Are advertising envelopes used to mail promotional material out of state from a New York post office exempt from sales and use tax?

Plain-English summary

Garden Way Incorporated used "promotional covers" — envelopes with a substantial amount of advertising printed on both sides (Garden Way said about 80% of the cost was for the printed promotion) — to mail promotional material to recipients inside and outside New York. It argued the covers were promotional materials whose use should be treated as occurring at the out-of-state destination, and so should be exempt.

The Department's answer split on the effective date of a statutory change:

• Before September 1, 1989 — taxable. Under the law then in effect, the act of mailing the covers through a New York post office is a use in New York that does not fall within the restricted uses of the § 1119(a)(4) refund (which covers fabricating/assembling property and then shipping it out of state for use out of state). The use is deemed to occur where Garden Way mails the covers, not at the destination. So Garden Way was liable for sales or use tax on the full cost of the covers (Form ST-152; Re Publishers Clearing House, TSB-A-83(1)S).
• On or after September 1, 1989 — exempt. Effective that date, new § 1101(b)(12) defines "promotional materials" to include envelopes used exclusively to deliver them, and new § 1115(n)(1) exempts promotional materials mailed or shipped from within the state to customers or prospective customers outside the state for use outside the state. So the covers Garden Way mails out of state are exempt from state and local sales and use tax for mailings on or after September 1, 1989.

What this means for you

If you do out-of-state direct mail from New York: Since September 1, 1989, promotional materials — including the envelopes used exclusively to deliver them — that you mail from New York to customers or prospective customers outside the state for use outside the state are exempt from New York state and local sales and use tax under §§ 1101(b)(12) and 1115(n)(1). This is a longstanding exemption you can rely on for qualifying out-of-state mailings today.

The exemption is destination-driven. It applies to materials sent to recipients outside New York for use outside the state. Materials mailed to New York recipients don't qualify — for those, mailing from a New York post office is a taxable New York use.

Historical note. This opinion is useful mainly for the pre-9/1/1989 rule and the reason for the change: before the amendment, mailing advertising envelopes through a New York post office was a taxable in-state use regardless of where the recipient was, and the § 1119(a)(4) "fabricate-and-ship" refund did not reach it.

Common questions

Q: We mail advertising to customers outside New York from our New York facility — is that taxable?
A: For mailings on or after September 1, 1989, promotional materials (including the delivery envelopes) sent to out-of-state customers or prospects for use outside the state are exempt under § 1115(n)(1).

Q: What about advertising we mail to New York recipients?
A: That doesn't qualify for the out-of-state exemption. Mailing through a New York post office is a use in New York, so it's taxable.

Q: Why weren't these envelopes exempt before the amendment?
A: The § 1119(a)(4) refund only covers fabricating/assembling property and shipping it out of state; mailing the envelopes through a New York post office was a taxable New York use that didn't fit those restricted uses.

Citations and references

Statutes:

• Tax Law § 1119(a)(4) — refund/credit for property whose in-state use is limited to fabricating/assembling, then shipped out of state (held not to reach mailing through a NY post office)
• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1110 — compensating use tax
• Tax Law § 1101(b)(12) — definition of "promotional materials," including delivery envelopes (effective Sept. 1, 1989)
• Tax Law § 1115(n)(1) — exemption for promotional materials shipped out of state for out-of-state use (effective Sept. 1, 1989)

Other authority cited:

• Form ST-152 (Collection and Reporting Instructions for Printers and Mailers)
• Re Publishers Clearing House, Advisory Opinion, TSB-A-83(1)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_19s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (19)S
Sales Tax
July 17, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S890329A

On March 29, 1989 a Petition for Advisory Opinion was received from Garden Way
Incorporated, 102nd Street & 9th Avenue, Troy, N.Y. 12180.
The issues raised are:

