If a Texas printer stores finished brochures/catalogs in its own warehouse before shipping them to the client's out-of-state customers, is the printing taxable?

Plain-English summary

A trade association asked the Comptroller about a common industry scenario: a printing company that also acts as a "fulfillment" company for its clients — meaning it's hired to "fill" orders coming in to Company A's customers or regional offices. In this arrangement, the printer produces brochures and sales folders for a client, invoices the client once printing is complete, then stores the finished materials in its own warehouse. As the client's own customers place orders, the printer pulls the appropriate pieces and ships them to their final destination — many of which are out of state.

The question: is the printing itself taxable, given that many pieces end up shipped out of Texas?

The Comptroller's answer: yes, taxable. If printed materials are first stored in Texas after printing and only later delivered to an out-of-state location, Texas sales tax is due on the charge for the printed materials — because storing the materials in Texas itself constitutes a taxable use in Texas by the printer's customer, independent of where the goods eventually end up. The letter references a similar prior ruling (9710970L) addressing the same issue, and explicitly supersedes an earlier letter ruling from October 24, 1990 that had addressed the same requester's catalog-printing-and-storage scenario — so any pre-1998 guidance on this specific point is outdated.

What this means for you

Printing and fulfillment companies

If you print materials for a client and then warehouse them yourself before shipping them out as orders come in, the storage step itself creates Texas tax exposure — even if every single piece is ultimately shipped to an out-of-state destination. The relevant "use" for tax purposes happens when the goods sit in your Texas warehouse, not just when/where they're finally delivered.

Businesses using fulfillment services

If your fulfillment vendor stores your printed materials in Texas before shipping them to your customers around the country, expect Texas sales tax to apply to the printing charge, regardless of your customers' locations.

Common questions

Q: If printed materials are eventually shipped entirely out of state, is the printing tax-exempt?
A: Not if the materials are stored in Texas first, per this letter -- storage in Texas after printing is itself a taxable use, regardless of the final out-of-state destination.

Q: Does this replace older guidance on the same topic?
A: Yes -- this letter expressly supersedes an October 24, 1990 letter ruling to the same requester on printing and storage of catalogs destined for out-of-state shipment.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9806477L

Original ruling text

June 2, 1998

Dear **:

This is in response to your request for a ruling, on behalf of one of your
members, regarding an industry-wide issue.

Your question pertains to a printing company who also acts as a fulfillment
company. Fulfillment is defined as the process of a printing company being
hired by Company A to "fill" orders from Company A's clients or regional
offices. I have restated the scenario that you presented along with your
question below:

Your member/printer is producing printed work (brochures, sales folders, etc.)
for his client. As a value-added service to his client he also provides
fulfillment services. Once the printing is completed, he invoices the client
and places the printed material in his warehouse. As the client's customers
contact him, the printer sends the appropriate pieces to their final
destination. Many of these destinations are out of state.

Question - Is the printing taxable?

Response: Yes, 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 the printer's customer.

I am enclosing an edited letter ruling (9710970L) that addresses a similar
situation.

Additionally, my letter ruling to you of October 24, 1990, which addressed the
printing and storage of catalogs destined for out-of-state shipment is hereby
superseded.

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