Did a company owe Rhode Island sales tax when it bought free tourism and advertising brochures from a Rhode Island printer, including copies later shipped out of state?

Plain-English summary

The Company had to pay Rhode Island sales tax when it bought its informational brochures from a Rhode Island printer, including copies that were later shipped out of state. The free handouts did not qualify under the advertising-material or retail-publication rules cited by the taxpayer.

The Company collected money from advertisers and printed a free handout containing advertisements, articles, and other public-interest information. Hotels and tourist-information booths in Rhode Island, Connecticut, and Massachusetts distributed it to the public to promote Rhode Island tourism.

The handout contained no coupons or price lists and had no resale value. Paid subscriptions were immaterial and usually went out of state.

The Company relied on paragraph A of Regulation SU 87-2, but the Division said that provision concerned advertising materials accompanying a product sold at retail. No retail product accompanied these brochures. The Company's tourism-promotion service argument also failed because materials consumed by a service provider were taxable at their cost.

Regulation SU 90-130 did not apply either, because it covered newspapers and magazines sold at retail. These handouts were distributed free. The final ruling therefore imposed sales tax on the Company's purchase from the Rhode Island printer regardless of later shipment destination.

What this means for you

Publishers of free guides and brochures

Free distribution did not make the printer purchase exempt. The Company was the consumer of the printed materials and paid tax at purchase.

Tourism and advertising businesses

An advertising-material rule limited to items accompanying a retail product did not cover a standalone free publication funded by advertisers.

Accountants and tax professionals

Focus on the purchase transaction decided by the order: printed brochures bought from a Rhode Island printer. Later out-of-state distribution did not reverse the tax due at that purchase.

Common questions

Were brochures distributed outside Rhode Island exempt at purchase? No. The ruling taxed the Rhode Island printer purchase whether or not copies were later shipped out of state.

Why did the advertising-material regulation not apply? The cited paragraph applied when advertising materials accompanied a product sold at retail, and no such product existed here.

Did promoting tourism make the brochures a tax-exempt service? No. Even assuming a service was performed, the Company consumed the materials used to perform it and owed tax measured by cost.

Were the handouts treated as exempt newspapers or magazines? No. The cited regulation applied only to newspapers and magazines sold at retail, while these handouts were free.

Did the order calculate use tax only on Rhode Island-distributed copies? No. The final holding instead required sales tax on the purchase from the Rhode Island printer.

Citations and references

• Rhode Island Regulation SU 87-2, paragraph A — advertising-material rule found inapplicable because no retail product accompanied the brochures.
• Rhode Island Regulation SU 90-130 — newspaper and magazine rule found inapplicable because the handouts were not sold at retail.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1993-03

Original ruling text

Ruling Request No. 93-03

Declaratory Rulings

Ruling Request No. 93-03

Re: Application of Sales/Use Tax to the Purchase and Distribution of Informational Brochures

Request for Ruling

Taxpayer requests a ruling regarding the applicability of the sales and use tax to the purchase and distribution of certain informational brochures.

Facts

The Company collects money from advertisers and prints an informational hand out, which is distributed free to the general public both in Rhode Island and out-of-state. Paid subscriptions are an immaterial part and are usually shipped out of state. The hand out contains advertisements along with articles and other information of public interest. The hand outs do not contain coupons or price lists, and have no resale value. The Company distributes the hand outs to hotels and tourist information booths throughout Rhode Island, Connecticut, and Massachusetts; those public establishments then distribute them for free to the general public along with other tourist information. The main objective of the hand out is to promote tourism in the State of Rhode Island.

Ruling Requested

Whether the Company is required to pay (1) sales tax on the purchase of the informational hand outs from its printer, or (2) whether the client is required to pay use tax on only those hand outs distributed within the State of Rhode Island and if so, based on what price?

Discussion

In its request the taxpayer cites Paragraph A of SU 87-2 entitled "Advertising Materials" to support its position that no sales or use tax is due on the brochures. That part of SU 87-2 refers to advertising pamphlets and brochures or other items which accompany a product that is sold at retail. In this instance there is no product which is sold at retail so that Paragraph A of SU 87-2 does not apply.

The taxpayer also argues that it is rendering a service, i.e., the promotion of tourism, and as such, the "service" should be exempt from the sales/use tax. Assuming, arguendo , that a service is being performed, supplies and materials used in rendering a service are deemed to be consumed by the renderer of the service and as such are subject to tax measured by their costs.

Taxpayer's reference to Regulation SU 90-130 does not apply since that regulation applies only to newspapers and magazines sold at retail.

Ruling

The Company is required to pay a sales tax upon purchase of its informational brochures from a Rhode Island printer whether or not such brochures are subsequently shipped out of state.

This ruling may be relied upon by this taxpayer and shall be valid until the applicable statutory provisions are amended in a manner requiring a different result or until the underlying factual presentation changes.

**R. Gary Clark

Tax Administrator

March 10, 1993**