Which parts of a print-and-mail company's letter-printing and mailing service are taxable printing versus exempt mailing, and does the tax rate depend on where the letters are mailed to?

Plain-English summary

An accountant asked about a client that prints and mails specialized notices and letters for its customers -- mostly overdue-account collection notices -- charging a fixed fee per letter. The client receives content, names and addresses from customers, corrects errors like bad zip codes, prints the letters, inserts them with a reply envelope, sorts them for the best postage rate, affixes postage, and delivers them to New York post offices. It asked which of ten specific tasks (sorting by zip code, printing letters, printing address labels, affixing labels, folding/inserting, sealing, affixing postage, sorting envelopes for mailing, bagging/mailing, and postage itself) are taxable, whether tax applies to the whole invoice or just the taxable pieces, whether the tax rate depends on where letters are mailed to or from, and how its supply and equipment purchases are treated.

Following two existing rulings on mailing-house services (George Silver and Skyview Graphics), the Department drew a clean line: printing letters, printing address labels, and affixing address labels are taxable -- printing/imprinting tangible property is a specifically taxed service. But zip-code sorting, folding and inserting, sealing, affixing or metering postage, sorting envelopes for mailing, bagging and mailing, and the postage charge itself are not taxable, as long as they're separately stated on the bill (they can even be combined under one line item called "non-taxable mailing"). Because the client's tax-collection duty is per-item when separately billed, it only has to collect tax on the taxable pieces, not the whole invoice.

On sourcing: New York sales tax is a "destination tax" -- so no tax is due on the taxable printing charges for letters mailed to addresses outside New York. But that exemption is narrower than it sounds: the outside mailing envelopes and address labels themselves are taxed at the New York rate where they're mailed from, since their "use" happens at that New York post office regardless of where the letter inside ultimately travels.

Finally, the client can buy its paper, envelopes and ink tax-free under a resale certificate (since they become part of the product sold), and -- since its computer equipment and software are used 80% of the time to produce the letters for sale -- it can also buy that production equipment tax-free under the manufacturing exemption.

What this means for you

Direct mail, print-and-mail, and mailing-house businesses

Split your invoice into printing/imprinting charges (taxable) and pure mailing-handling charges (sorting, folding, sealing, postage, bagging -- not taxable if separately stated). You don't need item-by-item detail for the nontaxable side; a single "non-taxable mailing" line item works, as established in the Department's earlier George Silver ruling.

Businesses mailing to out-of-state recipients

Don't assume an out-of-state mailing destination exempts your entire invoice -- only the destination-sourced taxable content (the printing charge) escapes tax; charges for the outside envelope and its address label are taxed based on where you mail from, not where the letter is going.

Accountants and tax professionals

This ruling is a compact template for any print/production business combining a taxable manufacturing-type charge (printing) with an exempt handling/service charge (mailing) in one transaction -- the key moves are separately stating each component, applying the destination rule only to the truly taxable pieces, and checking whether production equipment clears the 50%-plus-of-use threshold for the manufacturing exemption.

Common questions

Q: Is printing a letter always taxable, even if it's part of a larger mailing service?
A: Yes -- printing letters, address labels, and affixing labels are treated as taxable printing/imprinting services regardless of the surrounding mailing service.

Q: Does mailing to an out-of-state address make the whole invoice tax-free?
A: No. Only the destination-sourced taxable printing charge is exempted when mailed out of state; the outside envelope and its address label remain taxed based on the New York point of mailing.

Q: Can the company buy its printing supplies tax-free?
A: Yes for paper, envelopes and ink that become part of the printed product sold (resale exemption), and yes for computer equipment/software used more than 50% of the time in production (manufacturing exemption).

Q: Can another mailing-house business rely on this ruling?
A: No. This advisory opinion binds the Department only as to the specific petitioner's client and the exact list of services and facts described.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (definition of retail sale)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c)(2) (tax on producing, fabricating, processing, printing or imprinting)
• Tax Law § 1115(a)(12) (production machinery and equipment exemption)
• Tax Law § 1132(c) (presumption of taxability)
• 20 NYCRR § 525.2(a)(3) (sales tax as a destination tax)
• 20 NYCRR § 526.6 (retail sale; resale exclusion)
• 20 NYCRR § 528.13 (production machinery and equipment)
• Department Publication 842 (12/93), New York State and Local Sales Tax Information for Printers

Prior rulings referenced:

• George Silver, Adv Op St Tx Comm, April 24, 1986, TSB-A-86(15)S
• Skyview Graphics, Inc., Adv Op St Tx Comm, December 4, 1986, TSB-A-86(51)S
• Publishers Clearing House, Adv Op St Tx Comm, January 14, 1983, TSB-A-83(1)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(12)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S940928A

On September 28, 1994, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Morton L. Coren, P.C., 638 Meadow Court,
Westbury, NY 11590-5925.
The issues raised by Petitioner, Morton L. Coren, P.C., are:
1.

