Is faxing coupon advertisements to a list of recipients a nontaxable advertising service or a taxable telecommunications service in Texas?

Subject

Advertising By Fax — Coupons/Flyers Sent To A List Of Recipients Via Fax

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9312L1274B01

Plain-English Summary

A business solicited other businesses to advertise by fax: it sold a page of advertising in the form of coupons, then faxed that page to a list of individuals who had agreed to receive such faxes on their fax machines. The Comptroller separated this activity into more than one possible tax treatment, depending on exactly what the customer was paying for.

Putting together a collection of coupons and distributing them was treated as a nontaxable advertising service. But charges for producing and distributing handbills, circulars, or flyers are subject to tax, and the letter states this is true even when the distribution happens electronically (i.e., by fax) rather than by mail or hand delivery. Either way — whether providing the nontaxable advertising service or the taxable handbill/circular/flyer distribution — the business owed tax on any equipment and telephone service it purchased to provide the service.

Separately, the letter identifies transmitting via facsimile itself as a taxable telecommunications service. It draws a specific line: if a customer asks the business to produce an advertisement and fax it to a specific list of recipients that the customer supplies, that whole transaction is taxed as a telecommunications service — even if the faxed material consists of coupons that would otherwise be treated as nontaxable advertising.

The letter closes by noting it is based on the facts described, and that other, similar facts could yield different results.

What This Means For You

If you run a fax-advertising business: How your service is taxed can turn on who supplies the recipient list and what exactly you're being paid to do. Assembling and broadcasting your own collection of coupons to your own list of willing recipients was treated as nontaxable advertising. But if a customer hands you their own list and pays you to produce an ad and fax it to that specific list, the letter says the whole charge is taxed as a telecommunications service — regardless of whether the content faxed is coupons.

If you produce handbills, circulars, or flyers (on paper or electronically): The letter says charges for producing and distributing these are taxable, and that this holds true whether the distribution is physical or electronic (e.g., by fax).

Equipment and phone service: Under this letter, the business owed tax on equipment and telephone service purchased to provide either the nontaxable advertising service or the taxable handbill/flyer/fax-transmission service — the underlying inputs were taxable even when the output service was not.

Note on scope: This letter cites no statute or rule by number; it applies the Comptroller's own service-classification distinctions (nontaxable advertising vs. taxable handbill/circular/flyer distribution vs. taxable telecommunications service) to one taxpayer's specific fax-coupon business, and says explicitly that other facts, even if similar, may yield different results.

Q&A

Q: Is putting together a collection of coupons and distributing them by fax taxable?
A: According to this letter, assembling a collection of coupons and distributing them is a nontaxable advertising service, in and of itself.

Q: If distributing coupons is nontaxable, why would any fax advertising be taxed?
A: Because the letter separately identifies fax transmission as a taxable telecommunications service. If a customer asks the business to produce an ad and fax it to a specific list of recipients that the customer supplies, the transaction is taxed as a telecommunications service — even when the faxed material is coupons.

Q: Are charges for producing handbills, circulars, or flyers taxable?
A: Yes. The letter states these charges are subject to tax, and that this is true even when the distribution is done electronically, such as by fax.

Q: Does the business owe tax on the equipment and phone lines it uses?
A: Yes. The letter states the business owes tax on any equipment and telephone service purchased in order to provide either the advertising service or the taxable distribution/telecommunications service.

Original ruling text

December 6, 1993

Dear **:

Thank you for your recent inquiry about the tax treatment of your
service. As I understand it, you solicit businesses to advertise
by facsimile. The advertisements are in the form of coupons. When
you sell a page of advertising, you fax it to a list of individuals
that are willing to receive this information on their facsimile
machines.

Putting together a collection of coupons and distributing them is
a nontaxable advertising service. However, charges for producing
and distributing handbills, circulars, or flyers is subject to tax.
This is also true when the distribution is done electronically. You
owe tax on any equipment, and telephone service you purchase in
order to provide either service.

Transmitting via facsimile is a taxable telecommunications service.
If a customer asks you to produce an advertisement and fax it to a
specific list of recipients that the customer provides, the transaction
will be taxed as a telecommunications service. This would be the case
even if the materials faxed were coupons.

This opinion is rendered based on the facts described above. Other
facts, though similar, may yield different results.

If you have questions or need more information, please call or write.
You may reach me by calling toll free, (800) 531-5441 (ext. 34680).
My direct line number is (512) 463-4680. The number for FAX
transmissions is (512) 475-0900.

You may write to me in care of Tax Administration Division.

Sincerely,
Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9311123L.3 and/or 9311123L