Does the exemption for promotional materials cover a grocery chain's blank membership/discount cards?

Plain-English summary

Price Chopper mails its customers a "Price Chopper Advantage" membership card that lets them get grocery discounts, cash checks in Price Chopper stores, and rent videos. The plastic cards themselves are bought from an outside vendor already embossed with Price Chopper's logo and "AdvantEdge" title, but otherwise blank -- missing only the customer's name and a magnetic computer-identification strip. Price Chopper adds the name and encodes the magnetic strip in-house, then mails the finished card to the customer. Price Chopper asked whether buying these blank cards from its vendor qualifies for New York's exemption for promotional materials.

The Department said no. New York's promotional-materials exemption is aimed at advertising literature and closely related items -- free gifts, maps for travel club members, applications, order forms, and similar pieces -- mailed to customers or prospects. Price Chopper's blank cards don't fit that category: they're raw material that Price Chopper itself finishes into a functional discount, check-cashing, and video-rental identification card, not advertising literature. Because Price Chopper is buying the plastic cards at retail to produce these membership cards, rather than buying already-finished promotional materials, the purchase is a taxable retail sale under Tax Law § 1105(a).

What this means for you

Retailers running loyalty, discount, or membership card programs

Buying blank cards or components that you personalize and mail to customers doesn't automatically qualify for the promotional-materials exemption just because the finished product ends up mailed to customers for free. The exemption targets advertising literature and similar items -- a functional discount or ID card is a different category, even if it drives customer engagement and loyalty.

Businesses assembling their own mailed customer materials in-house

The distinction that matters is what you're buying, not what you're eventually distributing. If you're purchasing raw components (blank cards, paper, ink) and doing the finishing work yourself, you're buying materials for your own production process -- which is taxable -- rather than buying finished, exempt promotional materials from your vendor.

Accountants and tax professionals

This ruling is a clean companion to the broader promotional-materials line of rulings: the exemption under § 1115(n) turns on whether what's purchased is itself advertising literature or closely related tangible property, not on the ultimate no-charge mailing to a customer. A functional card (discount, ID, check-cashing) falls outside the statutory definition in § 1101(b)(12) even when mailed for free.

Common questions

Q: Does mailing an item to customers for free automatically make its purchase exempt?
A: No. The promotional-materials exemption depends on what the item actually is -- advertising literature or closely related property listed in Tax Law § 1101(b)(12) -- not simply on whether it's mailed without charge.

Q: Would a purely advertising insert or flyer be treated differently?
A: Yes. Ordinary advertising literature mailed to customers or prospects is the kind of item the exemption is designed to cover; a functional card used for discounts, check cashing, or identification is not.

Q: Does this ruling apply to my loyalty-card program?
A: Not automatically. An Advisory Opinion binds the Department only for the taxpayer and facts it was issued to, and it can't be relied on by anyone else. It shows how the Department reasons, but your facts may differ.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(12) (definition of promotional materials)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1115(n)(1), (4) (promotional materials exemption)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_39s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(39)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S971231E

On December 31, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Price Chopper Operating Co., Inc., P.O. Box
1074, Schenectady, New York, 12301.
The issue raised by Petitioner, Price Chopper Operating Co., Inc., is
whether the purchase of blank “Advantage” shopper discount cards qualifies for
the exemption for promotional materials.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner operates a retail grocery chain throughout upstate New York.
Upon application, Petitioner mails to its customers a Price Chopper Advantage
membership card.
This card allows customers to take advantage of grocery
discounts, cash checks in Petitioner’s stores and rent videos.
The plastic membership card is purchased from an outside vendor. The cards
purchased from the vendor are embossed with Petitioner’s logo and the
“AdvantEdge” title on the front, and are otherwise in finished form, except for
the omission of the customer’s name and magnetic computer identification strip.
Upon receipt of the cards from the vendor, Petitioner imprints the customer’s
name and encodes the card with a magnetic strip for computer identification.
Once completed, these cards are mailed via U.S. mail to Petitioner’s customers.
Applicable Law and Regulations
Section 1101(b)(12) of the Tax Law defines promotional materials as:
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.
Such other related tangible
personal property includes, but is not limited to, free gifts,
complimentary maps or other items given to travel club members,
applications, order forms, and return envelopes with respect to such
advertising literature, annual reports, promotional displays and
Cheshire labels but does not include invoices, statements and the
like.

-2­
TSB-A-98(39)S
Sales Tax

Section 1105(a) of the Tax Law imposes sales tax on the receipts from every
retail sale of tangible personal property, except as otherwise provided.
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 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 materials mails or ships such promotional
materials, or causes such promotional materials to be mailed or
shipped to its customers or prospective customers, without charge to
such customers or prospective customers, by means of common carrier,
United States postal service or like delivery service.
Opinion
Purchases of tangible personal property, such as the plastic cards
described above, used by Petitioner to produce the Advantage shopper membership
cards, do not qualify for the exemption available under Section 1115(n) of the
Tax Law for promotional materials delivered in the state. The plastic cards are
purchased from an outside vendor, and are used by Petitioner to produce cards
which may be used by its customers as a discount card or an identification card
for cashing checks or for renting videos.
Since Petitioner is purchasing the
plastic cards at retail, and is not purchasing promotional materials, these
purchases are taxable under Section 1105(a) of the Tax Law.

DATED: July 1, 1998

NOTE:

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

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