My company prints and mails direct-mail advertising coupons for local merchants from an out-of-state printing plant to addresses all over the country, including New York -- do I owe New York sales or use tax on the mailings that go to New York addresses?

Plain-English summary

Val Pak Direct Marketing Systems, Inc., a Delaware corporation based outside New York, runs a national direct-mail advertising program. It works through local "Franchisees," who contract directly with local merchants ("Advertisers," including some in New York) to include each Advertiser's coupon or flyer in a shared envelope mailed to potential customers within a chosen geographic territory. Val Pak does all the printing, stuffing, and mailing outside New York, using its own proprietary mailing lists and the U.S. Postal Service, on a predetermined schedule; one envelope typically bundles materials from multiple Advertisers. Advertisers pay their Franchisee based on the complexity and quantity of the print job (with layout/design work billed separately); Franchisees in turn pay Val Pak.

Val Pak asked whether any sales or use tax is owed on this production-and-mailing arrangement when materials are mailed to New York addresses.

The Department held Val Pak and its Franchisees are not acting as a traditional advertising agent (which would be excluded from tax as a representative-capacity service) — instead, the Franchisees are really selling printed promotional materials to the Advertisers, which Val Pak then prints and mails on the Franchisee's behalf. That framing brings New York's promotional materials exemption (Tax Law §1115(n)(4)) into play: printed promotional materials are exempt from sales and use tax when the purchaser (here, ultimately the Advertiser, through the Franchisee) mails or ships them, or causes them to be mailed or shipped, to its own customers or prospective customers, free of charge, via common carrier, USPS, or similar delivery service — and this exemption applies regardless of whether the mailing originates inside or outside New York.

Applying that rule: Franchisees can sell the printed promotional materials to Advertisers exempt from sales tax, as long as the Franchisee receives a timely, properly completed Certificate of Exemption for Purchases of Promotional Materials (Form ST-121.2) from the Advertiser. Going one step further up the supply chain, Franchisees can also buy the printed materials from Val Pak tax-free for resale, using a standard resale certificate (Form ST-120), since the Franchisee is reselling those materials to the Advertiser.

The one exception: any portion of the printed promotional materials that Val Pak or a Franchisee delivers directly to an Advertiser located in New York (rather than mailing it out to the Advertiser's prospective customers) doesn't satisfy the exemption's core requirement — that the materials be mailed/shipped to customers or prospective customers, free of charge. Charges for that portion of the print run remain fully taxable. The opinion illustrates the exemption's documentation mechanics with the Department's own Example 5 from TSB-M-97(6)S: a retailer that prints 1,000,000 catalogs but keeps 1,000 in its own New York store for giveaway can only claim the exemption on the 999,000 actually mailed to customers — it must tell its printer, via the Form ST-121.2 percentage breakdown, exactly what fraction qualifies.

What this means for you

Direct-mail advertisers, printers, and mail houses

Printed promotional materials mailed for free to prospective customers — using a common carrier or the postal service — are exempt from New York sales/use tax regardless of where the printing and mailing physically happens, as long as the purchaser (or someone on the purchaser's behalf) properly documents the exemption with Form ST-121.2. But any copies kept for direct in-state distribution, rather than mailed to prospective customers, fall outside the exemption and are taxable.

Franchise/agency-style advertising arrangements

Whether your business model is treated as a tax-excluded "advertising agent" acting in a representative capacity, or as a straight sale of printed promotional materials (subject to the promotional-materials exemption analysis instead), depends on the actual structure of who's buying and reselling what. Here, the Franchisee/Advertiser/Val Pak chain was treated as successive sales of printed materials, not an agency relationship.

Accountants and tax professionals

The percentage-based Form ST-121.2 mechanism (illustrated by the Department's own catalog example) is the practical compliance tool for any client whose promotional print run is split between mailed-to-customer copies (exempt) and kept-for-in-house-use copies (taxable) — worth walking clients through explicitly since the exemption isn't all-or-nothing per print run.

Common questions

Q: Is printed advertising material I mail for free to prospective customers exempt from New York sales tax?
A: Yes, generally — if it's mailed or shipped without charge to customers or prospective customers via common carrier, USPS, or similar service, and properly documented with Form ST-121.2, regardless of where the printing/mailing occurs.

Q: What if I keep some of the printed materials for use at my own New York location instead of mailing them?
A: That portion doesn't qualify for the exemption — you must pay sales tax on the copies not mailed or shipped to customers/prospective customers, and should indicate the correct exempt/taxable percentage split on Form ST-121.2.

Q: Can a franchisee/reseller buy the printed materials tax-free before reselling them to the advertiser?
A: Yes — a reseller buying printed promotional materials for resale can use a standard resale certificate (Form ST-120) with its own supplier/printer.

Q: Does this ruling apply to my direct-mail or promotional-print arrangement?
A: Not automatically. This is an Advisory Opinion binding only on Val Pak Direct Marketing Systems, Inc. and only as to the facts it described. Your contractual chain and documentation practices may differ.

Citations and references

Statutes and guidance:

• Tax Law §1101(b)(4) (definition of "retail sale")
• Tax Law §1101(b)(7) (definition of "use," including distribution of promotional materials)
• Tax Law §1101(b)(12) (definition of "promotional materials")
• Tax Law §1105(a), (c)(1) (tax on tangible personal property; furnishing-information exclusion for advertising agents)
• Tax Law §1115(n)(1) (exemption for promotional materials mailed to out-of-state customers)
• Tax Law §1115(n)(4) (exemption for promotional materials mailed free of charge within New York via common carrier/postal service)
• TSB-M-97(6)S, "Expanded Sales and Compensating Use Tax Exemption for Promotional Materials" (August 20, 1997)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_54s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Taxpayer Guidance Division

TSB-A-08(54)S
Sales Tax
December 16, 2008

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S050127A

On January 27, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Val Pak Direct Marketing Systems, Inc., 8605 Largo Lakes Drive,
Largo, Florida, 33773.
The issue raised by Petitioner, Val Pak Direct Marketing Systems, Inc., is whether there
is any sales or compensating use tax liability arising from the production and mailing of
advertising materials from outside New York State to postal addresses within New York State as
described below.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner, a corporation organized in Delaware, operates a national direct mail
advertising program and is based outside New York State. Petitioner has a business relationship
with local affiliates ("Franchisees"), who or which deal directly with local merchants
("Advertisers") in a given territory (including territories in New York State).
Pursuant to contracts between the Franchisee and an Advertiser, and contracts between
the Franchisee and Petitioner, Petitioner includes advertising materials in a direct mailing to
potential customers of the Advertiser, typically within a specified geographical area (which may
be within or without New York State). Petitioner does the direct mailings in accordance with its
predetermined mailing schedule, and Petitioner uses its proprietary mailing lists for the mailings.
The mailing is done via the U.S. Postal Service.
In some cases, layout or camera-ready copy for the materials is provided by an
Advertiser; in other cases Petitioner provides design and layout assistance. In all cases, Petitioner
does the printing and stuffing and mailing of envelopes outside New York State. A mailing
includes materials from a number of Advertisers in the same envelope.
The fee to be paid by each Advertiser to the Franchisee is typically based on the
complexity of the print job (e.g., 1-color or 4-color, 1-sided or 2-sided) and the number of copies
to be printed and mailed; where layout or design assistance is provided, it is charged for
separately. The Franchisee, in turn, pays Petitioner in accordance with a payment schedule.
Petitioner provided sample copies of the Mailing Participation Agreement between the
Franchisee and the Advertisers, customer invoice, and Franchisee invoice. The Mailing
Participation Agreement is signed by advertisers and indicates what is to be printed (e.g.,

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coupon, flyer, 2/3 flyer), whether print is to be single sided or double sided, color of paper to be
used, number of colors to be used, quantity to be printed, quantity to be mailed, frequency, and
cost. Invoices sent to customers also contain similar information. Franchisee invoices represent
an aggregate of charges for orders placed by customers. Such aggregate charges are categorized
for printing, envelopes, addressing/processing, inserting, postage, and layouts.
Applicable law and regulations
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:
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to tax
under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred
five where the property so sold becomes a physical component part of the property upon
which the services are performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the performance of the
service subject to tax. . . .
*

*

*

(7) Use. The exercise of any right or power over tangible personal property or
over any of the services which are subject to tax under section eleven hundred ten of this
article or pursuant to the authority of article twenty-nine of this chapter, by the purchaser
thereof . . .Without limiting the foregoing, use also shall include the distribution of only
tangible personal property, such as promotional materials, or of any such service subject
to tax under such section eleven hundred ten or pursuant to the authority of such article
twenty-nine.
*

*

*

(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. . . Promotional materials shall also include paper or ink furnished to a printer

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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 1105 of the Tax Law imposes sales tax, in part, on:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.
*

*

*

(c)The receipts from every sale, except for resale, of the following services:
(1) The furnishing of information by printed, mimeographed or multigraphed
matter or by duplicating written or printed matter in any other manner, including the
services of collecting, compiling or analyzing information of any kind or nature and
furnishing reports thereof to other persons, but excluding the furnishing of information
which is personal or individual in nature and which is not or may not be substantially
incorporated in reports furnished to other persons, and excluding the services of
advertising or other agents, or other persons acting in a representative capacity, . . .
Section 1115(n) of the Tax Law provides, in part:
(1) Except as otherwise provided in this subdivision, promotional materials
mailed, shipped or otherwise distributed from a point within the state, by or on behalf of
vendors or other persons to their customers or prospective customers located outside this
state for use outside this state shall be exempt from the tax on retail sales imposed under
subdivision (a) of section eleven hundred five and the compensating use tax imposed
under section eleven hundred ten of this article.
*

