Are free college textbooks/review copies sent to professors and critics exempt as promotional material, or is use tax due?

Plain-English summary

The petitioner is an out-of-state LLC formed by three university presses to provide fulfillment services (storage, promotion, distribution) for college textbooks and nonfiction books on a cost-sharing basis. Besides filling paid orders, it pulls books from storage, pays the publisher for them, and ships free copies within NY to book critics (review copies), professors (desk/sample copies), awards committees (submissions), exhibitors (display), and authors (their contractual free copies). It asked whether those free books are exempt as printed promotional material under Tax Law 1115(n)(4), and if not, what the use-tax basis is.

The Office of Counsel concluded the books are not exempt and use tax is due.

• The 1115(n)(4) promotional-material exemption doesn't apply. That exemption covers printed promotional material shipped by common carrier to the purchaser's customers or prospective customers. The professors, critics, and other recipients are not prospective customers of the book once they get a free copy -- the petitioner's prospective customers are the students and readers they influence. A professor assigning a book or a critic recommending it doesn't make the professor or critic a prospective customer (citing Promex Medical, TSB-A-99(23)S).
• Use tax is due. Distributing tangible personal property as promotional material in NY is a taxable use (Tax Law 1101(b)(7)); the books are used in NY, so use tax applies. The 1118(2) use-tax exemption is inapplicable because the petitioner is conducting business in the State (it travels to NY shows/exhibits and makes sales there).
• Basis = what the petitioner paid. The use tax is on the amount the petitioner paid the publisher for the books (Tax Law 1110(b)).

What this means for you

Publishers, distributors, and fulfillment houses

Free review/desk/sample copies sent to influencers (professors, critics, award judges, exhibitors) are not exempt promotional material, because those recipients aren't your prospective customers -- the exemption looks to whether the recipient might buy, and the real buyers are the audience downstream. Expect to owe use tax on your cost for promotional copies you distribute and use in NY, and don't count on 1118(2) if you do business in the State.

Authors and reviewers

The free copy you receive isn't tax-free to the publisher as "promotional material"; the publisher generally owes use tax on what it paid for it.

Common questions

Q: Aren't free review copies "promotional material" exempt under 1115(n)(4)?
A: No -- that exemption requires the recipients to be customers or prospective customers. Professors and critics who get a free copy aren't prospective buyers of that book; the prospective customers are the students and readers they reach.

Q: What's the tax and how much?
A: Use tax, because distributing the books as promotional material in NY is a taxable use; the basis is what the distributor paid the publisher for the books.

Q: Could the out-of-state use-tax exemption (1118(2)) save it?
A: No -- it doesn't apply because the distributor conducts business in New York.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1110 (compensating use tax)
• Tax Law section 1101(b)(7) (use includes distribution of promotional material)
• Tax Law section 1115(n)(4) (exemption for printed promotional material to customers/prospective customers)
• Tax Law section 1110(b) (use tax basis = consideration paid)
• Tax Law section 1118(2) (use-tax exemption inapplicable when doing business in NY)
• TSB-A-99(23)S (Promex Medical; recipients not prospective customers)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a10_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(3)S
Sales Tax
February 8, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090923A

On September 23, 2009, the Department of Taxation and Finance received a Petition for Advisory
Opinion from name and address redacted. Petitioner asks whether college textbooks and other nonfiction
books that it distributes free of charge in New York by means of common carrier to authors, book critics,
college professors, awards committees and exhibitors are exempt from use tax under Tax Law section
1115(n)(4) as printed promotional material distributed to customers or prospective customers. Petitioner
also asks what the proper use tax basis for the books would be if the materials do not qualify for
exemption under section 1115(n)(4). The books are not exempt from sales and use tax. The amount
subject to use tax is the amount Petitioner paid for the books.
Facts
Petitioner is a limited liability company located location redacted [outside New York State]. It is
a joint venture whose members are three university presses, which formed Petitioner to provide
fulfillment services (though not necessarily “fulfillment services” as defined in Tax Law section
1101[b][18]) to its members on a cost sharing basis.
Petitioner’s fulfillment services entail storage, promotion, and distribution of college textbooks
and other nonfiction books that Petitioner’s members purchase from third party printers. A member bears
the risk of loss for the books it stores with Petitioner.
When a customer places an order for a book, Petitioner purchases from a member university press
(i.e., the publisher) the book and ships it to the customer. Petitioner sells the books at cost (i.e., what it
paid the university press for the books) and records the receipts from the retail customers as revenue on its
financial records.
Petitioner will withdraw books from storage, pay the publisher for the books, and distribute them
to influential persons within and without New York for promotional purposes. The books are sent to book
critics as publicity review copies, to professors as sales samples/desk copies, to awards committees as
submissions, and to exhibitors for display purposes. These copies are sent at no charge to the recipient.
Petitioner also distributes copies of the books to the authors who are entitled under contract with
the publisher to a certain number of free books. Petitioner purchases these books from the publisher.
Petitioner’s representatives travel to New York to participate in shows and exhibits two to three
times each year for about four days each visit. Book sales occur at each of these events.
Analysis
Section 1105(a) of the Tax Law imposes sales tax on the sale of tangible personal property in
New York. Tax Law section 1110 imposes use tax on the use in the State of tangible personal property

-2-

TSB-A-10(3)S
Sales Tax
February 8, 2010

purchased outside the State. Use includes the distribution of tangible personal property as promotional
material in the State. Tax Law section 1101(b)(7). Tax Law section 1115(n)(4) provides an exemption
from sales and use tax on printed promotional materials mailed or shipped by a common carrier or a like
delivery service to customers or prospective customers of the purchaser of the promotional materials.
The Tax Law section 1115(n)(4) exemption is inapplicable to the books distributed by Petitioner
in New York because the recipients are not Petitioner’s customers or prospective customers. The
professors, book critics, and other recipients are not prospective customers of a book after they receive a
free copy of the book. Petitioner’s prospective customers as to the books it distributes free to professors,
book critics, and other recipients are students and readers of book reviews, respectively. That is, neither a
professor’s assignment of a book as course material nor a critic’s public recommendation that a book be
purchased makes the professor or critic a prospective customer of the book. See Promex Medical, Inc.,
Adv Op Comm T&F, April 8, 1999, TSB-A-99(23)S. Use tax is due on the books distributed in New
York because the books are used in New York. Tax Law section 1101(b)(7). (The exemption from use
tax provided by Tax Law section 1118(2) is inapplicable to Petitioner’s use of books in New York
because Petitioner is conducting business in the State.) The basis of the tax is the amount Petitioner paid
for the books. Tax Law section 1110(b).

DATED: February 8, 2010

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to
the facts set forth therein and is binding on the Department only with respect to
the person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued
or for the specific time period at issue in the Opinion.