1. Whether certain "promotional covers" (envelopes) used by Petitioner are exempt
   from sales tax pursuant to Section 1119(a)(4) of the Tax Law, and
2. Whether the "promotional covers" are promotional materials, the use of which is
   considered to occur at the destination to which they are mailed?
   The "promotional covers" (envelopes) which Petitioner uses to mail promotional material
   to recipients located within and outside New York State have a substantial amount of promotional
   advertising printed on both the front and back sides. Petitioner contends that because of the
   promotional information on the envelopes, the envelopes are promotional material, the primary
   function of such being to promote and advertise Petitioner's products. The promotional advertising
   depicted on the envelopes is designed to induce sales and to encourage recipients to investigate the
   contents. Petitioner states that 80% of the cost of the envelopes is attributable to the promotional
   information printed thereon.
   Petitioner concludes that the "promotional covers" are exempt from full taxation because
   such items are not purchased for resale, the use of such items is restricted to being assembled with
   other tangible property which is delivered to a location outside New York State for use outside the
   state, and such items are promotional materials which Petitioner sends free of charge to customers
   outside New York State.
   Section 1119 of the Tax Law states:
   (a) Subject to the conditions and limitations provided for herein, a
   refund or credit shall be allowed for a tax paid pursuant to
   subdivision (a) of section eleven hundred five or section eleven ten
   *
   *
   *
   (4) on the sale or use within this state of tangible personal property,
   not purchased for resale, if the use of such property in this state is
   restricted to fabricating such property (including incorporating it into
   or assembling it with other tangible personal property), processing,
   printing or imprinting such property and such property is then shipped
   to a point outside this state for use outside this state... . (Emphasis
   added)

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TSB-A-89 (19)S
Sales Tax
July 17, 1989

Section 1105(a) of the Tax Law imposes a sales tax on "the receipts from every retail sale
of tangible personal property...." Section 1110 of the Tax Law imposes a use tax on the use of
tangible personal property in this State by a person who purchased the same while a resident of New
York, but who did not pay tax on the purchase.
Form ST-152 (5/77), Collection and Reporting Instructions for Printers and Mailers, states
in part as follows: "Note: ... Outside mailing envelopes used to mail printed matter from a point in
New York State, through a New York Post Office, are fully taxable as their use occurs in New York
State." (Emphasis added) Re Publishers Clearing House, Advisory Op St Tax Comm, January 14,
1983, TSB-A-83(1)S.
While Petitioner's use of the "promotional covers" prior to mailing them through a New York
Post Office under certain circumstances might fall within the provisions of Section 1119(a)(4) of the
Tax Law, the actual act of mailing the "promotional covers" through a New York Post Office
constitutes a use which does not fall within the restricted uses required by the statute. Therefore, in
those instances where Petitioner employs the "promotional covers" for the purpose of mailing printed
matter (advertising materials) through a New York Post Office, Petitioner is considered to be using
the promotional covers within New York State.
Moreover, whereas Petitioner's mailing of the "promotional covers" is through a New York
Post Office, use of such "promotional covers" is deemed to occur by Petitioner within New York
State rather than occurring by the recipient at the mailing destination. Accordingly, Petitioner's
purchase and subsequent use of the "promotional covers" are precluded from the exemption provided
under Section 1119(a)(4) of the Tax Law. Petitioner is liable for sales or use tax based on the total
cost of the "promotional covers" to Petitioner.
However, it is noted that effective September 1, 1989 Section 1101(b) of the Tax Law has
been amended to include a new paragraph 12 which includes in the definition of 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." (Emphasis added).
Section 1115 of the Tax Law has also been amended to include a new subdivision (n)(1)
whereby effective September 1, 1989 "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."

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TSB-A-89 (19)S
Sales Tax
July 17, 1989

Therefore, "promotional covers" which Petitioner uses to mail promotional material to
customers or prospective customers located outside New York State will be exempt from state and
local sales and use tax when such mailings occur on or after September 1, 1989.

DATED: July 17, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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