Does a bankruptcy-claims and class-action administration company, based and printing/mailing entirely out of Oregon, owe New York sales tax on legal notices and claim forms it mails to New York creditors and claimants, even though all its work is performed out of state?

Plain-English summary

Poorman-Douglas Corporation, a Fleet National Bank subsidiary based in Beaverton, Oregon, acts as an administrative arm of the U.S. Bankruptcy Court and provides similar services to class-action law firms -- courts appoint it to process bankruptcy claims for a debtor, or law firms hire it to administer class-action claims. It keeps a New York City sales office to solicit orders (accepted and performed in Oregon), and has been collecting sales tax on its New York sales already. The Department analyzed each of the eight distinct services on Poorman-Douglas's customer invoices.

Taxable (as sales of tangible personal property, based on delivery destination): Printing and mailing personalized legal notices and claim forms (item 2) and printing address labels (item 5) to New York creditors/claimants are taxable, because New York's sales tax is a "destination tax" -- it applies based on where the printed item is actually delivered, regardless of where it's printed or mailed from. Since Poorman-Douglas furnishes the paper and envelopes and mails these items directly to New York addresses, that's a taxable sale of tangible personal property, following the Department's standing printer/mailer guidance (Publications 831 and 842). However, a separately stated charge for the OUTSIDE mailing envelope and address label used to send the printed matter (as opposed to the notices/forms themselves) is not taxed, since that outer envelope's own "use" happens in Oregon where it's mailed from.

Not taxable (not enumerated services, or incidental to a nontaxable service): Master file set-up (item 1), file updates/reports (item 3), and claims processing including producing settlement checks (item 4) are all non-enumerated services -- the tangible settlement checks produced are merely incidental to the claims-processing service. Program customization, consulting, and tax return preparation (item 6) likewise aren't enumerated taxable services. Document copying, imaging, and storage performed as an internal customer-service/case-management function (item 8) -- where all copies are ultimately destroyed -- is also non-taxable as an element of the underlying nontaxable service, THOUGH the Department flagged that producing paper copies specifically for delivery in New York, or providing genuine storage services physically located in New York, could separately trigger tax. Placing legal notices in newspapers on the customer's behalf (item 7) isn't an enumerated taxable service either.

Two important reinforcing points: the Department confirmed that a bankruptcy court appointment gives Poorman-Douglas no special tax-exempt status (citing the U.S. Supreme Court's Sierra Summit decision), and that as long as nontaxable services and the outside mailing envelopes/labels are billed as separately stated line items from the taxable printed notices/forms, only the taxable portion of the invoice is subject to tax -- bundling everything into one lump sum would pull the whole charge into taxability.

What this means for you

Out-of-state printers, mailers, and claims-administration companies

New York taxes based on where your printed product is actually delivered, not where you print or mail it from -- an Oregon (or any out-of-state) mailer sending notices, forms, or labels to New York addresses owes New York tax on that portion of its business, following standard printer/mailer rules, even with zero physical presence performing the work in New York.

Bankruptcy and class-action claims administrators

Your core data-processing, claims-administration, and customer-service functions (database setup, claims processing, consulting, internal document management) generally aren't taxable services -- but keep genuinely non-taxable line items (services, outside mailing materials) separately stated from taxable printed-and-mailed items on your invoices, since combining them into one lump-sum charge risks taxing the whole bill.

Accountants and tax professionals

This ruling is a clean template for the "destination tax" principle (20 NYCRR § 525.2(a)(3)) applied to an out-of-state printer/mailer, plus the item-by-item breakdown method the Department uses for a multi-service business invoice. Note the specific carve-outs it flags for the future: paper copies of documents actually delivered in New York, or storage services physically provided in New York, could turn otherwise-nontaxable document management into a taxable transaction depending on how the contract is structured.

Common questions

Q: If a company does all its printing and mailing outside New York, can it avoid New York sales tax entirely?
A: No -- New York taxes based on the destination where the printed item is delivered. Mailing legal notices, claim forms, or labels to New York addresses is taxable there regardless of where the printing and mailing physically happens.

Q: Does a bankruptcy court appointment exempt a claims administrator from sales tax?
A: No. The Department specifically confirmed that court appointment doesn't confer any sales or use tax exemption.

