For a publicity-booklet producer: which production inputs are exempt, are out-of-state deliveries taxed, is a clipping service resale, and when are charges to charities exempt?

Plain-English summary

North American Precis Syndicate, Inc. produces publicity booklets that present its clients favorably; the clients pay for them, and the booklets go to newspaper editors around the country, who may tear out an item and use it as printing copy. As part of its service, the company also sends clients actual clippings of items that appear, using an out-of-state clipping service. Some clients are charitable organizations. It raised four issues.

Issue 1 — production inputs and resale purchases. Because the company manufactures booklets for sale, its purchases of artwork, silkscreens, engraving, composition, photography and supplies used in production may be bought exempt under § 1105-B / § 1115(a)(12) with an Exempt Use Certificate (Form ST-121) — exempt from the statewide tax, the MCTD tax and local taxes, but subject to the 4% New York City tax (20 NYCRR § 528.13). Printing services and items that become physical component parts of the booklet are purchases for resale, exempt with a Resale Certificate (Form ST-120).

Sale of the booklets — delivery point controls. The booklets are tangible personal property; the total charge is taxable where delivered to editors in New York, and exempt to the extent delivered outside the State.

Issue 2 — the clipping service is bought for resale. A clipping service is a taxable information service (20 NYCRR § 527.3, Example 4). Because the company takes delivery, sorts, and forwards the clippings to its clients, it is buying the service for resale, so the clipping service's charge is exempt with a Form ST-120. The company's onward charge to clients then follows the delivery-point rule (taxable if delivered in New York, exempt if outside).

Issue 3 — charges to charities. Under 20 NYCRR § 529.7(h), a charge to an exempt organization is exempt only if the organization is the direct purchaser and direct payer of record and furnishes an Exempt Organization Certification (Form ST-119.1). If those conditions aren't all met, charges for booklets and clippings delivered in New York are taxable.

What this means for you

Manufacturing for sale unlocks the production exemption — but keep the certificates straight. Inputs consumed in production go on an ST-121 (Exempt Use); goods and services that become part of, or are resold in, the finished product go on an ST-120 (Resale). Using the right certificate for each category is what makes the purchase exempt.

Watch the New York City carve-out. The production exemption knocks out the statewide, MCTD and local taxes, but not the 4% New York City tax on production machinery, equipment and materials. If your production happens in the City, budget for that.

Delivery point decides tax on your sales. For tangible personal property, tax follows where you deliver. Booklets and clippings delivered to New York recipients are taxable; those delivered outside the State are exempt. Track and document delivery destinations.

A buyer's exempt status only works if the buyer really is the buyer. A charity client must be the direct purchaser and direct payer of record and hand you an ST-119.1. If someone else pays, or the certificate is missing, the exemption fails and New York-delivered charges are taxable.

Common questions

Q: We produce printed materials for sale. Can we buy our production inputs tax-free?
A: Yes — inputs used in production go on an Exempt Use Certificate (ST-121); printing and physical component parts are resale purchases on a Resale Certificate (ST-120). Both are exempt statewide/MCTD/local but still subject to the 4% New York City tax.

Q: Are our sales taxable if we ship out of state?
A: Tax follows the delivery point. Items delivered to recipients in New York are taxable; items delivered outside New York are exempt.

Q: We resell a clipping service to clients. Do we pay tax on it?
A: No, if you buy it for resale. Because you take the clippings, sort them and forward them to clients, you can buy the clipping service exempt with an ST-120; your charge to the client then follows the delivery-point rule.

Q: Our client is a charity — is our charge automatically exempt?
A: Only if the charity is the direct purchaser and direct payer of record and gives you a completed Exempt Organization Certification (ST-119.1). Otherwise, New York-delivered charges are taxable.

