Texas Letter Ruling 9209L1198D05: Donation/Gift Of Printed Book Covers/Brochures/Posters To Schools

Subject

Donation/Gift Of Printed Book Covers/Brochures/Posters To Schools

Plain-English summary

The Texas Comptroller's office addressed a business that arranges for posters to be given to schools free of charge, funded by selling advertising space on the posters to other businesses. The process works like this: the business gets a school's agreement (documented by a letter authorizing the business to represent the school), sells ad space to businesses that want to advertise on the poster, has a printer of its choosing print the finished poster once enough advertising is sold, and delivers the completed poster to the school at no cost. The school then sells the posters.

The Comptroller ruled that in this setup, the business arranging the posters may give the printer an exemption certificate in place of paying sales tax on the cost of printing the posters. However, the business is treated as the consumer of the posters and owes tax on any other items it uses in the process. The advertising space it sells to businesses is not subject to sales tax.

Separately, the school (or a school organization) that ultimately sells the posters may be able to sell them tax-free if the sale qualifies as the school's once-a-year tax-free fund-raiser under section (g)(2) of Comptroller Rule 3.322.

The Comptroller noted this opinion is based on the specific facts described, and that different facts — even if similar — could lead to a different answer.

What this means for you

Businesses that arrange donated posters funded by advertising sales

If you solicit advertisers to fund a poster that you then give to a school for free, you can issue an exemption certificate to your printer instead of paying sales tax directly on the printing cost. But you're still on the hook: the ruling treats you as the consumer of the posters, so you owe tax on the poster cost yourself (through use tax, since you didn't pay it to the printer), as well as on any other taxable items you use in running the program. The money you collect from businesses for the ad space itself is not taxable.

Schools and school organizations receiving and selling the posters

If a school receives these posters for free and then sells them, the sale may qualify for Texas's once-a-year tax-free fund-raiser exemption under Rule 3.322(g)(2) — but only if the sale actually meets that rule's requirements. This ruling does not spell out what those requirements are; it just points to the rule.

Accountants and tax professionals

The core structural point here is that the entity soliciting the advertising and commissioning the printing is treated as the "consumer" of the printed poster for sales tax purposes (even though it never keeps the poster and donates it to the school), while the revenue from selling ad space is a separate, non-taxable transaction. Because this is a fact-specific letter ruling, watch for variations — e.g., who selects the printer, whether the school authorizes the solicitation, and whether the poster is given away versus sold by the arranging business — since the ruling itself cautions that different facts could change the outcome.

Common questions

Q: Does the business that arranges the posters pay sales tax on the printing?
A: It can issue an exemption certificate to the printer instead of paying tax at the time of printing, but it is treated as the consumer of the posters and owes the tax itself.

Q: Is the money collected from advertisers for space on the poster taxable?
A: No. The ruling states that advertising sold to businesses is not subject to tax.

Q: Can the school sell the posters tax-free?
A: The school (or school organization) may be able to sell the posters tax-free if the sale qualifies as its once-a-year tax-free fund-raiser under section (g)(2) of Rule 3.322.

Q: Does this ruling apply automatically to any similar arrangement?
A: No. The Comptroller specifically noted the opinion is based on the facts presented and that different, even similar, facts might lead to a different answer.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.322(g)(2) — requirements for a school or school organization's once-a-year tax-free fund-raiser sale

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1198D05

Original ruling text

September 22, 1992

Dear **:

This is in response to your letter dated August 14, 1992, and our telephone
conversation on September 1, 1992, regarding sales tax as it applies to posters
you provide to schools free of charge.

Initially, you contact the school; if they agree, a letter is provided to you
that states you are representing the school when soliciting various businesses
to advertise on the poster. When sufficient advertising has been obtained, the
poster is printed by a printer of your choosing. The completed poster is then
delivered to the school free of any cost to the school. The school then sells
the poster.

Under the situation described above, you may issue an exemption certificate to
the printer in lieu of tax on the cost of the posters. You are the consumer
and owe tax on other items used. The advertising sold to businesses is not
subject to tax.

The school (or school organization) that is selling the posters may elect to
sell the posters as their once-a-year tax-free fund-raiser if the sale meets
the requirements as outlined in section (g) (2) of Rule 3.322.

This opinion is based on the facts presented. Different facts, though similar,
might lead to different answers. If you have any questions, feel free to write
or call me at 1-800-531-5441, extension 5-0330, or 512/463-4600.

Sincerely,

Bettie Peterson
Tax Administration Division