A financial-printing company itemizes typesetting, graphic design, proofing, alteration/correction, printing, and post-printing distribution/mailing/postage/storage services on customer bills. Which of these are taxable, and does separately stating them on the invoice change the answer?

Plain-English summary

A printing company serving the financial reporting industry (typesetting SEC filings, financial reports, etc. for government regulatory filings) asked the Comptroller to sort out the taxability of its full service lineup, which it itemizes separately on customer bills: typesetting, graphic design, proofing (paper/fax/electronic link/Internet), alteration/correction, printing, and post-printing distribution — mailing service, freight/messenger, postage, and storage/fulfillment.

Core production services (typesetting through printing, items 1-5) are ALL taxable in total as the charge for a printed item — regardless of whether they're billed as a single price or itemized separately on the invoice. Folding charges performed by the same printer are taxed the same way, as part of the printing sale.

Distribution and mailing services get more nuanced treatment:

• Mailing service (handling/placement into envelopes, etc.) is NOT taxable if separately stated, but becomes taxable if lumped together with printing or other taxable-item charges.
• Freight/messenger distribution is taxable if related to the sale of a taxable item.
• Postage is taxable when the company mails PRINTED MATERIALS IT PRODUCED to its own client (per Rule 3.303(a)) — but NOT taxable when the company mails items to third parties at the client's request, such as mailing a client's brochure to names from a mailing list (per Rule 3.303(d)).
• Storage/fulfillment services alone are not taxable, but a SINGLE charge covering both printing and mailing fulfillment together is taxable in total. Separately, storage charges for materials the company itself printed ARE taxable — even if separately stated — because they're connected to the sale of a taxable item. And if printed materials are stored in Texas after printing before being shipped out of state, Texas sales tax is due on the printed materials themselves (storage in Texas is itself a taxable "use" in Texas by the customer), and the out-of-state shipping charge is also taxable as part of the sales price (when shipped to the client, not to third parties).

What this means for you

Financial printers, commercial printers, and document production companies

Your typesetting, design, proofing, alteration, and printing charges are always taxable — itemizing them separately on the invoice doesn't change that. But your distribution-side charges (mailing, postage, storage) have real exemption opportunities if you structure and state them correctly: keep mailing service charges separately stated and NOT bundled with printing, and distinguish postage for mailing your OWN client's printed materials (taxable) from mailing to third parties at the client's request (not taxable).

Companies that store printed materials before out-of-state delivery

Don't assume storing your printed materials in Texas before shipping them out of state avoids Texas tax — storage in Texas itself is treated as a taxable use, triggering tax on the materials AND the outbound shipping charge.

Accountants and tax professionals

This letter is a useful multi-part reference for the printing/typesetting/data-processing boundary and the postage/mailing exemption mechanics under Rule 3.303(a) vs (d) — the taxable-vs-exempt line depends entirely on WHO the item is being mailed to (the client itself vs. third parties at the client's direction).

Common questions

Q: Is typesetting and printing taxable if I bill it as a separate line item from other services?
A: Yes — items like typesetting, design, proofing, and printing are taxable in total regardless of whether they're billed as one price or itemized separately.

Q: Are mailing service charges taxable?
A: Not if separately stated — but they become taxable if combined with printing or other taxable-item charges on the same line.

Q: Is postage taxable?
A: It depends on who receives the mail. Postage IS taxable when you mail your own printed materials to your client. Postage is NOT taxable when you mail items to third parties at your client's request (e.g., a brochure mailed to a client-provided list).

Q: If I store printed materials in Texas before shipping them out of state, do I still owe Texas tax?
A: Yes — storage in Texas after printing counts as a taxable use in Texas, and the outbound shipping charge (when shipped to the client) is also taxable as part of the sales price.

Citations and references

• 34 Tex. Admin. Code Rule 3.303 (postage and delivery charges — subsection (a) for postage billed with a taxable item's sale, subsection (d) for postage on items mailed to third parties at the customer's request)
• Texas Tax Code and Comptroller rules governing the taxability of printing and data processing services are referenced generally in the letter without a specific section number for the printing-services conclusion itself.