Citations and references

Statutes:

• Tax Law § 1105-B and § 1115(a)(12) — production exemption, extended to tangible personal property used in production

Regulations:

• 20 NYCRR § 526.6 — retail sale and resale exclusion (Form ST-120)
• 20 NYCRR § 528.13 — machinery/equipment used in production; no New York City exemption (Form ST-121)
• 20 NYCRR § 527.3 — information services; clipping-service Example 4
• 20 NYCRR § 529.7(h) — sales to exempt organizations; direct purchaser and payer of record (Form ST-119.1)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(17)S
Sales Tax
March 28, 1983

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S820614A

On June 14, 1982 a Petition for Advisory Opinion was received from North American Precis
Syndicate, Inc., 201 East 42nd Street, New York, New York 10017.
The issues raised are:

1. Whether Petitioner is required to pay New York State sales and use taxes on purchases of
   artwork, silkscreens, engraving, composition, printing and supplies, photography and other materials
   for use in producing booklets which are delivered to Petitioner's clients' designees located outside
   New York State.
2. Whether charges to Petitioner, by an out-of-state clipping service, for clippings delivered
   to Petitioner's New York State location, are subject to State and local sales or use tax.
3. Whether Petitioner's charges to clients, who are charitable organizations and qualify for
   exemption from sales tax, are subject to State and local sales tax.
   Petitioner creates booklets containing informational material which present its clients to the
   public in a favorable light. The booklets are paid for by Petitioner's clients and, in accordance with
   their instructions, are delivered to newspaper editors at various locations throughout the country.
   Based on the form in which the booklets are prepared, an editor of a newspaper may tear out a
   particular item and use the tear-out as a master for the duplicating process used in printing the
   newspaper. Petitioner states that its purchases of personal property and services which it uses to
   produce the booklets are purchases of property and services which are incorporated in or used to
   produce tangible personal property for sale.
   As part of the services which Petitioner renders to its clients, Petitioner furnishes such clients
   with actual clippings of the items which appear in the various newspaper and periodicals. To
   accomplish this, Petitioner retains the services of a clipping service located outside New York State.
   The clipping service cuts out the items and forwards them to Petitioner who then sorts the items and
   forwards them to the appropriate clients.
   Among Petitioner's clients are various charitable organizations located within and without
   New York State. Petitioner contends that these organizations are exempt from sales tax and that,
   thus, Petitioner's charges to them should not be subject to New York State sales and use tax.

ROBERT W. BOUCHARD, ACTING COMMISSIONER
GABRIEL B. DiCERBO , DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)

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TSB-A-83(17)S
Sales Tax
March 28, 1983
Issue 1:
Section 526.6 of the Sales and Use Tax Regulations provides, in part as follows: "Retail sale.
(Tax Law §1101(b)(4)). (a) The term 'retail sale' or 'sale at retail' means the sale of tangible personal
property to any person for any purpose except as specifically excluded . . . . (c) Resale exclusion. (1)
Where a person, in the course of his business operations, purchases tangible personal property or
services which he intends to sell, either in the form in which purchased, or as a component part of
other property or services, the property or services which he has purchased will be considered as
purchased for resale and therefore not subject to tax until he has transferred the property to his
customer . . . . (2) A sale for resale will be recognized only if the vendor receives a properly
completed resale certificate . . . . (3) Receipts from the sale of property purchased under a resale
certificate are not subject to tax at the time of purchase by the person who will resell the property.
The receipts are subject to tax at the time of the retail sale."
Section 528.13 of the Sales and Use Tax Regulations provides, in part as follows:
"Machinery and Equipment Used in Production . . . - (Tax Law, §1115(a)(12)). (a) Exemption. (1)
An exemption is allowed from the tax imposed under section 1105(a) of the Tax Law, and from the
compensating use tax imposed under section 1110 of the Tax Law, for receipts from sales of:
(i) Machinery or equipment used or consumed directly and predominantly in the production
for sale of tangible personal property . . . by manufacturing, processing . . .
. . . .
(4) There is no exemption from the tax imposed in New York City under section 1107 of the
Tax Law, for machinery, equipment or other tangible personal property used or consumed in
production . . .
(5) An Exempt Use Certificate (Form ST-121) is used to make purchases eligible for this
exemption without payment of sales tax."
The exemption described in the above-quoted regulation has been extended to cover not only
machinery and equipment, but all tangible personal property used as described. (Tax Law, Section
1105-B.)
Because Petitioner produces booklets which it sells to its clients, Petitioner is considered to
be manufacturing tangible personal property for sale. Accordingly, Petitioner's purchases of artwork,
silkscreens, engravings, composition, photography, as well as other materials and supplies which are
used in the production phase of its finished product may be purchased tax exempt under the
provisions of Section 1105-B and 1115(a)(12) of the Tax Law, provided Petitioner furnishes its
supplier with a properly completed Exempt Use Certificate, Form ST-121. The purchases of such
items will be exempt from the statewide sales tax, the Metropolitan Commuter Transportation
District Tax and all local sales taxes, but will be subject to the New York City sales tax of 4%.
Petitioner's purchases of services such as printing, and of items which are transferred to the clients
as actual physical component parts of the finished booklet, are considered to be purchases for resale
and may be made tax exempt provided Petitioner furnishes his supplier with a properly completed
Resale Certificate, Form ST-120.

