Does a retailer owe sales tax when it resells USPS postage stamps and pre-stamped Priority Mail envelopes at or below face value?

Plain-English summary

Costco planned to sell USPS postage two ways at its warehouse stores: 100 loose postage stamps as one unit, and separately, a 10-pack of USPS "Priority Mail" envelopes with the applicable postage already affixed. Both would be priced at or below the postage's face value (for example, no more than $38.50 for 10 Priority Mail envelopes carrying $3.85 of postage each). Costco would buy both products directly from the USPS, take title to them, and sell them independently — not as a USPS agent. It wasn't selling collectible stamps or marking anything up above face value.

The Department's answer rests on a simple idea: a postage stamp isn't really "goods" — it's evidence of prepayment for a service (USPS mail delivery). Buying a stamp for its intended mailing purpose is buying an intangible right to that delivery service, not buying tangible personal property, so it isn't taxed (this only holds as long as the stamps sell at or below face value for actual postal use — stamps sold above face value for collecting or philatelic purposes are a different, taxable transaction). That reasoning extends to the bundled Priority Mail envelopes: envelopes by themselves are ordinary taxable tangible personal property, but here Costco effectively transfers the envelope for free — since it charges no more than the postage's own face value for the whole 10-pack — so the entire transaction is treated as a sale of the intangible right to Priority Mail service, not a taxable sale of the physical envelope.

What this means for you

Retailers considering selling postage products

Selling stamps (loose, or affixed to envelopes) at or below face value for genuine mailing use is untaxed in New York, because the substance of the sale is an intangible postal-service right, not a sale of goods. Selling stamps above face value for collecting purposes is a different transaction that doesn't get this treatment.

Retailers bundling postage with physical packaging

If your bundled price doesn't exceed the postage's own face value — effectively giving away the physical envelope or container — the whole bundle can ride along untaxed with the postage. Charging separately (and above cost) for the envelope itself would put you back into ordinary taxable tangible-property territory for that portion.

Accountants and tax professionals

This ruling extends the same logic New York already applies to certain coin sales (see the cited Web's Coins opinion): a face-value resale of something whose real economic substance is a prepaid right or service, rather than the physical medium carrying it, escapes sales tax — but only within that face-value ceiling.

Common questions

Q: Does a retailer owe sales tax on postage stamps it resells at face value?
A: No — buying a stamp for its intended mailing use is treated as buying an intangible USPS delivery right, not tangible personal property, so it's not subject to sales tax.

Q: What if the stamps are sold above face value?
A: That's a different transaction — stamps sold above face value for collecting or philatelic purposes don't get this untaxed treatment.

Q: Does bundling postage with an envelope change the analysis?
A: Not here — because the bundled price for the Priority Mail envelopes doesn't exceed the postage's own face value, the whole bundle is treated as an untaxed sale of the intangible mailing right rather than a taxable sale of the physical envelope.

Citations and references

Statutes and rules:

• Tax Law § 1105(a) (retail sales of tangible personal property)
• Tax Law § 1101(b)(6) (definition of tangible personal property)
• 20 NYCRR 526.8(a)(7) (postage stamps as tangible personal property, when purchased for purposes other than mailing)
• 20 NYCRR 527.1(b) (taxable and exempt items sold as a single unit)

Prior authority relied on:

• Web's Coins, Ltd., TSB-H-81(123)S (analogous face-value resale rule applied to coins)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(10)S
Sales Tax
April 27, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020807A

On August 7, 2002, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Costco Wholesale Corp., 999 Lake Drive, Issaquah, WA 98027. Petitioner, Costco
Wholesale Corp., provided additional information pertaining to the Petition on July 28, 2003.
The issue raised by Petitioner is whether its sales of postage stamps and “Priority Mail”
envelopes with related postage affixed are subject to sales and compensating use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is in the membership warehouse segment of specialty retailing. It operates a chain
of cash and carry membership warehouses in 37 states and in various international markets.
Petitioner has more than 10 operating locations in New York State.
Petitioner services both the retail and wholesale markets. Petitioner’s operations are based
on the concept that offering very low prices on a limited selection of national brand products, over
a wide range of merchandise categories, will produce rapid inventory turnover and high sales
volume. Petitioner sells a variety of merchandise including food, candy, tobacco, sundries,
appliances, electronics, tools, office supplies, furniture, automotive supplies, apparel, linens,
jewelry, housewares, books, optical merchandise, and prescription and over-the-counter medicines.
Almost all of Petitioner’s sales are cash and carry with the purchaser taking possession of the
merchandise in the store at Petitioner’s cash register.
Petitioner is in the planning stages of a program to sell United States Postal Service (USPS)
postage. Initially Petitioner is planning to sell 100 postage stamps by themselves as one unit of sale
and, in a separate unit of sale, 10 USPS “Priority Mail” envelopes with the related applicable
postage affixed. The sales price will be at or below face value of the postage. Petitioner will buy
both of these units of sale from the USPS. Upon purchase of either item from the USPS, Petitioner
will take title to the product. Petitioner will not be an agent of the USPS and its sales will be
independent of the USPS. The stamps signify the “first class” delivery service offered by the USPS.
For the “Priority Mail” postage and related envelopes there will be a single charge for the unit of
sale (10 postpaid USPS “Priority Mail” envelopes). Petitioner does not anticipate breaking out any
separate value for the envelopes. USPS makes no charge to Petitioner for the envelopes when
Petitioner purchases the USPS “Priority Mail” postpaid envelopes it intends to sell.
In order for an item to be sent “Priority Mail,” USPS operations require the item to be
identified as being sent “Priority Mail.” Either the item is packaged in a USPS “Priority Mail”

