEO. Copies of the responses are
also sent to the client for its use in marketing shares of
stock. The Company also retains a copy of the information
gathered from the responses and uses it to modify and expand its
data base of potential investors for future use in mailing
lists.

Company charges client a single lump sum for all of the
services and items described herein. The only item which is
separately itemized on the invoice received by the client is the
cost of postage. The printer, mail house, answering service,
and mailing label providers are paid directly by Company.

The mailing list that Company has created from the response
cards has been sold to other companies for use in their direct
mail campaigns. However, it should be noted that Company is
protective of the list and has refused to sell it to some
companies. In our conversation of August 10, 1995, you
indicated that the good will of the people on the mailing list
and their faith in the integrity of Newsletter was one of
Company's most marketable assets. As such, you have refused to
sell the mailing list to all of the companies who have requested

it, for fear that they might alienate these potential investors.

ISSUES

There are three questions presented by the material you
have sent. First, should you be paying sales tax to your
suppliers when you purchase items for use in a direct marketing
campaign? Second, should Company collect sales tax from a client
on the price charged for the direct mail marketing campaign?
Third, when Company sells its mailing list, is sales tax due on
the transaction.

RELEVANT AUTHORITY

Rule 12A-1.001, Florida Administrative Code, provides in
part:

(17)(a) Professional, insurance or personal service
transactions which involve sales as inconsequential
elements for which no separate charges are made are
exempt....

Rule 12A-1.027, F.A.C., provides in part:

(5) Uncancelled postage is not a part of the sales price of
printed matter and is exempt when separately itemized on
the customer's bill.
(6) Charges for addressing, stamping, sealing, inserting,
or wrapping in connection with the operation of a direct
mail advertising service are taxable....

Rule 12A-1.034, F.A.C., provides in part:

(1) Upon final sales to ultimate consumers of direct mail
advertising pieces, circulars, hand-outs, throw-aways and
similar advertising matter, the dealer shall collect the
sales tax upon the selling price thereof from his
purchaser....

Rule 12A-1.038, F.A.C., provides in part:

(1) It is the specific legislative intent that each and
every sale, admission, use, storage, consumption, or rental
is taxable under Chapter 212, F.S., unless such sale... is
specifically exempt. The exempt status of the transaction
must be established by the dealer. Unless the dealer shall
have taken from the purchaser a certificate signed by the
dealer or the dealer's authorized representative to the
effect that the property or service was purchased for
resale and bearing the date, the name and address of the
purchaser, the effective date of the certificate, and the
number of the dealer's certificate of registration... the
sale shall be deemed to be a taxable sale at retail....

(6) In cases where all of the purchases made by a person
from a particular dealer are for resale or are to be
incorporated as a material or part of other tangible
personal property to be produced for sale by manufacturing,
assembling, processing or refining, the dealer is
authorized to take a blanket certificate of resale from the
purchaser stating that all of the purchases made by such
person for a definite period will be purchased from the
dealer for either of the above mentioned purposes, provided
each subsequent order contains the certificate of
registration number of the purchaser....

DISCUSSION

Section 212.05, Florida Statutes, states that "every person
is exercising a taxable privilege who engages in the business of
selling tangible personal property at retail in this state...."
You provide your clients with brokerage reports, copies of
Newsletter, and other items of tangible personal property. As
such, you are selling tangible personal property at retail and
sales tax is due on these sales.

In addition, you provide your clients with some
professional services. Under Rule 12A-1.001(17)(a), Florida
Administrative Code, service transactions "which involve sales
as inconsequential elements" are exempt. However, the tangible
personal property you are providing is essential to the
transaction. Thus, it cannot be considered an inconsequential

element. As such, the entire lump sum billed to your clients
will be considered to be the sale of direct mail advertising
which is taxable under Rule 12A-1.034(1), F.A.C.

However, sale of direct mail advertising materials to out
of state clients are exempt from Florida Sales Tax as out of
state sales. Thus, you will only need to collect sales tax from
your in-state clients on the lump sum charge. The separately
stated uncancelled postage is exempt under Rule 12A-1.027,
F.A.C.; thus, no sales tax need be collect on that amount.

When you purchase tangible personal property for
incorporation in the direct mail marketing materials you are
selling, you should issue a certificate of resale under Rule
12A-1.038, F.A.C., to the printer, mailing house, mailing list
services, or other supplier.

Finally, the sale of a mailing list is considered a sale of
tangible personal property. As such, you will need to collect
sales tax on any sale of a mailing list made to a Florida
purchaser.

CONCLUSION

To summarize, the separately stated charge for uncancelled
postage is exempt in all cases. When you are purchasing items
for incorporation in your direct mail marketing materials, you
should issue certificates of resale to your suppliers. If the
direct mail marketing services are being provided to a Florida
company, sales tax should be charged and remitted on the entire
lump sum charge. Similarly, you should also collect and remit
sales tax on any sales of your mailing list to Florida
purchasers.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the

statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Kama Schultz
Senior Tax Specialist

KDS
Control No. 22478