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TSB-A-83(17)S
Sales Tax
March 28, 1983

Petitioner's sales of the booklets are considered to be sales of tangible personal property and
the total charge to its clients will be subject to New York State and local sales taxes based upon the
point of delivery where Petitioner sends the booklets to editors within New York State. However,
to the extent deliveries of the booklets are made to locations outside New York State, receipts from
the sale of such booklets will be exempt from New York State and local sales taxes.
Issue 2:
Section 527.3 of the Sales and Use Tax Regulations provides, in part, as follows: "Sale of
Information Services. - (Tax Law §1105(c)(1)). (a) Imposition. (1) Section 1105(c)(1) of the Tax
Law imposes a tax on the receipts from the service of furnishing information . . . . (2) The collecting,
compiling or analyzing information of any kind or nature and the furnishing reports thereof to other
persons is an information service . . . . (b) Exclusions (1) Sales tax does not apply to receipts from
sales of information services which are for resale as such. (2) The sales tax does not apply to the
receipts from the sale of information which is personal or individual in nature and which is not or
may not be substantially incorporated into reports furnished to other persons by the person who has
collected, compiled or analyzed such information . . . .
Example 4:

A firm is in the business of reading newspapers and periodicals,
cutting out all articles in which the name of the customer or a topic
of interest to the customer appear, and transferring such clippings to
the customer, whether by mail or otherwise, for a fee. This is a
service of furnishing information which is taxable. The tax is due on
the entire charge regardless of the method of billing for the service
except that any separately stated charge for postage or other delivery
is not subject to tax. Even though this information may be individual
in nature, it may be incorporated in reports furnished to others."

Because Petitioner takes delivery of the various items from the clipping service and, after
sorting them, forwards them to its clients, Petitioner is considered to be purchasing a taxable
information service for resale purposes. Accordingly, the charges to Petitioner by the clipping service
will be tax exempt provided Petitioner furnishes the clipping service with a properly completed Form
ST-120, Resale Certificate. When Petitioner delivers the items to its clients, the charge to Petitioner's
clients will be subject to New York State and local sales taxes if delivery occurs within New York
State, but will be exempt from State and local sales taxes if delivery occurs outside New York State.
Issue 3:
Section 529.7(h) of the Sales and Use Tax Regulations provides, in part, that: "Sales to
exempt organizations. (i) Any sale or amusement charge to or any use or occupancy by an exempt
organization to which an exempt organization certificate has been issued is exempt from sales and
use tax. (2) In order to exercise its right to exemption the organization must be the direct purchaser,
occupant or patron of record. It must also be the direct payer of record and must furnish its vendors
with a properly completed exempt organization certification . . . . Direct payer of record means that
direct payment is made by the organization or from its funds . . . . "

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TSB-A-83(17)S
Sales Tax
March 28, 1983

Accordingly, Petitioner's charge to a charitable organization will be exempt from sales tax
provided the charitable organization issues Petitioner a properly completed Exempt Organization
Certification, Form ST-119.1, and the charitable organization is the direct purchaser and direct payer
of record. If the charitable organization does not fulfill all of the above requirements, charges for
booklets and clipping services delivered to locations in New York State will be subject to New York
State and local sales taxes.

DATED: March 11, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau