Are direct-marketing mailing services and promotional-kit assembly taxable in Utah, and does it matter whether the customer or the vendor supplies the printed pieces or promotional items?

Plain-English summary

A direct marketing and fulfillment company sought clarity after receiving inconsistent guidance from Tax Commission staff over several inquiries, while a customer was disputing two years of sales tax charged on invoices and threatening to withhold payment pending written confirmation of taxability. The company described two distinct lines of business:

1. Direct marketing mailings. In the base version, the customer supplies the advertising piece plus a computer file of recipient names; the company processes/cleans/sorts the names, inserts the customer-supplied piece into a customer-supplied envelope, prints the address, and mails it via the post office. In a variant, the company ALSO creates and prints the advertising piece itself.

2. Promotional kit assembly. In the base version, the customer supplies promotional items and a mailing list; the company warehouses the items, assembles kits, and mails them out. In a variant, the company itself purchases the promotional items rather than the customer supplying them.

The Commission drew a clean line through both service lines based on who supplies the tangible item ultimately being sold:

• Customer-supplied advertising piece, vendor just processes/mails it: NOT taxable. The vendor isn't selling any tangible personal property — the customer already owns the printed piece. Even printing the address onto the envelope wasn't treated as a taxable "installation" of tangible property (ink) onto other tangible property (the envelope) under the Commission's current practice.
• Vendor also creates/prints the advertising piece: TAXABLE, on the whole job — because now the customer is buying printed matter the vendor produced. Under Utah Admin. Rule R865-19S-80(B), services connected to the sale of printed matter — cutting, folding, addressing, mailing — are also taxable, but actual postage costs passed through without markup remain exempt.
• Customer-supplied promotional items, vendor just assembles/ships kits: NOT taxable — a pure service, no tangible property sold.
• Vendor purchases and supplies the promotional items itself: TAXABLE on the entire charge — the customer is now buying the promotional items (tangible personal property), not just an assembly service.

On supply purchases, the Commission drew the corresponding resale-exemption line: supplies that become a component part of a taxable final product (e.g., ink and paper used on jobs where the company prints and sells the piece) may be bought tax-free for resale. But supplies used only to provide a nontaxable service — and ordinary office consumables like pens and pencils — must be purchased with sales tax already paid, because the company itself is the final consumer of those items in that context.

The Commission also noted it was, at the time, separately studying broader taxation-of-the-printing-industry issues for possible future changes, but applied the currently-existing guidelines to answer this specific request.

What this means for you

Direct marketing, mailing, and fulfillment companies

Track whether YOU are supplying the printed piece or promotional item, or your customer is. That single fact — not the labor-intensiveness of your processing, sorting, or assembly work — determines whether the whole job is taxable. Keep clean records distinguishing customer-supplied-materials jobs from vendor-supplied-materials jobs.

Printing and fulfillment companies passing through postage

Only ACTUAL postage costs, passed through without markup, stay exempt on an otherwise-taxable printed-matter job — build your invoicing to separately state postage at cost.

Accountants and tax professionals

This is a clean "who supplies the taxable item" true-object framework applicable to any processing/assembly service business: nontaxable service when the vendor only works on customer-owned tangible property; taxable retail sale when the vendor also supplies the tangible property being sold. Pair the resale-exemption analysis on supply purchases with whichever side of that line a given job falls on.

Common questions

Q: Is mailing/direct-marketing processing always exempt as a service?
A: No — only when the customer supplies the printed advertising piece. If the vendor also creates/prints it, the whole job (minus actual postage) becomes taxable.

Q: Does printing an address on a customer-supplied envelope count as a taxable installation?
A: Not under this ruling's guidance — the Commission does not currently treat that as a taxable installation of tangible property.

Q: Can I buy my printing supplies tax-free?
A: Only supplies that become a component part of a job you're selling as a taxable printed product. Supplies used for nontaxable service jobs, or ordinary office consumables, must be purchased with sales tax paid.

Citations and references

Statutes and rules:

• Utah Admin. Rule R865-19S-80(B) (services connected to sale of printed matter; postage exclusion)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/98-051.htm

Original ruling text

98-051

Response
August 14, 1998

REQUEST
LETTER

July
21, 1998

RE: Clarification for Taxable/Non-Taxable
Sales

To
Whom It May Concern;

Our
company was referred to the Advisory Board by Gill Nesbitt, Compliance Auditor. We are

seeking
clarification of Taxable/Non-Taxable Sales for our company. In the past we have

contacted
the Utah State Tax Commission 6 times regarding Sales Tax collection. In the
specific

cases
we presented, your Customer Service agents up to your Compliance Auditors
instructed

that
our services are Taxable under Regulation: R865-19S-80.

We
have a current issue with one or our clients regarding exempt sales. They are
debating

invoices
paid over the past 2 years are non taxable. These are the very cases we
presented to the

State
Tax Commission. Our customer claims the State of Utah has granted our services
as Non-

Taxable.
We have not received written notification from the State of Utah nor our client

confirming
this decision. Our customer has verbally requested a refund including interest
on

invoices
paid over the last two years. They are refusing to pay any of our current
invoices until

we
comply. In addition this customer has never provided us with a signed TC-71
Exemption

Form.
We are unsure of what to do next. We
would like the committee to review our services

and
inform us in writing if our services are considered Taxable or Non-Taxable. We
would

appreciate
a prompt response. We are being held hostage by our customer. They owe our

company
large sums of money and are refusing to pay.

COMPANY
A performs Direct Marketing and Fulfillment Services for other companies. An

advertising
piece is supplied by the customer to COMPANY A. with a computer file of names.

We
data process the names on the disk, compile with other mailing lists, clean the
address, sort

the
address for postage discounts, etc. We then insert the advertising piece into a
customer

supplied
envelope. The address is then printed on the envelope. We deliver the piece sorted and

bundled
to the post office with appropriate forms. Each marketing piece that comes to
our office

is
unique. Sometimes the client provides the piece, other times we create, print or fold the

piece.
If the piece is complicated, we must hand insert the items rather than use
machines.

We
also assemble marketing kits fulfilled with promotional items. The customer provides the

items
for these kits. COMPANY A warehouses
the promotional items upon their approval we

assemble
the kits and send them out to the list of names they have provided. These are

promotional
items and not for resale. In some cases we purchase the items for the customer.

We
purchase our supplies tax exempt. These supplies include ink, toner cartridges,
paper,

envelopes,
tabs, bubble wrap, boxes, tape, printing services, etc..

We
provide these services to several other companies, which have never questioned
Sales Tax.

If
we refund to this customer we would also need to refund to all others. Over the past two

years
we have paid $$$$$ in Sales Tax. We
have been told by Gill Nesbitt to continue

collecting
Sales Tax, as in the past until writing confirmation arrives from the State of
Utah.

We
are willing to refund any Sales Tax collected on Non-Taxable Service when we
receive

clarification
from the State of Utah in writing. Your explanation and expertise is
appreciated.

Your
prompt attention in this matter is appreciated. If you need further
assistance or information, please contact NAME at #####. If possible, please fax the decision to our office #####.

Thank
You,

NAME

August
14, 1998

NAME

ADDRESS

CITY,
STATE ZIP

RE: Advisory
Opinion - Direct Marketing Services Subject to Sales Tax

Dear
NAME,

We have received your request for an
advisory opinion concerning the services provided by COMPANY A (�COMPANY A�),
which include the printing and mailing of direct marketing advertisements and
the assembling and mailing of promotional kits. You have specifically asked whether sales tax should be applied
to the charges for these services.

At present, the Tax Commission is
studying the taxation of the printing industry, particularly as it relates to
recent technological changes and the consistency of tax liability between
various providers. The findings from
this study should be available for possible implementation in the near
future. Until then, the Tax Commission
will address those questions that concern printing issues using the guidelines
currently in place.

Direct Marketing Advertising. For this service, you state that your customer
supplies an advertising piece, a computer file with a list of recipients, and
envelopes. Then, COMPANY A processes
the names on the provided computer file, compiles this file with other mailing
lists, cleans and sorts the addresses, puts the advertising pieces in the
envelopes, prints the addresses on the envelopes, and mails them. In this instance, COMPANY A is not
considered to have produced a tangible personal property for which its customer
is paying because the customer has supplied the printed matter (the advertising
pieces). Also, while one might consider
the printing of the addresses as the installation of tangible personal property
(ink) onto other tangible personal property (envelopes), which is a taxable
event, the Tax Commission does not currently characterize this service as
falling within the meaning of such an installation. Thus, on a job consisting of these services, the Tax Commission
would not consider the transaction to be subject to sales tax.

However, you then add that on some
jobs, COMPANY A also creates and prints the advertising piece. This changes the nature of the services
provided. In this instance, the
customer is purchasing printed matter (the advertising pieces) that COMPANY A
is printing and mailing for them. This
sale is subject to sales tax. Utah
Admin. Code R865-19S-80(B) further provides that services in connection with
the sale of printed matter, such as cutting, folding, addressing, and mailing
are taxable, but actual postage charges where the cost is passed through to the
customer without markup are exempt.
Thus, on such a job as this, all charges to COMPANY A�s customer are
taxable, except those for actual postage costs.

Assembling Marketing Kits. For this service, you state that the
customer provides promotional items to COMPANY A and a list of names to receive
the assembled promotional kits comprised of these items. COMPANY A�s services
consist of warehousing the items, assembling the items into promotional kits,
then sending the kits to the names on the mailing list. These services do not comprise the sale of
tangible personal property, and the charges for the services are not subject to
sales tax.

However, you then state that the
promotional items are sometimes not supplied by the customer, but bought by
COMPANY A instead. In this case, the
charge to the customer is not to assemble promotional kits, but for the
purchase of the promotional kits themselves.
Because tangible personal property has been sold to your customer, all
charges to the customer are subject to sales tax under these circumstances.

Purchasing Supplies. You have stated that COMPANY A purchases its
supplies tax exempt. You have listed
these supplies to include ink, toner cartridges, paper, envelopes, tabs, bubble
wrap, boxes, tape, and printing services.
Depending upon the services provided by COMPANY A, some of the supplies
may be bought tax exempt, but others should have sales tax paid on them.

Supplies that are bought for resale
either in their original form or as component parts of a compounded product may
be bought tax exempt. Thus, when
COMPANY A sells printed matter or promotional kits to its customers, which were
determined to be taxable sales above, COMPANY A may purchase tax exempt the
items and supplies that become a component part of these taxable products.

For supplies bought to provide
services that are not subject to sales tax, COMPANY A is considered the final
consumer of these supplies.
Accordingly, COMPANY A should pay sales tax on its purchase of these
supplies. Also, supplies that are
consumed in the ordinary course of COMPANY A�s business, such as pencils, pens,
etc., are also subject to sales tax when purchased by COMPANY A.

Please contact us if you have any
other questions.

For
the Commission,

Joe
B. Pacheco, CPA

Commissioner

^^