Which of a printer-mailer's services — personalized mailings, label printing, electronic data processing, and packaged or custom software — are subject to New York sales tax?

Plain-English summary

Computerized Transactions Inc. provides several computer-based printing, mailing, and software services and asked which are taxable. The Department broke the answer down service by service.

Service 1 — personalized letterheads/envelopes + the data disc, one combined charge. The disc is taxable tangible personal property under § 1105(a); the imprinting of the client's mailing pieces is taxable under § 1105(c)(2). Separately-stated postage or transportation is exempt (§ 526.5(g)(1)), but if everything is billed as a single charge, the whole charge is taxable. And under § 1115(n)(1), the portion of the mailing sent to recipients outside New York is not taxable.

Service 2 — printer-mailer (print labels, stuff, postage, mail). This is a taxable printer-mailer service under § 1105(c)(2). The stuffing, labeling and postage services may be purchased for resale, and tax is collected per Publication 831 (Printers and Mailers). The client supplying the disc doesn't change the result; out-of-state mail is exempt (§ 1115(n)(1)).

Service 3 — process the client's handwritten/typed data, transmit back electronically. This is a taxable information service under § 1105(c)(1). The Department cited Murphy Heating Service v. State Tax Commission, which upheld taxing the electronic transfer of information, and § 527.3(a)(1) (information via electronic readouts/displays).

Services 4 & 5 — software. Packaged (prewritten) software is taxable tangible personal property under § 1105(a), and installing it is taxable under § 1105(c)(3). But software that requires customization meets the definition of exempt software in Technical Services Bureau Bulletin 1978-1 (where preparing or adapting the program requires the vendor's analysis of the customer's requirements), and installing exempt software is also exempt.

What this means for you

Postage is exempt only if you state it separately

Separately-stated postage and transportation come out of the taxable base (§ 526.5(g)(1)). But bundle everything into one lump charge and the whole thing — postage included — becomes taxable. Itemize the postage line.

Out-of-state mailings are carved out

Under § 1115(n)(1), the share of a mailing delivered to recipients outside New York isn't subject to New York tax. Keep records of the in-state vs. out-of-state split to support the exclusion.

Prewritten software is taxable; genuinely custom software is not

The line (from TSB Bulletin 1978-1) is whether the program required the vendor's analysis or adaptation to the customer's specific needs. Off-the-shelf packaged software — and its installation — is taxable. Software that had to be customized is exempt, and installing that exempt software is exempt too.

Electronic data processing and delivery is a taxable information service

Taking a client's raw data, processing it, and sending back the results electronically is taxed under § 1105(c)(1). Murphy Heating confirms electronic delivery doesn't escape the information-service tax.

Common questions

Q: Is a direct-mail/printer-mailer service taxable in New York?
A: Yes — printing and imprinting the mail pieces is taxable under § 1105(c)(2), and you follow Publication 831 for collection. Separately-stated postage and out-of-state mail are excluded.

Q: Is packaged software taxable? What about custom software?
A: Packaged (prewritten) software and its installation are taxable (§§ 1105(a), (c)(3)). Software that requires customization is exempt under TSB Bulletin 1978-1, and installing exempt software is exempt.

Q: What makes postage nontaxable here?
A: It must be separately stated (§ 526.5(g)(1)). Rolled into a single combined charge, it becomes taxable.

Citations and references

Statutes, regulations, guidance, and case:

• Tax Law § 1105(a); § 1105(c)(1); § 1105(c)(2); § 1105(c)(3); § 1115(n)(1)
• 20 NYCRR § 526.5(g)(1) (separately-stated transportation excluded); § 527.3(a)(1) (electronic information services)
• Technical Services Bureau Bulletin 1978-1 (definition of exempt software); Publication 831 (Printers and Mailers)
• Murphy Heating Service v. State Tax Commission, 124 AD2d 907

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_19s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (19)S
Sales Tax
February 14, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S900911D

On September 11, 1990 a Petition for Advisory Opinion was received from Computerized
Transactions Inc., 2 Nelson Avenue, Hicksville, New York 11801.
The issue raised by Petitioner, Computerized Transactions Inc., is whether various printing
and mailing services and software sales and services rendered by it for its clients are subject to sales
tax.
Petitioner provides the following printing and mailing services involving the use of a
computer:
1)

Petitioner receives from its client envelopes, letterhead and data. Petitioner enters
its clients' data on a computer disc which is used with a computer laser printer to
personalize its clients' letterheads and envelopes. The letterheads and envelopes are
than delivered to a mailer who inserts the letterhead into the envelopes and affixes
the necessary postage. The completed mailing devices are then either mailed by the
mailer or sent directly to Petitioner's client. Petitioner also gives its client the
computer disc. Petitioner charges its client one charge for the entire transaction.

2)

Petitioner's client supplies it with a computer disc which contains data files.
Envelopes, personalized letterhead or preprinted flyers are also supplied. Petitioner
prints labels from the information contained on the disc and gives the envelopes,
flyers and labels to a mailing house who stuffs the envelopes, puts postage and labels
on the envelopes and mails them.

