Did a mail-order retailer owe Tennessee use tax on catalogs mailed to Tennessee residents from another state?

Plain-English summary

Tennessee required the mail-order retailer to pay use tax on the cost price of catalogs distributed to Tennessee residents. It did not matter that the catalogs were assembled, addressed, and mailed from outside Tennessee.

The statute placed the tax on the distributor of catalogs and other advertising publications. It expressly excluded the commercial printer or mailer from the definition of distributor and said the printer or mailer did not have to collect the tax merely because it had a Tennessee presence.

The taxable value included the catalog's actual cost without deductions for materials, labor, services, transportation, or other expenses.

What this means for you

Mail-order and direct-marketing businesses

Track how many catalogs or advertising publications are distributed to Tennessee residents and the cost price attributable to them.

Printers and mailing vendors

Under the law applied in this ruling, the commercial printer or mailer was not the distributor responsible for the catalog tax solely because it printed or mailed the materials.

Common questions

Q: Did mailing the catalogs from outside Tennessee avoid Tennessee use tax? A: No.

Q: Who owed the tax?
A: The retailer distributing catalogs to Tennessee residents.

Q: What amount was taxed?
A: The catalogs' cost price, without deductions for materials, labor, services, transportation, or other expenses.

Citations and references

• Tenn. Code Ann. §§ 67-6-102(6) and 67-6-203(b)
• J.C. Penney Company v. Olsen, 796 S.W.2d 943 (Tenn. 1990)
• Rivergate Toyota, Inc. v. Huddleston, 1998 WL 83720 (Tenn. Ct. App.)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/03-01.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 03-01
WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer being addressed in the ruling. This presentation of the ruling in a redacted form is informational only. Rulings are made in response to particular facts presented and are not intended necessarily as statements of Department policy. SUBJECT Application of the use tax to the distribution of catalogs from outside of Tennessee into Tennessee. SCOPE This letter ruling is an interpretation and application of the tax law as it relates to a specific set of existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon the Department and are applicable only to the individual taxpayer being addressed. This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation or modification shall be effective retroactively unless the following conditions are met, in which case the revocation shall be prospective only: A. The taxpayer must not have misstated or omitted material facts in the transaction; B. Facts that develop later must not be materially different from the facts upon which the ruling was based; C. The applicable law must not have been changed or amended; D. The ruling must have been issued originally with respect to a prospective or proposed transaction; and E. The taxpayer directly involved must have acted in good faith in relying upon the ruling, and a revocation of the ruling must inure to the taxpayer’s detriment. FACTS
[THE TAXPAYER] is in the retail mail order catalog business. In addition to the products that are shipped into multiple states, catalogs from the taxpayer also are shipped into multiple states. The taxpayer hires another party to print catalogs. The catalogs are printed in Tennessee but assembled, addressed and mailed from outside of Tennessee. The other party bills the taxpayer from the Tennessee location.

QUESTION
What is the taxpayer’s liability for use tax on the catalogs? RULING The taxpayer must pay the use tax on the cost price of the catalogs that are distributed to residents of Tennessee. ANALYSIS The following statutory provision applies to the transactions at issue: A tax, which shall be paid by the distributor, is also levied at the rate set out in subsection (a) on the value of catalogs, advertising fliers, or other advertising publications distributed to residents of Tennessee; provided, that this tax shall not be duplicative of a sales or use tax otherwise collected on such publications. “Distributor” does not include the commercial printer or mailer of any such catalogues, advertising fliers, or other advertising publications; nor shall nexus to a taxpayer be established through a relationship with a commercial printer or mailer having a presence in Tennessee; nor shall the commercial printer or mailer have the obligation of collecting any such tax. Tenn. Code Ann. § 67-6-203(b). See also J.C. Penney Company v. Olsen, 796 S.W.2d 943 (Tenn. 1990). The word “value” in Tenn. Code Ann. § 67-6-203(b) has the same meaning as “cost price” in Tenn. Code Ann. § 67-6-203(a). Rivergate Toyota, Inc. v. Huddleston, 1998 WL 83720 (Tenn. Ct. App.). “‘Cost price’ means the actual cost of articles of tangible personal property without any deductions therefrom on account of the cost of materials used, labor, or service costs, transportation charges, or any expenses whatsoever[.]” Tenn. Code Ann. § 67-6-102(6). The taxpayer must pay the use tax on the cost price of the catalogs that are distributed to residents of Tennessee. Tenn. Code Ann. § 67-6-203(b).

Steve Butler
Tax Counsel
APPROVED: Loren L. Chumley
Commissioner of Revenue
DATE: 2-14-03

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