Do rebate checks a fulfillment company prints and issues on behalf of its clients count as taxable 'promotional materials,' making its charge for issuing them subject to sales tax?

Subject

Is whether rebate checks issued by it constitute promotional materials subject to sales tax as defined by Section 1101(b)(12) of the Tax Law.

What this means for you

A company serves clients running vendor rebate programs -- incentives clients offer to move overstocked, slow-selling, or new products by rebating a percentage or dollar amount of the purchase price to the client's own customers. As part of its service, the fulfillment company calculates the rebate amounts, prints the rebate checks, and issues them to the client's customers.

New York's sales tax defines "promotional materials" broadly (advertising literature and related items like free gifts, order forms, applications, promotional displays, and the like) but specifically carves OUT invoices, statements, and similar items from that definition. This opinion holds that rebate checks are functionally close enough to invoices and statements -- part of the underlying bookkeeping/accounting function -- that they should get the same treatment: they're not "promotional materials." So the fulfillment company's charge to its client for calculating and issuing the rebate checks isn't a taxable sale of promotional material. That said, the opinion is careful to note the fulfillment company still owes sales tax on its OWN purchases -- the check stock, and any other materials or mailings used to notify the client's customers about the rebate program -- since those are its own taxable purchases as the end consumer of that tangible personal property.

Q&A

Q: We calculate and print rebate checks for clients running promotional rebate programs -- is our service charge for that taxable as a sale of promotional materials?
A: No, per this opinion -- rebate checks are treated like invoices and statements (which the promotional-materials definition in Tax Law § 1101(b)(12) specifically excludes), not like advertising literature, so the charge for issuing them isn't taxable.

Q: Does that mean our whole rebate-fulfillment business is tax-free?
A: No -- per this opinion, while your CHARGE to the client for the check-issuing service isn't taxable, you must still pay sales tax on your own purchases of the check stock and any other materials or mailings used to inform the client's customers about the promotional program, since you're the ultimate consumer of those items.

Q: Would other client-facing marketing pieces we produce alongside the rebate checks (like a cover letter announcing the program) get the same tax-free treatment?
A: This opinion doesn't say -- it addresses only the rebate checks themselves, drawing the invoices/statements analogy specifically to that item; other materials could still fall within the broader "promotional materials" definition.

Citations

• Tax Law § 1101(b)(12) -- defines "promotional materials" for sales tax purposes, expressly excluding invoices, statements, and the like.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a94_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (27)S
Sales Tax
June 27, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S940315A

On March 15, 1994, a Petition for Advisory Opinion was received from Tru-Check Computer
Services, Inc., 85 Executive Blvd. Elmsford, New York 10523.
The issued raised by Petitioner, Tru-Check Computer Services, Inc., is whether rebate checks
issued by it constitute promotional materials subject to sales tax as defined by Section 1101(b)(12)
of the Tax Law.
Part of Petitioner's business deals with clients who use vendor rebate programs to try to
increase sales of overstocked inventory, slow moving inventory or new products they would like to
introduce into the market place. Petitioner's client informs Petitioner that as an incentive to move
certain of its products it will offer a rebate of a certain percentage or an amount of the cost of that
product sold by a particular customer of the client. As part of its service Petitioner calculates the
amount of the rebate, prints the rebate checks and issues the checks to its client's customers.
Section 1101(b)(12) of the Tax Law defines promotional material as:
Any advertising literature, or 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,
promotional displays and Cheshire labels but does not include invoices, statements
and the like. (Emphasis supplied)
Items such as invoices and statements are not included in the definition of promotional
materials. The rebate checks issued by Petitioner on behalf of its clients are closely related to the
bookkeeping function associated with invoices and statements and therefore should be treated the
same. Consequently, the rebate checks do not qualify as promotional materials as defined in Section
1101(b)(12) of the Tax Law.
It should be noted, that while Petitioner's charge for issuing the rebate checks would not be
an item subject to sales tax in accordance with the meaning and intent of Section 1101(b)(12) of the
Tax Law, Petitioner would be required to pay sales tax on its purchase of any materials, letters or

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TSB-A-94 (27)S
Sales Tax
June 27, 1994
other mailings associated with informing its clients' customers of the promotional program as well
as on the rebate checks it purchased.

DATED: June 27, 1994

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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