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April 27, 2004

envelope or container or a USPS “Priority Mail” sticker is affixed to existing packaging to alert
postal employees of the class of service. The envelopes (or stickers) are a USPS requirement to
effect priority handling versus handling under some other class of postal service.
Individuals purchasing “Priority Mail” delivery directly from the USPS currently pay $3.85
for priority mail postage (based upon weight of not more than 1 lb.) to the USPS. Petitioner
proposes to charge its customers no more than $38.50 for the package of 10 “Priority Mail”
envelopes with postage. “Priority Mail” envelopes are available without charge to patrons at USPS
office locations. The USPS will also deliver “Priority Mail” envelopes in packages of 10 envelopes
to the public for no charge (including no charge for shipping). The USPS provides “Priority Mail”
sticker labels and “Priority Mail” tape for use by individuals to affix the labels and tape to an
individual’s own envelopes and packages so that the package and envelope may be identified as
requiring “priority mail” service. Such stickers and tape are provided by the USPS to the public at
no charge for the stickers and tape (including no charge for shipping). The postage required to be
affixed in order to receive “priority mail” service for such envelopes and packages is the identical
$3.85 cost (for packages weighing no more than 1 lb.) whether using a USPS provided envelope or
container or the individual’s self-provided envelope or container (marked and identified with the
USPS “Priority Mail” stickers and tape).
Petitioner is not selling collectible stamps or stamps that will be used for any purpose other
than paying for the delivery services offered by the USPS.
Applicable law and regulations
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax – . . . there is hereby imposed and there shall be paid a tax
. . . upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
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:
*

*

*

(6) Tangible personal property. Corporeal personal property of any nature. . . .

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Section 526.8 of the Sales and Use Tax Regulations provides, in part:
(a) Definition. The term tangible personal property means corporeal personal
property of any nature having a material existence and perceptibility to the human senses.
Tangible personal property includes, without limitation:
*

*

*

(7) postage stamps, when purchased for purposes other than mailing. . . .
Section 527.1(b) of the Sales and Use Tax Regulations provides:
Taxable and exempt items sold as a single unit. When tangible personal property,
composed of taxable and exempt items is sold as a single unit, the tax shall be collected on
the total price.
Example:

A vendor sells a package containing assorted cheeses, a cheese board
and a knife for $15. He is required to collect tax on $15.

Opinion
Petitioner is an independent retailer who will sell postage stamps and “Priority Mail”
envelopes with appropriate postage affixed to be used by its customers for mailing, not collecting,
purposes. Petitioner contends that these sales are not sales of tangible personal property but rather
sales of the postal services which the stamps represent.
Postage stamps are evidence of prepayment for the service of mail delivery by the USPS.
The purchase of a postage stamp is the purchase of the right to receive postal delivery services.
Similarly, having the necessary amount of postage stamped or otherwise imprinted or embossed on
mail as evidence of the right to receive such postal services is the purchase of an intangible rather
than the purchase of tangible personal property. Such purchases are not subject to sales tax.
Petitioner’s sales of stamps in this case will not be for collection or similar philatelic purposes or
for amounts exceeding the face value of such stamps. See section 527.1(c) of the Sales and Use Tax
Regulations; and Web’s Coins, Ltd., Adv Op St Tax Comm, June 24, 1981, TSB-H-81(123)S for
similar rules respecting coins.
Envelopes are tangible personal property, the sale of which is generally subject to tax under
section 1105(a) of the Tax Law. Here, however, it is apparent that Petitioner is transferring the
Priority Mail envelopes free of charge, as it will be selling a package of 10 such envelopes with
Priority Mail service postage attached at a price not in excess of the face value of such postage.
Accordingly, the sale by Petitioner of applicable Priority Mail postage, affixed to envelopes

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April 27, 2004

in packages of 10, is the sale of the right to receive Priority Mail service from the USPS. Such sale
constitutes the sale of the intangible right to receive mail delivery service from the USPS and is not
subject to sales tax.

DATED: April 27, 2004

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.