3)

Petitioner receives from its client handwritten or typewritten data, enters the
information on its computer and electronically delivers the results to its client's
computer.

4)

Petitioner sells packaged software to its client and may or may not install the
programs.

5)

Petitioner sells packaged software which may be altered or customized to its client's
specifications.

Section 1105(a) imposes a tax upon "the receipts from every retail sale of tangible personal
property. . ."

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TSB-A-91 (19)S
Sales Tax
February 14, 1991
Section 1105(c) imposes a tax upon the receipts from every sale, except for resale, of the
following services:
(1) The furnishing of information by printed, mimeographed or multigraphed matter
or by duplicating written or printed matter in any other manner. . .
*
*
*
(2) Producing, fabricating, processing, printing or imprinting tangible personal
property, performed for a person who directly or indirectly furnishes the tangible
personal property, not purchased by him for resale, upon which such services are
performed.
Section 525.2(a)(3) of the Sales and Use Tax Regulations provides that "The sales tax is a
'destination tax', that is, the point of delivery or point at which possession is transferred by the vendor
to the purchaser or designee controls both the tax incident and the tax rate."
Section 526.5(g)(1) of the Sales and Use Tax Regulations provides that "The cost of
transportation of tangible personal property. . .which is separately stated. . .is excluded from the
receipts subject to tax."
Section 527.3(a)(1) of the Sales and Use Tax Regulations provided that "Section 1105(c)(1)
of the Tax Law imposes a tax on the receipts from the service of furnishing information by printed,
mimeographed or multigraphed matter or by duplicating written or printed matter in any manner such
as by tapes, discs, electronic readouts or displays."
Service 1
The sale of the computer disc is subject to sales tax under Section 1105(a) of the Tax Law
while the imprinting of the client's mailing devices is subject to said tax under Section 1105(c)(2).
Charges for postage or transportation, if separately stated are exempt from sales tax in accordance
with Section 526.5(g)(1) of the Sales and Use Tax Regulations. If Petitioner bills its client for all
the services as a single charge, then the entire charge would be subject to sales tax. It is noted that
pursuant to Section 1115(n)(1) of the Tax Law that portion of the mailing that is mailed to recipients
outside the state is not subject to the imposition of sales or use tax.
Service 2
Petitioner is supplying its client with a printer-mailer service which is subject to sales tax
pursuant to Section 1105(c)(2) of the Tax Law. Petitioner may purchase the services of stuffing
envelopes and affixing labels and postage for resale. It must collect from its client the tax in
accordance with the instructions contained in Publication 831, Collection and Reporting Instructions
for Printers and Mailers. The fact that Petitioner's client supplies the computer disc does not effect
tax consequences of this particular transaction.

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TSB-A-91 (19)S
Sales Tax
February 14, 1991

It is noted that pursuant to Section 1115(n)(1) of the Tax Law that portion of the mailing that is
mailed to recipients outside the state is not subject to the imposition of sales or use tax.
Service 3
The processing by computer of its client's handwritten or typewritten data and then
transmitting the processed information electronically to its client is subject to tax under Section
1105(c)(l) of the Tax Law. In Murphy Heating Service v. State Tax Commission, 124 AD2d 907
the Appellate Division held that "The Tax Commission's interpretation of Tax Law §1105(c)(l) as
including the electronic transfer of information used by the parties here was neither irrational nor
unreasonable and must be upheld. . .". Furthermore Section 527.3(a)(1) of the Sales and Use Tax
Regulations provides that the sales tax imposed by Section 1105(c)(1) applies to information
received in the form of electronic readouts or displays.
Services 4 & 5
Technical Services Bureau Bulletin 1978-1 defines software as:
Instructions and routines (programs) which, after an analysis of the customers
specific data processing requirements, are determined necessary to program the
customer's electronic data processing equipment to enable the customer to
accomplish specific functions with his EDP system." To be considered exempt
"software" for purposes of this bulletin, one of the following elements must be
present:
A.

Preparation or selection of the program for the customer's use requires
an analysis of the customer's requirements by the vendor.
or

B.

The program requires adaptation, by the vendor, to be used in a
specific environment, i.e., a particular make and model of computer
utilizing a specified output device. For example, a software vendor
offers for sale a pre-written sort program which can be used in several
computer models. Prior to operation, instructions must be added by
the vendor which specify the particular computer model in which the
program will be utilized.

The sale of packaged software by Petitioner to its client is the sale of tangible personal
property subject to tax under Section 1105(a) of the Tax Law. The installation of such software is
the installation of tangible personal property which is subject to sales tax under Section 1105(c)(3)
of the Tax Law.

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TSB-A-91 (19)S
Sales Tax
February 14, 1991

Software sold which requires customization would meet the qualification for exempt
software as described in Technical Services Bureau Bulletin 1978-1. The installation of exempt
software is also exempt.

DATED: February 14, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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