Are prospectuses, proxy materials, offering circulars, and SEC forms that a securities printer mails free to shareholders exempt from New York sales tax as promotional materials?

Plain-English summary

A company (referred to as "XYZ" in the opinion, requested by KPMG LLP on its behalf) prints and electronically files a wide range of corporate securities documents on behalf of corporations, underwriters, and law firms, delivering them free of charge to current and prospective shareholders by mail or common carrier, and filing electronic copies with the SEC. The question was which of these document types qualify as exempt "promotional materials" under New York's sales tax law — a category that covers advertising literature and related items like annual reports and prospectuses, mailed free to customers, but specifically excludes invoices, statements, and similar documents.

The Department sorted the documents into two groups. Prospectuses, "red herring" (preliminary) prospectuses, offering circulars, tender offer materials, private placement memorandums, and Forms 10-K and 10-Q all qualify as promotional materials — they function like advertising literature or annual reports aimed at informing and attracting investors — so printing and mailing them free of charge to shareholders is exempt from sales and use tax. But proxy solicitation materials, Form 144 (notice of proposed sale of restricted securities), Form S-1 (basic registration form), and Form S-3 (simplified registration form) don't qualify, because they function as required regulatory notices/filings rather than promotional literature, so their printing and delivery remains taxable when delivered in New York.

What this means for you

Securities printers and investor-communications companies

Don't assume every SEC-related document you print and mail to shareholders qualifies for the promotional materials exemption. Documents that inform and attract investors (prospectuses, offering circulars, annual reports) can qualify; documents that are primarily regulatory/procedural filings (proxy statements, Form 144, S-1, S-3) do not, even though they're delivered the same way to the same shareholder list.

Corporations, underwriters, and law firms hiring printers for shareholder mailings

Ask your printer to separately account for which documents in a mailing qualify as exempt promotional materials versus which don't — a single mailing to shareholders can mix taxable and exempt document types.

Accountants and tax professionals

The exemption in § 1115(n)(4) requires (1) the document to independently qualify as "promotional materials" under § 1101(b)(12), and (2) free delivery to customers/prospective customers by common carrier, USPS, or similar service. Note the envelope rule too: only envelopes used exclusively to deliver promotional materials qualify for the exemption. A properly completed Form ST-121.2 relieves the vendor of the duty to collect tax on the qualifying documents.

Common questions

Q: Is a prospectus mailed free to shareholders exempt from sales tax?
A: Yes — prospectuses, red herring prospectuses, offering circulars, tender offer materials, private placement memorandums, and Forms 10-K/10-Q all qualify as exempt promotional materials when mailed or shipped free of charge.

Q: Are proxy statements exempt the same way?
A: No. Proxy solicitation materials don't qualify as promotional materials and remain taxable when delivered in New York.

Q: What about SEC registration forms like Form S-1 or Form S-3?
A: Those also don't qualify as promotional materials — along with Form 144 — and are taxable when delivered in New York.

Q: What paperwork lets the printer sell these documents tax-free?
A: A properly completed Form ST-121.2, Certificate of Exemption for Purchases of Promotional Materials, accepted in good faith and on time relieves the vendor of the duty to collect tax.

Q: Can another securities printer rely on this exact document-by-document breakdown?
A: No. This opinion binds the Department only for this petitioner's specific facts, though the document-type analysis illustrates the Department's general reasoning.

Citations and references

Statutes and forms:

• Tax Law § 1101(b)(12) (promotional materials, definition)
• Tax Law § 1115(n)(4) (promotional materials exemption)
• Form ST-121.2 (Certificate of Exemption for Purchases of Promotional Materials)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(10)S
Sales Tax
June 3, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S001107A

