Which of a securities printer's corporate documents — prospectuses, proxy materials, SEC forms, offering circulars — qualify as exempt 'promotional materials' when mailed free to shareholders?

Plain-English summary

Bowne of New York City prints (and sometimes electronically files) a wide range of corporate and securities documents on behalf of corporations, underwriters, and law firms — delivering them either to the client or directly to current and prospective shareholders, at no cost to the recipient, by mail or common carrier. Bowne asked the Department to classify ten specific document types under New York's exemption for "promotional materials" mailed free to customers or prospective customers.

New York's promotional-materials exemption covers "advertising literature" and certain other related items — including, by name, annual reports and prospectuses — when the buyer mails or ships them to its customers or prospective customers at no charge via common carrier, U.S. mail, or similar service. The Department sorted Bowne's ten document types into two groups:

Qualify as exempt promotional materials: Prospectuses, red herring (preliminary) prospectuses, offering circulars, tender offer documents, private placement memorandums, and annual/quarterly financial reports (Forms 10-K and 10-Q). These all function as advertising literature aimed at helping investors evaluate an investment opportunity, or fall within the statute's explicit "annual reports, prospectuses" language. When printed and mailed free to current or prospective shareholders (inside or outside New York) via mail or common carrier, they're exempt from sales and use tax.

Don't qualify: Proxy solicitation materials (including proxy statements and proxy cards), Form 144 (notice of proposed sale of restricted securities), Form S-1, and Form S-3 (SEC registration forms). These serve a different function — administrative/regulatory notice and voting mechanics rather than promoting an investment — so they fall outside the statutory definition, and printing/delivering them in New York remains taxable.

A useful mechanical note: a vendor (like Bowne) that timely accepts, in good faith, a properly completed Form ST-121.2 (Certificate of Exemption for Purchases of Promotional Materials) is relieved of the duty to collect tax on the qualifying items. And only envelopes used exclusively to deliver exempt promotional materials share in the exemption — an envelope used for a mixed mailing wouldn't qualify.

What this means for you

Commercial printers serving corporate/securities clients

Classify each document type carefully — some SEC-related documents (prospectuses, 10-Ks) fit the promotional-materials exemption while others that look similar (proxy statements, registration forms like S-1/S-3) don't, purely because of their different regulatory function.

Corporations, underwriters, and law firms distributing shareholder communications

If you're paying a printer to mail documents free to shareholders, confirm which document types qualify for the exemption and provide a properly completed Form ST-121.2 to your printer for those — but expect ordinary sales tax on proxy materials and SEC registration statements like S-1/S-3.

Accountants and tax professionals

This is a useful checklist ruling: the ten document types here cover most routine securities-disclosure documents, so it's a solid reference point for classifying similar shareholder-communication printing work.

Common questions

Q: Why do prospectuses qualify as "promotional materials" but proxy statements don't?
A: Prospectuses and similar documents help investors evaluate and decide on an investment (an advertising/promotional function), while proxy materials serve a different purpose — providing information for a shareholder vote — which the statute doesn't cover.

Q: Does it matter whether the document is mailed to the client or directly to shareholders?
A: The exemption depends on the document ultimately being mailed or shipped free of charge to customers or prospective customers (shareholders) by common carrier, mail, or similar service — not specifically on who initiates the mailing.

Q: Are envelopes used for these mailings also exempt?
A: Only envelopes used exclusively to deliver exempt promotional materials qualify for the exemption.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(12) (definition of "promotional materials")
• Tax Law § 1115(n)(4) (exemption for promotional materials mailed/shipped free to customers)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(26)S
Sales Tax
July 11, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020129A