Q: Are data-processing and claims-administration services themselves taxable?
A: Generally no -- services like database setup, claims processing, consulting, and internal document management aren't enumerated taxable services, as long as any tangible items produced (like settlement checks) are merely incidental to the service.

Q: Can another claims administrator or mailer rely on this ruling?
A: No. It binds the Department only as to this petitioner's facts. Other companies should confirm their own service/invoice structure and billing practices match before assuming the same treatment.

Citations and references

Statutes, regulations, and Department guidance:

• Tax Law § 1101(b)(7) (definition of "use")
• Tax Law § 1101(b)(8)(i)(B) (definition of "vendor"; place of business in the state)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(2) (tax on producing, fabricating, processing, printing, or imprinting property furnished by the customer)
• Tax Law § 1105(c)(4) (tax on storing tangible personal property)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1115(d) (exemption for property delivered outside New York for use outside New York)
• Tax Law § 1131(4) (destination principle for taxable use)
• 20 NYCRR § 525.2(a)(3) (sales tax as a "destination tax")
• 20 NYCRR § 526.10(a)(2), (c)(1) (definition of "vendor"; interstate vendors)
• 20 NYCRR § 527.1(b) (tax on combined taxable/exempt charges unless separately stated)
• 20 NYCRR § 527.4 (printing and imprinting services)
• N.Y. Dept. of Taxation and Finance, Publication 831 (3/97), Collection and Reporting Instructions for Printers and Mailers
• N.Y. Dept. of Taxation and Finance, Publication 842 (12/93), New York State and Local Sales Tax Information for Printers

Cases referenced:

• California Board of Equalization v. Sierra Summit, 490 U.S. 844

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_57s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(57)S
Sales Tax
December 3, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S971126A

On November 26, 1997, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Poorman-Douglas Corporation, 10300 SW Allen Blvd., Beaverton, OR
97005. Petitioner, Poorman-Douglas Corporation, provided additional information pertaining to the
petition on December 31, 1997.
The issue raised by Petitioner is whether certain services it provides are subject to state and
local sales and use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a wholly-owned subsidiary of Fleet National Bank and is incorporated in the
state of Rhode Island. Petitioner’s main office and production facility are located in Beaverton,
Oregon. Petitioner has a sales office in New York City where sales personnel are authorized to
solicit and procure orders for Petitioner’s data processing services. The orders require acceptance
at the Oregon office before becoming binding contracts. These contracts do not involve any local
performance in New York other than occasional customer service. Petitioner has been collecting and
remitting sales tax on its New York sales.
Petitioner acts as an administrative arm of the US Bankruptcy Court and provides services
to class action legal firms as well. The court in New York appoints Petitioner to perform data
processing services for a debtor (Petitioner’s customer); or a legal firm contracts with Petitioner to
administer claims in class action cases. Petitioner receives payment for its services from the
customer, not the court.
.
The services provided by Petitioner, as detailed on the customer’s invoice, are described
below. All of the services except for occasional customer support are performed in Oregon.

1. Master file set-up: The customer provides Petitioner with information regarding its
   creditors/claimants on magnetic tape, disks or hard-copy. From the information supplied,
   Petitioner creates a master file on its computers, the first step necessary in providing its data
   processing service. Petitioner’s one-time charge for the master file set-up includes the
   programming time required to set up the database as well as any time its technical staff
   spends accumulating and organizing the information from the customer. On occasion,
   Petitioner’s customer service representative may visit the customer to advise on how to
   assemble its information in order to expedite the set-up process. The information is not
   returned to the customer. Petitioner does not sell any computer programs to its customers.