On November 7, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from KPMG LLP, 345 Park Avenue, New York, NY 10154. Petitioner, KPMG
LLP, furnished additional information with respect to the Petition on January 18, 2001.
The issue raised by Petitioner is whether the documents described herein are promotional
materials that may qualify for exemption from sales and use tax under Section 1115(n)(4) of the Tax
Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
XYZ is a New York limited liability company with its principal place of business located
in New York City. XYZ offers its clients an integrated way to design and manage their information
flows to take advantage of the latest technologies for creating, storing, moving, presenting and
utilizing information in any combination of paper and electronic forms. Specifically, XYZ prints,
on paper furnished by XYZ to its client, and/or creates an electronic file of a variety of corporate
documents that are ultimately delivered to XYZ’s clients or to the Securities and Exchange
Commission ("SEC"). XYZ may be engaged by a corporation that desires to disseminate
information, by underwriters acting on behalf of a corporation, or by law firms hired by a
corporation or underwriter. (Unless otherwise specified, the term "client" referred to herein means
a corporation, underwriter or law firm.) XYZ may deliver the printed documents directly to a client
which will distribute the documents to current or prospective shareholders of the corporation, or
XYZ may distribute the documents to current or prospective shareholders upon the direction of the
client. All of the printed documents are sent to current or prospective shareholders via the United
States Postal Service or common carrier at no cost to the shareholder. The clients, as well as the
current and prospective shareholders, are located within and without New York State. In the case
of documents required to be filed with the SEC, XYZ may send such documents electronically to
the SEC on behalf of a client.
Petitioner provided the following description of the types of documents that XYZ prepares,
the method of delivery of such documents, and the recipient(s) of such documents.
A. Prospectus
The prospectus contains the basic business and financial information on an issuer with
respect to a particular securities offering. An investor uses a prospectus to help appraise the
merits of the offering and make educated investment decisions. XYZ may either mail the
prospectus to the client or send it directly to current and prospective shareholders.

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B. Red Herring Prospectus
A prospectus in its preliminary form is frequently called a "red herring" prospectus and is
subject to completion or amendment before the registration statement becomes effective,
after which a final prospectus is issued and sales can be consummated. The red herring
prospectus is delivered to clients, current shareholders, and prospective shareholders in the
same manner as a final prospectus.
C. Proxy Solicitation Materials
State law governs the circumstances under which shareholders are entitled to vote. When
a shareholder vote is required and a corporation solicits proxies with respect to securities
registered under Section 12 of the Securities Act of 1934 (the "1934 Act"), that corporation
generally is required to furnish a proxy statement containing the information specified by
Schedule 14A of the 1934 Act. The proxy statement is intended to provide security holders
with the information necessary to enable them to vote in an informed manner on matters
intended to be acted upon at security holders’ meetings, whether the traditional annual
meeting or a special meeting. Typically, a security holder is also provided with a "proxy
card" to authorize designated persons to vote his or her securities on the security holder’s
behalf in the event the holder does not vote in person at the meeting. Copies of definitive
(final) proxy statements and proxy cards are filed with the SEC at the time they are sent to
security holders.
XYZ delivers the proxy materials described above to current and prospective shareholders,
clients, and to the SEC in the manner previously described.
D. Offering Circulars
An offering circular details the terms and conditions for the sale and issue of marketable
securities. This document, which is sent to prospective shareholders, contains a description
of the securities offered, a business description, and financial statements.
E. Tender Offer
A tender offer is an offer to purchase shares of stock of a corporation, up to a specific
number, tendered by shareholders within a specified period at a fixed price, usually at a
premium above the market price. Tender offers are usually made by a party seeking to take
control of a corporation, and are often followed by a merger proposal.

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F. Form 144
Form 144 must be filed as notice of the proposed sale of restricted securities or securities
held by an affiliate of the issuer in reliance on Rule 144 when the amount to be sold during
any three month period exceeds 500 shares or units or has an aggregate sales price in excess
of $10,000.
XYZ files this form electronically with the SEC on behalf of a client and XYZ sends copies
of Form 144 to clients and to current shareholders at the client’s direction.
G. Form S-1
Form S-1 is the basic registration form. It can be used to register securities for which no
other form is authorized or prescribed, except securities of foreign governments or political
subdivisions thereof.
XYZ files this form electronically with the SEC on behalf of a client and XYZ sends copies
of Form S-1 to the client and to current shareholders (where applicable) at the client’s
direction.
H. Form S-3
Form S-3 is a simplified registration form and it may only be used by companies that have
been required to report under the 1934 Act for a minimum of twelve months and have met
the timely filing requirements set forth under Form S-2. Also, the offering and issuer must
meet the eligibility test prescribed by the form. The form maximizes incorporating by
reference information from 1934 Act filings.
Similar to Form S-1, XYZ files this form electronically with the SEC on behalf of the client
and XYZ sends copies of Form S-3 to the client and to current shareholders (where
applicable) at the client’s direction.
I. Private Placement Memorandum
This document provides for the sale of securities in a corporation not subject to registration
requirements under the Securities Act of 1933. A private placement memorandum is similar
to an offering plan which is distributed to a limited group of people. The offering generally
involves a placement with large institutional investors such as insurance companies and
pension funds, securities issued to key employees of a company, and securities issued to
acquire the stock of a closely held corporation. The private placement memorandum
explains to current or prospective shareholders the risks and expected returns of investment.

