Can a retail company buy paper, ink, photography, and printing/mailing services tax-free when they're used to produce free promotional mailers sent to customers inside and outside New York?

Plain-English summary

Morrison & Foerster asked on behalf of "Corporation X," a retailer with a New York location that advertises through printed promotional mailers sent free of charge to customers and prospects both in and out of New York. Corporation X contracts with outside designers and printers, buys materials like paper, ink, photographs, and typography that it hands to the printers for production, and separately buys photography, modeling, and mailing services -- all used to make and deliver the finished mailers.

New York exempts "promotional materials" from sales and use tax in two overlapping situations: when they're mailed from within New York to customers or prospects located outside the state for use outside the state, and -- more broadly, since a 1997 law change -- when they're printed materials mailed or shipped free of charge to customers or prospects anywhere, including inside New York, via U.S. mail or a common carrier. The Department found Corporation X's fact pattern matches an example already published in its own guidance (TSB-M-97(6)S, Example 2): a company that supplies a printer with paper, ink, and plates, and gets back finished, mailed brochures. Under that example, the materials supplied to the printer -- and the printer's printing and preparation charges -- are exempt from sales tax to the extent the resulting mailers are actually delivered free of charge, matching either exemption path.

Two categories of purchased services aren't even in the exemption analysis because they were never taxable to begin with: modeling services and mailing-house services like stuffing envelopes, sealing, and applying postage aren't on New York's list of enumerated taxable services at all. Photography and printing services, by contrast, are enumerated services -- but they become exempt specifically because they're performed on promotional materials that qualify for the § 1115(n)(4) exemption. If any share of the finished materials falls outside the free-mailing pattern (for example, kept for other use), Corporation X would need to prorate its exempt purchases to match the actual exempt percentage of materials produced.

What this means for you

Retailers and marketers producing direct-mail advertising

Buying materials that go into free promotional mailers -- and the printing, photography, and mailing services around them -- can be exempt from New York sales tax, but only to the extent the finished pieces are actually mailed or shipped for free to customers or prospects. Track what percentage of a print run is genuinely given away free versus retained or charged for, since a mixed batch requires prorating.

Companies using third-party printers and mailing houses

The Department's own published example (TSB-M-97(6)S, Example 2) is essentially a checklist: providing the paper/ink/plates and getting back mailed pieces, with the printer's production and mailing-prep charges following the same exempt/taxable line as the materials themselves. Match your arrangement against that example when in doubt.

Accountants and tax professionals

Note that modeling and pure mailing-house services (stuffing, sealing, postage) are outside the sales tax system entirely, independent of the promotional-materials exemption -- so those charges don't need the exemption analysis at all, unlike photography and printing charges.

Common questions

Q: Does it matter whether the recipients are inside or outside New York?
A: Not for the free-mailing exemption path (§ 1115(n)(4)) -- what matters is that delivery is free of charge via mail or common carrier. A separate, narrower exemption (§ 1115(n)(1)) also covers materials sent specifically to out-of-state recipients for use outside the state.

Q: Are mailing-house charges like postage and envelope-stuffing taxable?
A: No -- those aren't enumerated taxable services under New York law regardless of the promotional-materials exemption.

Q: What if only some of the promotional materials are mailed free of charge?
A: Then only that percentage of the purchase is exempt; the company must calculate the actual proportion of exempt materials produced and apply it to its purchases.

Citations and references

Statutes and guidance:

• Tax Law § 1101(b)(12) (definition of promotional materials)
• Tax Law § 1115(n)(1) (exemption for promotional materials mailed to out-of-state customers)
• Tax Law § 1115(n)(2) (exemption for mailing-list services on exempt promotional materials)
• Tax Law § 1115(n)(4) (exemption for promotional materials mailed at no charge)
• Tax Law § 1115(n)(5) (exemption for services performed on exempt promotional materials)
• Technical Services Bureau Memorandum TSB-M-97(6)S (August 20, 1997), Expanded Sales and Compensating Use Tax Exemption for Promotional Materials

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a99_51s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(51)S
Sales Tax
November 19, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990610B

