Does a direct-mail company owe sales tax on the mailing lists it rents, or can it claim an exemption?

Plain-English summary

The D.M. Group, Inc. designs, produces, and mails promotional material for its clients. To distribute the material, it rents mailing lists — received either as electronic tapes (read by machinery that imprints each recipient's name and address on the piece) or as gummed labels (affixed to the mailing envelopes). The firm accepted that renting a mailing list is a taxable sale of information under § 1105(c) (citing Matter of Mertz) but argued that three exemptions should apply.

The Department rejected all three exemptions — the mailing-list rentals stay taxable.

• No out-of-state-use exemption (§ 1115(d)). That exemption applies when the serviced property is delivered to the purchaser outside New York for use outside the state. Here, "use" is defined (§ 1101(b)(7)) as exercising any right or power over the property, and that right or power is lost once the material is delivered to the U.S. Post Office — inside New York. The property is never used outside the state, so the exemption does not apply.
• No production-machinery exemption for the tape (§ 1115(a)(12)). The firm argued the electronic tape transfers information to the printed page like layouts, mechanicals, and color separations. But the tape is used in performing a mailing service, not in the production phase of manufacturing printed matter for sale, so it is not exempt machinery.
• No packaging-materials exemption for the labels (§ 1115(a)(19)). Although the regulations list "gummed labels" as packaging material (20 NYCRR 528.20(b)(1)), that exemption covers labels used to package or ship property held for sale. Here the labels are affixed to promotional material not held for sale, as part of a mailing service — so the exemption does not apply.

What this means for you

Renting mailing lists is a taxable information service in New York. A direct-mail or advertising firm that rents lists to run a mailing generally owes sales tax on those rentals, even though only one use of the list is permitted.

The out-of-state-use exemption turns on where the property is used, not where it ends up. Dropping mail at a New York post office is an exercise of control inside New York — the fact that some pieces travel to out-of-state addresses does not make the service one performed on property delivered outside New York.

"Production machinery" and "packaging materials" exemptions are read narrowly. A tool used to run a mailing service is not production machinery, and labels put on items you are mailing (not selling) are not exempt packaging — the exemptions track manufacturing for sale and packaging of goods for sale.

Common questions

Q: We rent one-time mailing lists to send our clients' promotions. Do we owe tax on the list rental?
A: Yes. The Department treats renting a mailing list as a taxable sale of information under § 1105(c), and none of the exemptions the petitioner raised applied.

Q: Some of our mail goes to out-of-state addresses — does the § 1115(d) exemption cover that portion?
A: No. "Use" of the list ends when you deliver the material to the U.S. Post Office in New York, so the property is used in-state and the out-of-state-use exemption does not apply.

Q: Are the address tapes or gummed labels exempt as machinery or packaging?
A: No. The tape is used to perform a mailing service, not to manufacture goods for sale (so not § 1115(a)(12)); and the labels go on promotional material that isn't held for sale, so they aren't exempt packaging under § 1115(a)(19).

Citations and references

Statutes and regulations:

• Tax Law § 1105(c) — taxes information services, including the rental of mailing lists
• Tax Law § 1115(d) — exemption for services on property delivered outside New York for use outside the state
• Tax Law § 1101(b)(7) — defines "use" as the exercise of any right or power over property
• Tax Law § 1115(a)(12) — exemption for machinery/equipment used directly and predominantly in production for sale
• Tax Law § 1115(a)(19) — exemption for cartons, containers, and packaging materials transferred with property sold
• 20 NYCRR 528.20(b)(1) — includes "gummed labels" within packaging material

Cases and determinations cited:

• Matter of Harold E. Mertz v. State Tax Commission, 89 A.D.2d 396 — rental of mailing lists as computer tapes is a taxable sale of information
• Matter of Bennett Brothers, Inc. v. State Tax Commission, 62 A.D.2d 614 (1978)
• Matter of Ford Motor Company, Determination of the State Tax Commission, Sept. 15, 1976, STH 77-31

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_11s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(11)S
Sales Tax
February 6, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830722B