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XYZ may either mail the private placement memorandum to a client or send it directly to
current or prospective shareholders.
J. Form 10-K/Annual Report
This is the annual report that most reporting companies file with the SEC. It is also included
in the proxy materials sent to a shareholder. It provides a comprehensive overview of the
registrant’s business. The report must be filed within 90 days after the end of the company’s
fiscal year.
XYZ files this form electronically with the SEC on behalf of a client and XYZ sends copies
of Form 10-K to clients and to current and prospective shareholders at the client’s direction.
K. Form 10-Q
Form 10-Q is a report filed quarterly by most reporting companies. It includes unaudited
financial statements and provides a continuing view of the company’s financial position
during the year. The report must be filed for each of the first three fiscal quarters of the
company’s fiscal year and is due within 45 days of the close of the quarter.
XYZ files this form electronically with the SEC on behalf of a client and XYZ sends copies
of Form 10-Q to clients and to current and prospective shareholders at the client’s direction.
Applicable Law
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(12) Promotional materials. Any advertising literature, other related tangible
personal property (whether or not personalized by the recipient’s name or other
information uniquely related to such person) and envelopes used exclusively to
deliver the same. Such other related tangible personal property includes, but is not
limited to, free gifts, complimentary maps or other items given to travel club
members, applications, order forms and return envelopes with respect to such
advertising literature, annual reports, prospectuses, promotional displays and
Cheshire labels but does not include invoices, statements and the like. Promotional
materials shall also include paper or ink furnished to a printer for use in providing

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the services of producing, printing or imprinting promotional materials or in
producing, printing or imprinting promotional materials, where such paper and ink
become a physical component part of the promotional materials and such printer sells
such services or such promotional materials to the person who furnished the paper
and ink to such printer.
Section 1115(n)(4) of the Tax Law provides:
Notwithstanding any contrary provisions of paragraph one of this
subdivision, promotional materials which are printed materials and promotional
materials upon which services described in paragraph two of subdivision (c) of
section eleven hundred five have been directly performed shall be exempt from tax
under this article where the purchaser of such promotional materials mails or ships
such promotional materials, or causes such promotional materials to be mailed or
shipped, to its customers or prospective customers, without charge to such customers
or prospective customers, by means of a common carrier, United States postal
service or like delivery service.
Opinion
Printed promotional materials delivered to customers or prospective customers of the person
buying the materials will not be subject to tax when they are delivered by common carrier, the
United States postal service or like delivery service, and the customer or prospective customer
receives them free of any charge. The prospectuses, red herring prospectuses, offering circulars,
tender offers, private placement memorandums, and Forms 10-K and 10-Q, as described herein, are
promotional materials under Section 1101(b)(12) of the Tax Law because they qualify as advertising
literature, or other related tangible personal property such as annual reports or prospectuses.
Accordingly, to the extent these documents are distributed in printed form at no cost to XYZ’s
clients’ current and prospective shareholders located within and without New York by means of a
common carrier, United States postal service or like delivery service, the sale of such documents by
XYZ will be exempt from state and local sales and use taxes under Section 1115(n)(4) of the Tax
Law.
A vendor’s timely acceptance, in good faith, of a properly completed Form ST-121.2,
Certificate of Exemption for Purchases of Promotional Materials, relieves the vendor from the duty
to collect sales tax on the sale of promotional materials.
The proxy solicitation materials, Form 144, Form S-1, and Form S-3, as described herein,
are not promotional materials under Sections 1101(b)(12) and do not qualify for the exemption
provided by Section 1115(n) of the Tax Law. Therefore, the sale of these documents by XYZ may
be subject to state and local sales and use taxes if delivered in New York.

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It should be noted that only envelopes used exclusively to deliver promotional materials are
considered promotional materials eligible for the exemption provided in Section 1115(n) of the Tax
Law. See Section 1101(b)(12) of the Tax Law.

DATED: June 3, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.