Whether the following provided by Petitioner’s client are
subject to State and local sales and use taxes:
a.

Sorting of large print jobs of printed material by computer in
zip code order for mailing purposes

b.

Printing letters (including cost of letterhead and envelopes)

c.

Printing address labels

d.

Affixing address labels

e.

Folding letters and inserting in envelopes

f.

Sealing envelopes

g.

Affixing postage or metering mail

h.

Sorting the envelopes for mailing

i.

Bagging and mailing letters

j.

Postage

2.

Whether Petitioner's client must collect sales tax, if any, on
its entire charge or only the taxable services separately
stated on the invoice.

3.

Whether the rate of tax to be collected, if any, is determined
by the point of mailing or the destination of the mailing.

4.

Whether Petitioner's client can purchase paper, envelopes and
ink for resale.

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5.

Whether Petitioner's client can purchase computer equipment
and software used to print notices and letters for its
customers under the manufacturing exemption.

Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner represents a client who is engaged in business in New York.
Petitioner's client prints and mails specialized notices and letters and charges
its customers a fixed fee for each letter printed and mailed. The contents of
these notices and letters are composed by the customers of Petitioner's client.
Petitioner's client only prints and mails these materials.
Petitioner's client receives information (form letters, names, addresses,
etc.) either by telephony or from magnetic tape. Petitioner's client corrects
any errors in the information such as errors in zip codes which would result in
improperly sorted envelopes for mailing.
Petitioner’s client prepares the
letters and sorts them in order to obtain the minimum postage rates.
The
letters primarily say that a customer account is overdue and that payment should
be remitted immediately. There is no advertising and promotional material sent
with the billing and notices. Payments are not sent to Petitioner’s client.
Petitioner's client has no information as to customer account balances. The
letter is inserted into an envelope with a reply envelope. The letters are then
prepared for mailing by affixing postage, preparing and filing United States
Postal Service forms and delivering the mail to the post office. All mailings
are done from New York post offices. The letters sent out of New York are sent
directly to individuals. None of the letters are sent out in bulk.
Computer equipment and software are used 8O% of the time to produce the
aforementioned notices and letters.
Applicable Law and Regulations
Section 1101(b)(4) of the Tax Law defines the term "retail sale", in part,
to mean "(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 . . . "
Section 1105 of the Tax Law imposes sales tax upon:
(a) The receipts from every retail sale of tangible
property, except as otherwise provided in this article.
*
(c) The receipts from
following services:
*

*
every

sale,

*

personal

*
except

for

resale,

*

of

the

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(2) Producing, fabricating, processing, printing or imprinting
tangible personal property, performed for a person who directly or
indirectly furnishes the tangible personal property, not purchased
by him for resale, upon which such services are performed.
Section 1115(a)(12) of the Tax Law exempts, in part, machinery or equipment
for use or consumption directly and predominantly in the production of tangible
personal property for sale.
Section 1132(c) of the Tax Law states, in part:
For the purpose of the proper administration of this article and to
prevent evasion of the tax hereby imposed, it shall be presumed that
all receipt for property or services of any type mentioned in
subdivisions (a), (b), (c) and (d) of section eleven hundred five
. . . are subject to tax until the contrary is established, and the
burden of proving that any receipt . . . is not taxable hereunder
shall be upon the person required to collect tax or the customer
....
Section 525.2(a)(3) of the Sales and Use Tax Regulations provides that
"[t]he sales tax is a 'destination tax', that is, the point of delivery or the
point at which possession is transferred by the vendor to the purchaser or
designee controls both the tax incident and the tax rate."
Section 526.6 of the Sales and Use Tax Regulations provides, in part, as
follows:
(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
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.
Section 528.13 of the Sales and Use Tax Regulations provides, in part, as
follows:
(a)
Exemption. (1) Exemption from statewide tax.
An
exemption is allowed from the tax imposed under subdivision (a) and
(c) of section 1105 of the Tax Law, and from the compensating use
tax under section 1110 of the Tax Law, for receipts from sales of
the following:

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(i)
Machinery or equipment (including parts with a useful
life of more than one year) used or consumed directly and
predominantly in the production for sale of tangible personal
property.
*

*

*

(c)
Directly and predominantly. (1) "Directly means the
machinery or equipment must, during the production phase of a
process,
(i)
act upon or effect a change in material to form the
product to be sold, or
(ii) have an active causal relationship in the production of
the product to be sold, or
(iii) be used in the handling, storage, or conveyance of
materials or the product to be sold, or
(iv) be used to place the product to be sold in the package
in which it will enter the stream of commerce.
*