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2. Notice printing and claims printing: The customer provides Petitioner with the text of a
   legal notice. Petitioner formats the notice for processing on its computer. Personalized
   notices and claim forms are then printed (with each creditor’s/claimant’s name, address, etc.,
   incorporated on the form) and mailed at the US Post Office in Oregon directly to the
   creditors/claimants. These notices and forms are sent all over the country, both within and
   outside New York State. Included in the charge for notice printing is the cost of paper and
   envelopes which are incidental to providing the printing and mailing services.
3. File Update/Reports: Petitioner compiles lists and reports of information from the claim
   forms returned to it by the creditors/claimants. Petitioner does not alter any information but
   is simply recording additional information to update the master file created and maintained
   on its computers. Petitioner does correct addresses on claims returned to it from the US Post
   Office for change of address.
4. Claims processing: This includes clerical, phone and technical services, which are
   performed entirely in Oregon. After the completed claim forms are received, Petitioner sends
   the information compiled above (in Item 3.) to the court, including notification if amounts
   claimed as owed have been verified by receipts. Based on a determination and guidelines
   provided by the court, Petitioner produces settlement checks and mails them to the
   designated recipients.
5. Labels: Petitioner prints labels for other mailings the customer may wish to do.
6. Special services: The customer is billed for program modifications Petitioner must make
   to its standard computer programs which are used to provide the data processing service.
   The customization of Petitioner’s program is tailored to satisfy the specific needs of each
   customer. Customer support and technical services are also provided upon request, and
   include consulting and tax return preparation.
   The programming and technical services are performed in Oregon. The customer service
   representative may go to the customer’s location if necessary.
7. Newspaper advertising/notice publication: Legal notices are placed in publications such
   as the Wall Street Journal and the New York Times. The notices are placed through
   Petitioner’s advertising subcontractors in Oregon.
8. Document Management: Petitioner manages the voluminous hard-copy documents it
   receives by copying, imaging (scanning to save data on a diskette) and storing of the
   documents (all are performed in Oregon). This is done as a means of providing good
   customer service so that information about a specific case is readily retrievable when a

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customer calls. The courts eventually require all of the original documents back and
ultimately all copies are destroyed by Petitioner.
Applicable Law and Regulations
Section 1101(b)(7) of the Tax Law defines the term “use” as:
The exercise of any right or power over tangible personal property by the
purchaser thereof and includes, but is not limited to, the receiving, storage or any
keeping or retention for any length of time . . . or any consumption of such property.
Without limiting the foregoing, use also shall include the distribution of only tangible
personal property, such as promotional materials.
Section 1101(b)(8)(i)(B) of the Tax Law defines the term “vendor” as:
A person maintaining a place of business in the state and making sales,
whether at such place of business or elsewhere, to persons within the state of tangible
personal property or services, the use of which is taxed by this article.
Section 1105 of the Tax Law imposes sales tax upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(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 services are
performed.
*

*

*

(4) Storing all tangible personal property not held for sale in the regular
course of business and the rental of safe deposit boxes or similar space.
Section 1110(a) of the Tax Law provides, in part:

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Sales Tax
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Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state on and after June first, nineteen hundred seventy­
one except as otherwise exempted under this article, (A) of any tangible personal
property purchased at retail, . . . (D) of any tangible personal property, however
acquired, where not acquired for purposes of resale, upon which any of the services
described in paragraphs (2), (3) and (7) of subdivision (c) of section eleven hundred
five have been performed. . . .
Section 1115(d) of the Tax Law provides:
Services otherwise taxable under paragraph (1), (2), (3), (7) or (8) of
subdivision (c) of section eleven hundred five shall be exempt from tax under this
article if the tangible property upon which the services were performed is delivered
to the purchaser outside this state for use outside this state.
Section 1131(4) of the Tax Law provides:
(4) “Property and services the use of which is subject to tax” shall include:
(a) all property sold to a person within the state, whether or not the sale is made
within the state, the use of which property is subject to tax under section eleven
hundred ten or will become subject to tax when such property is received by or
comes into the possession or control of such person within the state . . . (c) all
services rendered to a person within the state, whether or not such services are
performed within the state, upon tangible personal property the use of which is
subject to tax under section eleven hundred ten or will become subject to tax when
such property is received by or comes into possession or control of such person
within the state. . . .
Sections 1131 and 1132 of the Tax Law require “vendors” of tangible personal property to
collect sales tax from customers.
Section 525.2(a)(3) of the Sales and Use Tax Regulations provides:
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 526.10(a)(2) of the Sales and Use Tax Regulations provides the following definition
of “vendor,” applicable herein:

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(i) A person maintaining a place of business in the State making sales,
whether at such place of business or elsewhere, to persons within the State of
tangible personal property or services, the use of which is taxed, is a vendor.
(ii) A person shall be considered to be maintaining a place of business in the
State if it, either directly or through a subsidiary, has a store, salesroom, sample
room, showroom, distribution center, warehouse, service center, factory, credit and
collection office, administrative office or research facility in the State.
Section 526.10(c)(1) of the Sales and Use Tax Regulations provides:
Interstate vendors. (1) A person outside this State making sales to persons
within the State, who maintains a place of business in the State as described in
paragraph (2) of subdivision (a) of this section . . . is required to collect the tax on
any taxable property or services delivered in New York.
Section 527.4 of the Sales and Use Tax Regulations provides, in part:
(a) Imposition. (1) Section 1105(c)(2) of the Tax Law imposes a tax on the
receipts from the services of producing, fabricating, processing, printing or
imprinting tangible personal property, performed for a person who directly or
indirectly furnishes the property.
*

*

*

(4) When such services are combined with the sale of property by the person
performing the services, the entire transaction is subject to tax as a retail sale.
*

*

*

(e) Printing and imprinting. (1) The services of printing and imprinting
tangible personal property furnished by or on behalf of a customer of the printer are
taxable under section 1105(c)(2) of the Tax Law; the service of printing or imprinting
tangible personal property which is sold by the person performing the service in
conjunction with the sale is taxable as part of the sale under section 1105(a) of the
Tax Law. (Emphasis added)
Publication 831 (3/97), entitled Collection and Reporting Instructions for Printers and
Mailers, provides, in part:

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A mailer or printer-mailer is required to collect the statewide and appropriate
local sales taxes on the printing, addressing, and other taxable charges for printed
matter mailed to persons in New York State, whether mailed from within or outside
the state. The mailer or printer-mailer must maintain records showing the
destinations of all material sent to persons in New York State and the portion of the
material mailed to persons outside New York State.
The statewide tax and local sales taxes, at the rate in effect where delivery is
made, must be collected on the entire charge if printed matter is delivered to the
customer in New York State. . . .
Opinion
Petitioner is authorized to do business in the State of New York and maintains an office for
the sale of its products in New York City. Petitioner is a vendor within the meaning of Section
1101(b)(8)(i)(B) of the Tax Law with respect to its sales of tangible personal property and taxable
services in New York, and is obligated under Sections 1131(1), 1132 and 1134 of the Tax Law to
register as a vendor and collect sales or compensating use tax on its sales of taxable property or
services in New York State. We note that Petitioner’s appointment by a bankruptcy court would not
invest Petitioner with any sales or compensating use tax exempt status. See California Board of
Equalization v. Sierra Summit, 490 U.S. 844.
Petitioner is retained by various debtors and legal firms to provide data entry and processing
services and to administer claims in bankruptcy and class action legal cases. The text of the legal
notices/claim forms Petitioner produces is furnished to Petitioner by its customers on magnetic tape,
disks or hard-copy. The information is not returned to the customer. Petitioner develops databases
in accordance with the customer’s specifications and formats the customer’s data for processing on
its own computer. Petitioner does not create new information in the master file set-up procedure.
From the information furnished, Petitioner prints legal notices and claim forms and mails these items
to the customer’s designees (creditors/claimants) who are located both inside and outside New York
State. After receiving the completed claim forms back from the creditors/claimants, Petitioner inputs
details from such forms into its master file, electronically transfers this information to the courts, and
ultimately prints creditor/claimant settlement checks based on the courts’ decisions.
Petitioner’s computers store and rearrange the information Petitioner receives from its
customers for purposes of providing Petitioner’s services. Petitioner produces and prints legal
notices and claim forms from this accumulation of data. Petitioner also prints labels for other
mailings the customer may wish to do. Since these printed items are then mailed by Petitioner to its
customers or their designees, Petitioner’s charges for services listed as items (2) and (5) are subject
to tax according to the rules for printers and mailers set forth in Department of Taxation and Finance
Publications 842 (12/93) entitled New York State and Local Sales Tax Information for Printers , and