*

*

(4) 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

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prospective customers, without charge to such customers or prospective customers, by
means of a common carrier, United States postal service or like delivery service.
Technical Services Bureau Memorandum entitled Expanded Sales and Compensating
Use Tax Exemption for Promotional Materials, dated August 20, 1997, TSB-M-97(6)S,
provides, in part:
Printed Promotional Materials
Effective March 1, 1997, printed promotional materials mailed or shipped to destinations
in the state are exempt from tax when all of the conditions listed below are met.
• The printed promotional materials are ultimately mailed or shipped to customers or
prospective customers of the purchaser of the printed promotional materials.
• The printed promotional materials are mailed or shipped by the purchaser of the
materials using a common carrier, the U.S. Postal Service or a like delivery service.
(This requirement is also met if the mailing or shipping is arranged by a third party
[such as a printer/mailer] on behalf of the purchaser of the promotional materials.)
• There is no charge to the purchaser’s customer or prospective customer (ultimate
recipient) for the promotional materials, or for mailing or shipping them.
• The purchaser of the promotional materials gives a properly completed Form ST- 121.2,
Certificate of Exemption for Purchases of Promotional Materials, to the seller of the
promotional materials.
*

*

*

Example 5. XYZ Department Store/Mail Order Seller asks Printco to print 1,000,000
catalogs which subsequently will be furnished, free, to XYZ’s customers and prospective
customers. XYZ arranges for the shipment of 500,000 of the catalogs to Mailerco for
mailing via the U.S. Postal Service. The remaining 500,000 are shipped to XYZ’s
headquarters for storage until a subsequent mailing that will occur in three months. XYZ
intends to place 1,000 of those catalogs in its New York retail store to give away to
customers. XYZ will ship the remaining 499,000 catalogs to Mailerco for mailing in the
same manner as the initial 500,000. XYZ may purchase 999,000 of the catalogs from
Printco tax exempt. However, Printco must collect sales tax from XYZ on the charges
attributable to the 1000 catalogs XYZ does not intend to mail or ship to customers or
prospective customers. On Form ST- 121.2, Certificate of Exemption for Purchases of
Promotional Materials, given to Printco, XYZ should indicate that 99.9% of the catalogs

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are exempt from tax, since they will be shipped or mailed to XYZ’s customers or
prospective customers in accordance with Section 1115(n) of the Tax Law. Form
ST-121.2 given to Mailerco should show that Mailerco’s services are exempt from tax,
since 100% of the 999,000 catalogs furnished to Mailerco will be shipped or mailed to
XYZ’s customers or prospective customers in accordance with Section 1115(n) of the
Tax Law.
Opinion
Petitioner operates a national direct mail advertising program and has a business
relationship with local Franchisees in a given territory to solicit orders for advertising materials
to be included in mailings to prospective customers of their Advertisers. Petitioner does the
printing and stuffing and mailing of envelopes outside New York State for delivery within or
without New York State. A mailing includes advertising materials for a number of Advertisers in
the same envelope and such mailings are done on a periodic basis via U.S. Postal Service.
As defined by section 1101(b)(12) of the Tax Law, promotional materials includes any
advertising literature, and envelopes used to deliver them, as well as the paper or ink used by the
printer in producing or printing promotional materials. Section 1115(n)(4) of the Tax Law
provides an exemption for printed promotional materials where the purchaser mails or ships
promotional materials, or causes such promotional materials to be mailed or shipped, to its
customers or prospective customers, without charge, by means of a common carrier, United
States postal service or like delivery service.
Petitioner and its Franchisees do not appear to be a traditional advertising agent acting in
a representative capacity for its customers and providing services excluded from sales tax
pursuant to section 1105(c)(1) of the Tax Law. Rather, Petitioner’s direct mail advertising
program consists of the sale of printed advertising literature that is delivered to Advertisers’
potential customers. Petitioner's Franchisees contract with the Advertisers to provide the
advertising literature, and then pay Petitioner to print and mail the advertising literature.
Therefore, Petitioner’s Franchisees are selling printed promotional materials exempt from
sales tax pursuant to section 1115(n)(4) of the Tax Law, provided that Franchisees receive a
timely and properly completed Certificate of Exemption for Purchases of Promotional Materials,
Form ST-121.2, from the Advertiser. Franchisees may make exempt purchases of the printed
materials for resale by submitting a timely and properly completed Resale Certificate, Form
ST-120, to Petitioner.
It should be noted that any portion of the printed promotional materials delivered directly
to Advertisers located in New York State does not meet the requirements of section 1115(n)(4)

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of the Tax Law. The charges for such portion of the printed promotional materials, therefore, are
subject to sales tax.

DATED: December 16, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.