*

*

(4)
Machinery or equipment is used predominantly in
production, if over 50 percent of its use is directly in the
production phase of a process.
Opinion
In George Silver, Adv Op St Tx Comm, April 24, 1986, TSB-A-86(15)S, the Tax
Commission held that the petitioner's charges for the services of folding written
or printed matter, inserting it in envelopes, sealing, affixing stamps or
metering and mailing, and the cost of postage are not subject to sales tax if
segregated from the taxable receipts on the customer's bill.
Moreover, the
exempt services may be combined in a single amount under the designation "non­
taxable mailing." However, the petitioner's receipts from the sale of outside
envelopes and address labels, including its services of imprinting and affixing
labels on the envelopes were subject to the sales tax in effect at the point of
mailing.
In Skyview Graphics, Inc., Adv Op St Tx Comm, December 4, 1986,
TSB-A-86(51)S, the Tax Commission held that services of gluing address labels to
material to be mailed, gluing on seals to media or mailing envelopes, gluing on
circular seals to self sealing envelopes in lieu of normal envelope sealing,
imprinting customer marketing codes on reply cards, and imprinting indicia on
inserts (i.e., imprint legend "bulk fees paid", "postage permit #", etc.) are
subject to State and local sales and use taxes. Additionally, however, the

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petitioner's services of machine or hand affixing U.S. postage stamps to mailing
envelopes, running envelopes through postage meters using either customer's or
Petitioner's postage, inserting printed matter into mailing envelopes, zip code
sorting inserted pieces, bagging and mailing and packing printed matter into
cartons to be shipped by common carrier were not services subject to State and
local sales and use taxes.
Publication 842 (12/93) New York State and Local Sales Tax Information for
Printers provides at pages 19 through 21 a detailed listing of tangible personal
property and services and the taxability of such property and services commonly
sold by printers. Among the property and services listed, computer services of
printing letters, labels, etc., printing of envelopes, printing of address
labels, and printing of stationery are subject to sales and use taxes unless sold
for resale, sold to an exempt organization, delivered outside New York State or
are exempt promotional material. Moreover, as provided at pages 23, 24 and 25,
ingredients or components which become part of the product to be sold, computers
used directly and predominantly for typesetting and/or other production
operations, paper stock and printing ink which are components of the printed
matter to be sold may be purchased without the payment of sales tax.
Accordingly, with respect to issue "l", pursuant to Sections 1101(b)(4) and
1105(a) of the Tax Law, Section 526.6 of the Sales and Use Tax Regulations,
George Silver, supra, Skyview Graphics, Inc., supra, and Publication 842,
Petitioner's client's services listed as items (a), (e), (f), (g), (h), (i) and
(j) are not subject to State or local sales and use taxes. However, items (b),
(c), and (d) are subject to State and local sales and use tax. Petitioner's
client's charges for printing letters mailed to addresses outside of New York
State are not taxable, if these charges are separately stated.
Concerning issue "2", pursuant to George Silver, supra, if the charges are
separately stated on the customer's invoice, then sales tax need only be
collected on the taxable receipts. In addition, exempt services may be combined
in a single amount under the designation of "non-taxable mailing" where the
invoice includes an itemized list of the exempt services provided.
With respect to issue "3", pursuant to Section 525.2(a)(3) of the Sales and
Use Tax Regulations, printed material mailed by Petitioner's client to its
customers or designees is considered to be used at the point to which it is
mailed. Therefore, no tax is due when such material is mailed out of the State.
However, outside mailing envelopes and address labels used to mail printed matter
from a point in New York State through a New York post office are fully taxable
at the location from which they are mailed as their use occurs in New York State,
even though all or a portion of the contents may be subject to tax based on
mailing destination. (See Publishers Clearing House, Adv Op St Tx Comm, January
14, 1983, TSB-A-83(1)S.)
Regarding issue "4", pursuant to Sections 1101(b)(4), 1105(a) and 1132(c)
of the Tax Law, Section 526.6 of the Sales and Use Tax Regulations, and
Publication 842, Petitioner's client's purchases of paper, envelopes and ink may
be purchased for resale to the extent that they become a part of the product to
be sold.

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Concerning issue "5", since Petitioner's client's computer equipment and
software are used 8O% of the time to produce the printed notices and letters for
sale, pursuant to Sections 1105(a) and 1115(a)(12) of the Tax Law, Section 528.13
of the Sales and Use Tax Regulations and Publication 842, the machinery and
equipment are held for use or consumption directly and predominantly in the
production of tangible personal property for sale.
Therefore, the computer
equipment and software may be purchased by Petitioner’s client exempt from sales
and use taxes.

DATED: March 6, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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