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831 (3/97) entitled Collection and Reporting Instructions for Printers and Mailers (see Northeastern
Computer Services, Inc., Adv Op Comm T&F, June 24, 1988, TSB-A-88(33)S). In accordance with
the instructions contained in Publication 831, Petitioner, as a mailer or printer-mailer, is required to
collect the statewide and appropriate local sales taxes on the printing, addressing, and other taxable
charges for printed matter mailed to persons in New York State, whether mailed from within or
outside the state.
Among the taxable tangible personal property and services listed in Publication 842 are
computer services of printing letters, labels, etc., printing of envelopes, printing of address labels and
printing of stationery. Petitioner contends that its sales of such property and services should be
excluded from tax since the services are performed in Oregon with the tangible items being printed
and mailed directly from the US Post Office in Oregon. However, a sale is taxable at the place
where the tangible personal property is delivered, or at the location where possession is transferred
by the vendor to the purchaser or the purchaser’s designee. See Section 525.2(a)(3) of the Sales and
Use Tax Regulations. The point of delivery of goods to a common carrier by an out-of-state vendor
has no effect upon the tax consequences where the goods are ultimately delivered to the purchaser’s
designees in New York (see Touche Ross & Co., State Tax Commission Advisory Opinion, January
9, 1986, TSB-A-86(3)S). Therefore, printed material mailed by Petitioner to its customers or their
designees is considered to be used at the point to which it is mailed, and Petitioner is required to
collect tax on its charges for notices, claim forms and labels mailed to addresses in New York State
(see Morton L. Coren, P.C., Adv Op Comm T&F, March 6, 1997, TSB-A-97(12)S). Since Petitioner
provides the paper and envelopes for printing and addressing, its sales of printed notices, claim forms
and labels delivered to customers in New York State constitute sales of tangible personal property
subject to tax under Section 1105(a) of the Tax Law (see MGI Output Technologies, Inc., Adv Op
Comm T&F, December 13, 1996, TSB-A-96(77)S; Werthan Industries, Inc., Adv Op Comm T&F,
December 4, 1997, TSB-A-97(73)S). However, a separately stated charge to the customer for the
outside mailing envelopes and address labels used by Petitioner to mail printed matter would not be
subject to New York State sales or use tax (even though the contents are subject to tax based on
mailing destination), since their use occurs in Oregon, the location from which they are mailed (see
Morton L. Coren, supra; Werthan Industries, supra).
With respect to the services listed as items (1), (3) and (4), Petitioner’s charges for setting
up a master file on its computers, inputting details from completed claim forms to update such
master file and electronically transferring information to the courts constitute charges for services
that are not within the specified services subject to tax under Section 1105(c) of the Tax Law. Nor
do such charges represent the sale of tangible personal property under the Tax Law. Since
Petitioner’s primary purpose for printing settlement checks is to provide claims processing services
for its customers, the tangible personal property produced is incidental to the service provided.
Accordingly, charges for the services described in items (1), (3) and (4) are not subject to sales or
compensating use tax (see Elaine K. Hoiska, CPA, Adv Op Comm T&F, August 25, 1997,
TSB-A-97(53)S).

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Regarding items (6) and (8), charges for consulting and tax return preparation are also
charges for services that do not fall within the enumerated services subject to tax under Section
1105(c) of the Tax Law. Thus, such charges are not subject to sales or compensating use tax.
Petitioner describes the document copying, imaging and storage functions it performs as an internal
means of providing quality customer service by good case management. All copies of documents
are ultimately destroyed by Petitioner. It appears from Petitioner’s description that charges to its
customers for the performance of such functions, as well as for program modifications, are all
elements of cost for the nontaxable services provided by Petitioner and are therefore not subject to
tax. However, if Petitioner contracts with a customer to produce paper copies of documents which
are delivered in New York, the charge for such copies may be subject to sales and compensating use
tax as a charge for the sale of tangible personal property. Likewise, Petitioner’s charge to store
physical records may be subject to sales tax if the storage service is provided in New York.
With respect to item (7), when engaged by its customers to place legal notices with the
media, Petitioner is not considered to be performing an enumerated service under Section 1105(c)
of the Tax Law; and receipts from Petitioner’s charges for “newspaper advertising/notice
publication” are not subject to sales or use tax.
It is noted that Section 527.1(b) of the Sales and Use Tax Regulations provides that when
tangible personal property composed of taxable and exempt items is sold as a single unit, the tax
shall be collected on the total price, unless the charges for taxable and non-taxable items or services
are reasonable and separately stated. In accordance with this regulation, provided Petitioner bills its
nontaxable services and outside mailing envelopes/labels separately from its sales of printed notices,
claim forms and address labels for other customers mailings, only that portion of the bill that
represents the charges for the taxable property and services would be subject to tax (Morton L.
Coren, P.C., supra; Werthan Industries, Inc., supra).

DATED: December 3, 1999

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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