Did a publisher owe tax on printing and other services used to make free college telephone directories?

Plain-English summary

A publisher sold yellow-page advertising to finance college and university telephone directories. It delivered the directories to schools for free and sometimes paid for the right to publish them. The schools could then sell copies to students, faculty, or staff.

The Comptroller said the publisher was not selling the directories to the schools and therefore could not charge them sales tax. Whether a school later sold the directories and collected tax did not change the publisher's own liability.

The publisher had to pay sales tax on printing, photography, illustrations, and similar services bought from other providers. It did not owe sales or use tax for services it performed itself.

What this means for you

Advertising-funded free distribution made the publisher the consumer of the purchased production services under these facts. A later retail sale by the school did not convert the publisher's earlier purchases into purchases for resale.

Common questions

Did the publisher sell the directories to the schools? No.

Could it charge the university sales tax? No, because it gave the directories to the school rather than selling them.

Did the publisher owe tax on outside printing? Yes.

Did the schools' later sales change the publisher's liability? No.

Citations and references

The letter did not cite a specific statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9011L1057G08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 1, 1990

Dear **,

Thank you for your letter on the taxability of telephone directories
you publish.

Your given situation and question are restated here with response fol-
lowing.

Situation

I am a publisher of university and college telephone directories a-
cross the country.

My business consists of selling yellow pages to off set the cost of
publishing or printing the directories. In the hope of making a prof-
it after all the costs are paid, I deliver
the directories to the uni-
versity or college free and in some cases pay the university or col-
lege for the right to publish the directory. Once I have delivered
the directories to the school, they in turn sell the directories to
the staff, faculty, administration and to the students.

I can not charge tax to a university or college since it is a state
organization. My question is, should I be charged tax from printers
that print any portion of the directories, since they are being sold
and collected tax on by schools themselves.

The reason am asking is because I was told 2 years ago that I was
exempt from the tax since the directories are being sold by the uni-
versities and I am wondering if anything has changed?

Response

Telephone directories are normally printed for and distributed by a
company that gives them away free of charge with the distributor mak-
ing his profit on the sale of advertising.

You, likewise, are not selling the directories to the universities or
colleges, therefore, you may not charge them sales tax.

Whether the schools sell and collect sales tax on the directories or
not has no bearing on your tax responsibility. You should pay sales
tax on those services purchased from other sources such as printing,
photography, illustrations, etc. However, you do not incur a sales or
use tax liability for services you perform.

The law has not changed in the last two years in regards to your tax
liability described in this scenario. If you have any information on
how you were advised to the contrary, please notify me immediately.

This opinion is based on the facts presented. Other facts, though
similar, may yield a different response.

If you have any questions or need additional information, please call
our toll-free number 1 -800- 252- 5555. The regular number is
512/463-4600.

Sincerely,
Hayden Denham
Tax Correspondence