On June 10, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Morrison & Foerster LLP, 1290 Avenue of the Americas, New York, New York
10104.
The issue raised by Petitioner, Morrison & Foerster, is whether purchases by a corporation
of tangible personal property and services, for use in production of printed promotional materials to
be distributed at no cost to its customers and prospective customers, located both within and without
New York, are exempt from New York sales and use tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Corporation X is incorporated in state Z and maintains a place of business in New York.
Corporation X actively markets merchandise in retail stores located in New York and elsewhere
through advertising campaigns, which include the distribution of printed promotional materials via
U.S. mail and common carrier to customers and prospective customers located within and without
New York, at no cost to such recipients.
Corporation X contracts with third party designers and printers for the production of its
promotional materials and the delivery of the promotional materials to Corporation X’s customers
and prospective customers. Corporation X purchases, both inside and outside New York, various
items of tangible personal property, which it then provides to printers for use in the production
process (including paper, ink, photographs and typography). Corporation X also purchases, both
inside and outside New York, the services of photographers, models, mailing services and printers,
all of which are used in the production of printed promotional materials.
Applicable Law
Section 1101(b)(12) of the Tax Law defines promotional materials as follows:
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. 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

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November 19, 1999

advertising literature, annual reports, promotional displays and Cheshire labels but
does not include invoices, statements and the like.
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 this state, by or on
behalf of vendors or other persons to their customers or prospective customers
located outside of 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.
(2) Services otherwise taxable under paragraph one or two of subdivision (c)
of section eleven hundred five of this article relating to mailing lists or activities
directly in conjunction with mailing lists shall be exempt from tax under this article
if such services are performed on or directly in conjunction with promotional
materials exempt under paragraph one or four of this subdivision.
*

*

*

(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 promotional 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 its customers
or prospective customers, by means of a common carrier, United States postal service
or like delivery service.
(5) Services otherwise taxable under paragraph two of subdivision (c) of
section eleven hundred five performed on promotional materials exempt under
paragraph four of this subdivision shall be exempt from tax under this article.
Example 2 of Technical Services Bureau Memorandum, Expanded Sales and
Compensating Use Tax Exemption for Promotional Materials, August 20, 1997,
TSB-M-97(6)S, provides:
Example 2. A New York company contracts with a printer/mailer located in
New York to produce brochures (promotional materials) to be sent to customers in
and out of New York via the U.S. Postal service. Under the agreement, the New

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York company furnishes the printer/mailer the paper, ink, and printing plates to print
the brochures, and envelopes in which the brochures will be mailed. The New York
company also purchases a mechanical (artwork) and color separations for use in
producing the printing plates supplied to the printer. The ink will also be used to
print the company’s logo on the envelopes in which the brochures will be mailed.
In addition, the New York company provides the printer/mailer a
customer/prospective customer mailing list in the form of address labels. The
printer/mailer prepares the brochures, prints the New York company’s logo on the
envelopes, affixes the address labels, stuffs the brochures into the envelopes, and
arranges for mailing with the Postal Service.
The paper, ink, mechanical (artwork), color separations and printing plates
used in producing the promotional materials printed for the New York company by
the printer are exempt from sales tax. The envelopes and address labels may be
purchased exempt from tax by the New York company as these items qualify as
exempt promotional materials, based on the use described above. The
printer/mailer’s charges for printing the brochures, printing the New York company’s
logo on the envelopes, and affixing the address labels to the envelopes are exempt
from sales tax. The printer/mailer’s charges for inserting the brochures into the
envelopes and for mailing (postage) are not subject to tax.
Opinion
Petitioner’s client purchases the tangible personal property and services described above for
use in producing printed promotional materials to be distributed at no cost to its customers and
prospective customers who are located both within and without New York State. The tangible
personal property is provided to third party printers for use in production of the promotional
materials. Petitioner’s client’s purchases of tangible personal property are similar to those described
in Example 2 of TSB-M-97(6)S and, therefore, they are exempt from sales and use tax, to the extent
that the promotional materials produced are exempt. The promotional materials are exempt if, as
described by Petitioner, they are either mailed, shipped or otherwise distributed to Petitioner’s
client’s customers or prospective customers outside the State for use outside the State or delivered
via United States Postal Service or common carrier to Petitioner's client's customers or prospective
customers in New York State, at no cost to such customers. If, however, some promotional materials
were not exempt, Petitioner's client would then have to determine the percentage of exempt
promotional materials which will be produced and apply that percentage to its purchases to
determine the extent of its exempt purchases. Modeling services and certain mailing services, such
as envelope stuffing, sealing, affixing stamps and postage, are not among the enumerated services
subject to tax under Section 1105 of the Tax Law. Printing, imprinting and processing services

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performed by photographers or printers are exempt when performed on promotional materials that
are exempt from tax under Section 1115(n)(4) of the Tax Law. See Section 1115(n)(5) of the Tax
Law.

DATED: November 19, 1999

NOTE:

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

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