Subject

Financial Document Printing Services — Typesetting, Proofing, Distribution, Postage, and Storage Charges

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9711336L

Original ruling text

November 4, 1997

Dear Mr. **:

This is in response to your request for a ruling on the taxability of products
and services provided by your client (hereinafter "Client"). Your fact
situation and questions are restated below followed by my response.

FACTS
Client provides data, document and informational products and services to the
financial reporting industry. The following list provides descriptions of the
products and services that are separately itemized on client bills.

1. Typesetting - The Client sets up a document for printing in accordance with
   customer specifications. This service includes the assembly of type characters
   into lines as they will appear in printed copy. The Client will lay out client
   provided information on paper, as either a step in the production process, or
   electronically, as a part of required electronic filings with a government
   regulatory body.

2. Graphic Design - This service is similar to typesetting, however the Client
   provides a more sophisticated page layout and design. Often, this involves
   graphic art and design work in addition to text on a printed page. Graphic
   Design is offered in two methods:

Printing - The actual set of placing printed material in a format that is ready
for the printing process.

3. Proof - This is an activity where the prepared document is actually
   physically delivered, after the typesetting service is complete, to the
   customer for their review. The Company offers four different types of proof
   forms:

Paper - A printed sample of the document is sent to the customer via
conventional delivery method U.S. mail, Federal Express, et. al.).

Fax - A printed sample copy of the prepared document is sent to the customer
via fax machine.

Electronic Link - The Client places a Client owned printer at the customer's
site and documents are transmitted directly to this printer for review.

Internet - The Company sends prepared documents to the customer via the
Internet.

4. Alteration/ Correction - After the document is proofed by the customer, the
   Client identifies and corrects errors, omissions or other changes in the
   document. This is the final step before the document is printed.

5. Printing - The Client actually produces the document once the proof has been
   reviewed, proofed and approved by the customer. The document is produced using
   either conventional printing presses, or with high-tech copy machines.

6. Distribution/ Mailing - The Client distributes the printed documents to
   customers in one of the following methods:

Mailing Service -- The handling and placement of documents into envelopes and
other similar activities. This occurs when the Client is directed to send the
documents directly to people and businesses identified in customer-provided
lists.

Freight/ Messenger -- This is the distribution of printed documents via
messenger or freight service.

In addition, the following services are included in the Distribution/ Mailing
activity:

Postage -- The actual postage costs are passed through to the customer during
the distribution process.

Storage/ Fulfillment -- Often customers are uncertain as to when their
documents are to be sent, the Company stores the documents until requested. A
fee is charged for this service.

ISSUES

1. Whether sales/use tax must be charged on any fees for the above-described
   services/ products?

2. Whether the sales/use tax implications are different if the above-described
   services/ products; are separately invoiced?

Response: Items 1-5 are taxable in total to the customer, whether sold for a
single price or separately identified, as the charge for a printed item.
Charges for folding materials printed by the company performing the folding are
also taxed as services in connection with the sale of the printing.

Item 6 - Mailing Service - Mailing services charges are not taxable if
separately stated. However, such charges are taxable if they are lumped
together with charges for printing or the sale of other taxable items.

Freight/Messenger - Taxable, if related to the sale of a taxable item.

Postage - Postage may be taxable depending on how it is used. For example, tax
is due on postage billed by Client when connected to the sale of a taxable
item. Client should collect tax on postage or delivery charges when mailing
printed materials to a client. Please refer to section (a) of Rule 3.303.

On the other hand, tax is not due on separately stated charges for postage when
Client mails items to a third party at the request of Client's customer. For
example, if you mail the client's brochure to names taken from a mailing list,
tax is not due on the postage. Please refer to section (d) of Rule 3.303.

Storage/ Fulfillment -- Mailing fulfillment services are not subject to sales
tax. However, a single charge for both printing and mailing fulfillment
services is taxable in total.

Storage charges for printed materials are taxable if the storage charge is for
items printed by Client. Storage charges in connection with the sale of taxable
items are taxable, even if the storage charge is separately stated.

If the printed materials are first stored in Texas after printing and later
delivered to a location out of state, Texas sales tax is due on the charge for
the printed materials because storage of the materials in Texas constitutes a
use in Texas by Client's customer. The charge for transportation out of state
is considered part of the sales price of the materials (when shipped to Client
and not 3rd parties) and is also taxable.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division