How did Texas tax typesetting, color separations, film, and printed advertising literature distributed in and outside Texas?

Plain-English summary

A company's advertising department bought typesetting, mechanicals, color separations, film, negatives, and printed catalogs or literature. The Comptroller said tax was due on the typesetting, other mechanicals, color separations, film, and negatives, including materials associated with literature sent outside Texas.

Literature bought for resale could be purchased with a resale certificate, followed by collection of tax or acceptance of a valid resale certificate from the customer. Literature mailed to out-of-state locations was exempt when U.S. Postal Service records proved the delivery.

For literature given away, Texas tax applied to items delivered within Texas. Direct out-of-state mailing could be excluded with shipping proof. Literature first delivered to the company's Texas location generally triggered sales or use tax, although the letter recognized temporary storage in Texas before exclusive out-of-state use.

What this means for you

The tax result differed between prepress inputs and the finished literature. It also depended on whether the literature was resold or given away, who mailed it, where delivery occurred, and whether the company retained postal records supporting out-of-state delivery.

Common questions

Were typesetting and color separations taxable? Yes, whether the final literature was resold or given away.

Could literature purchased for resale be bought tax-free? Yes, with a resale certificate, but the seller then had to collect tax or accept a valid resale certificate when it sold the literature.

Was literature mailed outside Texas taxable? Not when the printer or mailer sent it outside Texas and postal records substantiated out-of-state delivery.

What if literature was delivered to the company's Texas office first? Texas sales or use tax generally applied, subject to the stated temporary-storage treatment for property taken out of Texas for exclusive use elsewhere.

How was a mixed Texas/out-of-state giveaway order allocated? The letter allowed a percentage based on the number of items delivered into Texas divided by the total items sold.

Citations and references

• No numbered statute or rule was cited in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1067B02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, TEXAS 78774

BOB BULLOCK

Comptroller

September 12, 1990

Dear **:

Thank you for your letter concerning taxability of various transactions in ***'s advertising department. You stated that the advertising department coordinates various media and literature to aid in the sale of your products and described the process of constructing the literature as follows:

a) Mechanicals are built as part of the pre- press production process. This involves typesetting, stats and veloxes plus L300 printouts. An outside party is generally used.

b) If the literature being produced has color pictures, it is necessary to send the mechanicals and transparencies to color separators. These color separators create pre- press film that printers must use to print the literature.

c) The film and/or mechanicals are then sent to the printer for printing of the catalogs or other literature.

d) The finished product is then sent to a third-party mailer for distribution or occasionally it is sent directly to our location in Texas.

Your questions are restated below with response as to taxability:

QUESTION 1: Is the typesetting taxable if used in the final literature that is resold? Is the typesetting taxable if used in the final literature that is given away?

RESPONSE: Tax is due on the typesetting and other mechanicals described in (a). Tax is also due on the color separations in (b).

QUESTION 2: If the printer prints the literature for resale and sends it to our third-party mailer, do we owe tax on the printing?

RESPONSE: You may issue a resale certificate to the printer for the tax on the literature that you purchase for sale. You are responsible for collecting the sales use tax on the literature at the time of sale or accepting a properly completed and valid resale certificate for the tax from your customer if the literature is sold for resale. The literature that is mailed to out-of-state locations is exempt from Texas tax if you have U. S. Postal Service shipping documents showing out-of-state delivery.

QUESTION 3: Same as #2, but what if the printer ships it directly to our location?

RESPONSE: Same as #2.

QUESTION 4: Would situation 2 and 3 change if the printer was in or out of state?

RESPONSE: No.

QUESTION 5: If the printer prints literature which is given away and sends it to our third-party mailer, do we owe tax on the printing?

RESPONSE: Texas tax is due on the literature mailed to locations within Texas. Texas tax is not due on the literature that the third-party mailer mails to out -of- state locations if you have U. S. Postal Service shipping documents to substantiate out-off-state delivery.

If the transaction involves both in-state and out- of -state delivery, the taxable sales price can be determined by creating a percentage using the total number of items sold to you and the total number of items delivered into Texas. For example, 20,000 total items sold, divided into 600 items delivered into Texas results in three percent (3%) of the total sales price. You would owe tax on this "Texas" portion of the total sales price.

QUESTION 6: Same as #5, but what if the printer ships it directly to our location?

RESPONSE: Texas sales tax is due on the literature delivered to you from a location in Texas whether you deliver the literature to in-state or out-of-state customers. Texas use tax is due on the literature delivered to you from an out-of-state location; however, Texas use tax is not due on the literature that is temporarily stored in Texas and taken out- of -state for exclusive use out of state.

7. Would situation 5 and 6 change if the printer were in or out of state?

RESPONSE: The local tax due differs if the printer is in state or out of state. If the printer is out of state, the local use taxes are due based on point of delivery in Texas. The local use taxes for your location are due if the literature is delivered to your location regardless of where you ultimately deliver the literature. If the printer or thirdparty mailer mails the literature directly to your customers, the local use taxes are due based on point of delivery to each of your customers.

If the out -of- state printer is not permitted to do business in Texas, you are responsible for accruing the Texas tax and remitting it to this office. Texas tax is not due on the literature printed for delivery to customers located outside Texas if the printer or third-party mailer mails the literature to customers outside Texas. Again, you must retain copies of the postal service documents to substantiate the reason the Texas tax was not due on the entire charge.

If the printer is in state, the local sales taxes are due based on the place of business of the printer. However, if the printer is located outside a local taxing jurisdiction, the local use taxes are due based on point of delivery if the printer delivers the literature to a location within a local taxing jurisdiction.

QUESTION 8: Should we pay tax on film and negatives that we buy for the literature that is resold or given away?

RESPONSE: Tax is due on the film and negatives.

QUESTION 9: Should we pay tax on film and negatives that we buy for the literature that is shipped out of state?

RESPONSE: Yes.

QUESTION 10: Do we pay tax on the cost of the literature actually produced or what we sell the literature for?

RESPONSE: Tax must be collected on the sales price of the item to your customer. If the literature is given away, you owe tax to the printer or must accrue and remit tax to the state (if the printer is not required to and does not collect) based on your purchase price of the literature.

This opinion is based on the facts presented. If there are additional or different facts, the opinion may change.

If you have any questions or need additional information, you may call toll free 1-800-252-5555, or the regular number 512/463-4600. My extension is 3-4666. You may write to Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Jo Ann Dieck

Tax Correspondence