On January 29, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Bowne of New York City, LLC, 345 Hudson Street, New York, New York,
10014.
The issue raised by Petitioner, Bowne of New York City, LLC, is whether the documents
described herein are promotional materials that may qualify for exemption from sales and use tax
under Section 1115(n)(4) of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a New York limited liability company with its principal place of business
located in New York City. Petitioner offers its clients an integrated way to design and manage their
information flows to take advantage of the latest technologies for creating, storing, moving,
presenting and utilizing information in any combination of paper and electronic forms. Specifically,
Petitioner prints, on paper furnished by Petitioner to its client, and/or creates an electronic file of a
variety of corporate documents that are ultimately delivered to Petitioner’s clients or to the
Securities and Exchange Commission (“SEC”). Petitioner may be engaged by a corporation that
desires to disseminate information, by underwriters (e.g., Merrill Lynch, Salomon Smith Barney,
etc.) acting on behalf of a corporation, or by law firms hired by a corporation or underwriter.
(Unless otherwise specified, the term “client” referred to herein means a corporation, underwriter
or law firm.) Petitioner may deliver the printed documents directly to a client which will distribute
the documents to current or prospective shareholders of the corporation, or may distribute the
documents to current or prospective shareholders upon the direction of the client. All of the printed
documents are sent to current or prospective shareholders via the United States Postal Service or
common carrier at no cost to the shareholder. The clients, as well as the current and prospective
shareholders, are located within and without New York State. In the case of documents required
to be filed with the SEC, Petitioner may send such documents electronically to the SEC on behalf
of a client.
Petitioner provided the following description of the types of documents that it prepares, the
method of delivery of such documents, and the recipient(s) of such documents.
A. Prospectus
The prospectus contains the basic business and financial information on an issuer with
respect to a particular securities offering. An investor uses a prospectus to help appraise the merits

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of the offering and make educated investment decisions. Petitioner may either mail the prospectus
to the client or send it directly to current and prospective shareholders.
B. Red Herring Prospectus
A prospectus in its preliminary form is frequently called a “red herring” prospectus and is
subject to completion or amendment before the registration statement becomes effective, after which
a final prospectus is issued and sales can be consummated. The red herring prospectus is delivered
to clients, current shareholders, and prospective shareholders in the same manner as a final
prospectus.
C. Proxy Solicitation Materials
State law governs the circumstances under which shareholders are entitled to vote. When
a shareholder vote is required and a corporation solicits proxies with respect to securities registered
under Section 12 of the Securities Act of 1934 (the “1934 Act”), that corporation generally is
required to furnish a proxy statement containing the information specified by Schedule 14A of the
1934 Act. The proxy statement is intended to provide security holders with the information
necessary to enable them to vote in an informed manner on matters intended to be acted upon at
security holders’ meetings, whether the traditional annual meeting or a special meeting. Typically,
a security holder is also provided with a “proxy card” to authorize designated persons to vote his or
her securities on the security holder’s behalf in the event the holder does not vote in person at the
meeting. Copies of definitive (final) proxy statements and proxy cards are filed with the SEC at the
time they are sent to security holders.
Petitioner delivers the proxy materials described above to current and prospective
shareholders, clients, and to the SEC in the manner previously described.
D. Offering Circulars
An offering circular details the terms and conditions for the sale and issue of marketable
securities. This document, which is sent to prospective shareholders, contains a description of the
securities offered, a business description, and financial statements.
E. Tender Offer
A tender offer is an offer to purchase shares of stock of a corporation, up to a specific
number, tendered by shareholders within a specified period at a fixed price, usually at a premium
above the market price. Tender offers are usually made by a party seeking to take control of a
corporation, and are often followed by a merger proposal.

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Petitioner may either mail the tender offer document to the client or send it directly to the
current shareholders.
F. Form 144
Form 144 must be filed as notice of the proposed sale of restricted securities or securities
held by an affiliate of the issuer in reliance on Rule 144 when the amount to be sold during any
three month period exceeds 500 shares or units or has an aggregate sales price in excess of $10,000.
Petitioner files this form electronically with the SEC on behalf of a client and sends copies
of Form 144 to clients and to current shareholders at the client’s direction.
G. Form S-1
Form S-1 is the basic registration form. It can be used to register securities for which no
other form is authorized or prescribed, except securities of foreign governments or political
subdivisions thereof.
Petitioner files this form electronically with the SEC on behalf of a client and sends copies
of Form S-1 to the client and to current shareholders (where applicable) at the client’s direction.
H. Form S-3
Form S-3 is a simplified registration form and it may only be used by companies that have
been required to report under the 1934 Act for a minimum of twelve months and have met the timely
filing requirements set forth under Form S-2. Also, the offering and issuer must meet the eligibility
test prescribed by the form. The form maximizes incorporating by reference information from 1934
Act filings.
Similarly to Form S-1, Petitioner files this form electronically with the SEC on behalf of the
client and sends copies of Form S-3 to the client and to current shareholders (where applicable) at
the client’s direction.
I. Private Placement Memorandum
This document provides for the sale of securities in a corporation not subject to registration
requirements under the Securities Act of 1933. A private placement memorandum is similar to an
offering plan which is distributed to a limited group of people. The offering generally involves a
placement with large institutional investors such as insurance companies and pension funds,
securities issued to key employees of a company, and securities issued to acquire the stock of a