On July 22, 1983, a Petition for Advisory Opinion was received from The D.M. Group, Inc.,
477 Madison Avenue, New York, New York 10022.
The issue raised is whether Petitioner's purchases of mailing lists are subject to sales tax.
Petitioner designs and produces printed promotional material for its clients and also mails
such material to its client's customers (designees). Petitioner is responsible for all areas of
production and distribution including, but not limited to, the preparation of copy and artwork as well
as the actual production of the promotional material and the mailing thereof.
Petitioner rents mailing lists which are used for the distribution of the promotional material.
The fee paid by Petitioner generally permits only one use of each list. Petitioner receives the mailing
lists in the form of either electronic tapes or gummed labels with the addressees' names and
addresses printed thereon.
The electronic tape is used with machinery which "reads" the tape and imprints the
customer's (designee of the client) name and address on the promotional material which is then
inserted in a window envelope to permit the mailing thereof. The gummed labels, on the other hand,
are affixed to the envelope containing the promotional material produced by Petitioner. In either
case, Petitioner delivers the materials to the U.S. Post Office for mailing to addressees located within
and without New York State.
Point I
Petitioner proposes that since it has been held that the rental of mailing lists in the form of
computer tapes constituted sales of information, taxable pursuant to section 1105(c) of the Tax Law,
(Matter of Harold E. Mertz et. al., v State Tax Commission, 89 A.D. 396), it should be afforded the
exemption from tax provided for by section 1115(d) of the Tax Law.
Section 1115(d) of the Tax Law states:
(d) Services otherwise taxable under paragraphs (1), (2), or (3) of subdivision (c) of section
eleven hundred five shall be exempt from tax under this article if the tangible property upon
which the services were performed is delivered to the purchaser outside this state for use
outside this state.
In the instant case, the property is never used outside of the state since "use" is defined by
section 1101(b)(7) of the Tax Law as the exercise of any right or power over tangible personal
property and such right or power was lost once the property was delivered to the U.S. Post Office.
RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

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TSB-A-87(11)S
Sales Tax
February 6, 1987
In the Matter of Bennett Brothers, Inc. v. State Tax Commission, 62 AD2d614 (1978); In the Matter
of the Application of Ford Motor Company, Determination of the State Tax Commission, September
15, 1976, STH 77-31. Accordingly, the exemption provided by section 1115(d) is not available to
Petitioner.
Petitioner proposes, in the alternative, that a mailing list in the form of electronic tape be
categorized as machinery or equipment used in the production of printed matter for sale and exempt
from tax pursuant to section 1115(a)(12) of the Tax Law.
Petitioner maintains that a mailing list in the form of electronic tape may be used to transfer
information to the printed page in the same way that layouts, mechanicals and color separations
transfer information to the printed page.
Petitioner maintains further that since layouts, mechanicals and color separations used in the
production of printed matter for sale qualify for exemption from tax under section 1115(a)(12) of
the Tax Law, (see Printing Industry TSB-M-79(7.1)S), electronic tape used in a like manner should
also be exempt.
Section 1115(a)(12) of the Tax Law provides, in part, for an exemption from tax with respect
to "Machinery or equipment for use or consumption directly and predominantly in the production
of tangible personal property. . . for sale, by manufacturing. . ."
Inasmuch as the electronic tape is used in the performance of a mailing service rather than
in the production phase of manufacturing, it does not qualify for the exemption provided by section
1115(a)(12) of the Tax Law.
Point II
With respect to the rental of mailing lists involving pre-addressed gummed labels, Petitioner
proposes that it be afforded an exemption under section 1115(a)(19) of the Tax Law. Such section
provides an exemption for:
Cartons, containers and wrapping and packaging materials and supplies, and
components thereof for use and consumption by a vendor in packaging or packing
tangible personal property for sale and actually transferred by the vendor to the
purchaser.
The sales and use tax regulations define packaging material to include "gummed labels". 20
NYCRR 528.20(b)(1).
Although the labels in question may be used in the distribution stage, they are not considered
packaging material within the meaning of section 1115(a)(19). Labels used as packaging are those
shipping labels normally used to ship a product to a vendor's customer. In the instant case, Petitioner
is providing a mailing service when it mails the thousand of pieces of promotional material directly
to its customer's designees. In doing so, it is affixing labels on tangible personal property not held

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TSB-A-87(11)S
Sales Tax
February 6, 1987
for sale. Thus, Petitioner does not qualify for the exemption allowed under 1115 (a)(19) of the Tax
Law.

DATED: February 6, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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