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July 11, 2002

closely held corporation. The private placement memorandum explains to current or prospective
shareholders the risks and expected returns of investment.
Petitioner may either mail the private placement memorandum to a client or send it directly
to current or prospective shareholders.
J. Form 10-K/Annual Report
This is the annual report that most reporting companies file with the SEC. It is also included
in the proxy materials sent to a shareholder. It provides a comprehensive overview of the
registrant’s business. The report must be filed within 90 days after the end of the company’s fiscal
year.
Petitioner files this form electronically with the SEC on behalf of a client and sends copies
of Form 10-K to clients and to current and prospective shareholders at the client’s direction.
K. Form 10-Q
Form 10-Q is a report filed quarterly by most reporting companies. It includes unaudited
financial statements and provides a continuing view of the company’s financial position during the
year. The report must be filed for each of the first three fiscal quarters of the company’s fiscal year
and is due within 45 days of the close of the quarter.
Petitioner files this form electronically with the SEC on behalf of a client and sends copies
of Form 10-Q to clients and to current and prospective shareholders at the client’s direction.
Applicable Law
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(12) Promotional materials. Any advertising literature, other related tangible
personal property (whether or not personalized by the recipient’s name or other
information uniquely related to such person) and envelopes used exclusively to
deliver the same. Such other related tangible personal property includes, but is not
limited to, free gifts, complimentary maps or other items given to travel club
members, applications, order forms and return envelopes with respect to such

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advertising literature, annual reports, prospectuses, promotional displays and
Cheshire labels but does not include invoices, statements and the like. Promotional
materials shall also include paper or ink furnished to a printer for use in providing
the services of producing, printing or imprinting promotional materials or in
producing, printing or imprinting promotional materials, where such paper and ink
become a physical component part of the promotional materials and such printer sells
such services or such promotional materials to the person who furnished the paper
and ink to such printer.
Section 1115(n)(4) of the Tax Law provides:
Notwithstanding any contrary provisions of paragraph one of this
subdivision, promotional materials which are printed materials and promotional
materials upon which services described in paragraph two of subdivision (c) of
section eleven hundred five have been directly performed shall be exempt from tax
under this article where the purchaser of such promotional materials mails or ships
such promotional materials, or causes such promotional materials to be mailed or
shipped, to its customers or prospective customers, without charge to such customers
or prospective customers, by means of a common carrier, United States postal
service or like delivery service.
Opinion
Printed promotional materials delivered to customers or prospective customers of the person
buying the materials will not be subject to tax when they are delivered by common carrier, the
United States postal service or like delivery service, and the customer or prospective customer
receives them free of any charge. The prospectuses, red herring prospectuses, offering circulars,
tender offers, private placement memorandums, and Forms 10-K and 10-Q, as described herein, are
promotional materials under Section 1101(b)(12) of the Tax Law because they qualify as advertising
literature, or other related tangible personal property such as annual reports or prospectuses.
Accordingly, to the extent these documents are distributed in printed form at no cost to Petitioner’s
clients’ current and prospective shareholders located within and without New York by means of a
common carrier, United States postal service or like delivery service, the sale of such documents by
Petitioner will be exempt from state and local sales and use taxes under Section 1115(n)(4) of the
Tax Law.
A vendor’s timely acceptance, in good faith, of a properly completed Form ST-121.2,
Certificate of Exemption for Purchases of Promotional Materials, relieves the vendor from the duty
to collect sales tax on the sale of promotional materials.

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The proxy solicitation materials, Form 144, Form S-1, and Form S-3, as described herein,
are not promotional materials under Section 1101(b)(12) of the Tax Law and do not qualify for the
exemption provided by Section 1115(n). Therefore, the sale of these documents by Petitioner may
be subject to state and local sales and use taxes if delivered in New York.
It should be noted that only envelopes used exclusively to deliver promotional materials are
considered promotional materials eligible for the exemption provided in Section 1115(n) of the Tax
Law. See Section 1101(b)(12) of the Tax Law.

DATED: July 11, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.