Is a company's fee for designing and running a retail sweepstakes subject to New York sales tax, and can it buy the prizes and promotional materials tax-free for resale?

Plain-English summary

Henry Goldwasser asked on behalf of "Company A," which designs sweepstakes promotions for retail clients -- no-purchase-necessary giveaways of sports tickets or other prizes, with entry blanks placed near the client's products in supermarkets. Company A buys the prizes and pays sales tax on them (without claiming resale), pays for printing the entry blanks and other promotional materials, and never transfers title or possession of any of it to its client -- it just charges the client a flat fee for designing and running the whole promotion.

The Department found three separate answers packed into that one arrangement. First, the design-and-running fee itself: because Company A never actually sells or transfers any tangible property to its client (the client never owns or possesses the tickets, prizes, or materials), the fee is just a service charge -- and "designing and running a sweepstakes" isn't one of the specific services the sales tax law taxes, so the fee is exempt even though it's calculated to cover Company A's own costs.

Second, the prizes and tickets: since Company A gives them away rather than reselling them, it cannot buy them tax-free for resale -- it owes sales or use tax on those purchases itself, which it was already doing correctly.

Third, the entry blanks and other promotional materials: New York exempts promotional materials that are mailed or shipped for free to a company's own customers or prospects. But here, Company A places the entry blanks in supermarkets for the general public to pick up in-store -- they're never mailed or delivered to anyone in particular -- so they don't qualify for that exemption, and Company A owes tax on them too. (The ruling doesn't address materials Company A might handle differently outside the supermarket-placement scenario.) One possible relief: if Company A buys these items in bulk, stores them in New York, and later ships some of that stock out of state for use elsewhere, it may be able to claim a refund or credit for the tax paid on the reshipped portion.

What this means for you

Marketing, promotions, and sweepstakes-design agencies

A pure design/management fee -- where you never own or transfer the prizes, tickets, or materials to your client -- is not a taxable sale of a service in New York, even if your fee is set to cover your own purchase costs. But you remain on the hook for tax on everything you buy and give away yourself, since none of it is bought "for resale."

Retailers running in-store sweepstakes or giveaways

If your promotional materials are handed out or displayed in-store rather than mailed directly to specific customers or prospects, they don't get the mailed-promotional-materials exemption -- that exemption depends on actual delivery to a named recipient, not general public availability.

Accountants and tax professionals

Watch for the refund opportunity under § 1119(a): items bought in bulk, warehoused in New York, and later reshipped out of state for use elsewhere can generate a credit even after tax was properly paid at purchase.

Common questions

Q: Is a sweepstakes management fee ever taxable in New York?
A: Not where the manager never transfers title or possession of any tangible property to the client -- it's treated as a non-enumerated service fee.

Q: Can a promotions company buy prizes tax-free since it's technically "for the client's marketing"?
A: No. Giving prizes away (rather than reselling them) means the purchase isn't for resale, so sales or use tax applies at purchase.

Q: Why don't in-store entry blanks qualify as exempt promotional materials?
A: The exemption requires mailing or shipping the materials to specific customers or prospects at no charge; materials merely placed in stores for anyone to take don't meet that delivery requirement.

Citations and references

Statutes:

• Tax Law § 1101(b)(4)(i) (retail sale)
• 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)(4) (exemption for mailed promotional materials)
• Tax Law § 1119(a) (refund/credit for bulk purchases reshipped out of state)

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_55s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(55)S
Sales Tax
November 30, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990629B

On, June 29, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Henry Goldwasser, 135 West 50th Street, New York, New York 10020.
The issues raised by Petitioner, Henry Goldwasser, are:
(1) Whether the fee for running the sweepstakes described below is subject to sales tax.
(2) Whether Petitioner’s client may purchase tickets and prizes, in connection with the
sweepstakes, for resale.
(3) Whether the costs of printing the sweepstakes entry blanks and other promotional
materials is exempt from sales tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner’s client (Company A) designs a sweepstakes for a client in which sports tickets or
other prizes will be given away to customers. The sweepstakes entry blanks are often placed in
supermarkets near the place where the products of Company A’s client are displayed. No purchase
is required to enter the sweepstakes. Company A provides the tickets or prizes, does not claim a
resale exemption when purchasing them and pays sales tax to the vendor where required. Company
A pays for printing all promotional materials used in connection with the sweepstakes. Company
A does not transfer title or possession of the tickets, prizes or promotional materials to its client.
Company A charges its client a prearranged fee for running the sweepstakes.
Applicable Law & Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

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(4) Retail sale. (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, or (B) for use by that person in performing the services subject to
tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five....
*

*

*

(12) 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
advertising literature, annual reports, promotional displays and Cheshire labels but
does not include invoices, statements and the like.
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. - On and after June first, nineteen hundred seventy­
one, there is hereby imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
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 subdivision (a) of section eleven hundred five and the compensating
use tax 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

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Sales Tax
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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 such customers
or prospective customers, by means of a common carrier, United States postal service
or like delivery service.
Section 1119(a) of the Tax Law provides, in part:
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 hundred ten . . . (2) on the sale or use of tangible
personal property purchased in bulk, or any portion thereof, which is stored and not
used by the purchaser or user within this state if that property is subsequently
reshipped by such purchaser or user to a point outside this state for use outside this
state . . . .
Opinion
Company A’s fee solely for the services of designing and running a sweepstakes, where
Company A does not make any sale of tangible personal property, is not taxable, since such services
are not among the specifically enumerated services subject to sales tax under Section 1105(c) of the
Tax Law. Any tangible personal property, service or other item purchased by Company A which it
uses or consumes in conjunction with providing the services of designing and running the
sweepstakes, such as the tickets and prizes, is not purchased for resale; and Company A is required
to pay any sales or compensating use tax that may be due at the time of purchase or use. Based on
Petitioner’s fact that Company A does not transfer title or possession of any property to Company
A’s client, Company A’s charge to its customers for the services of designing and running the
sweepstakes is not subject to sales or use tax, even where such charge is calculated to cover
Company A’s expenses to purchase the materials that Company A uses to provide such services.
Promotional materials which are printed materials and promotional materials upon which
Section 1105(c)(2) services have been directly performed are exempt from sales or use tax under
Section 1115(n)(4) of the Tax Law where the purchaser of the promotional materials mails or ships
the promotional materials, or causes them to be mailed or shipped, to the purchaser’s customers or
prospective customers, without charge to the customers or prospective customers, via common
carrier, U.S. postal service or like delivery service. In this instance, where the sweepstakes entry
blanks and other printed promotional materials are purchased at retail by Company A, not by
Company A’s client, and Company A places such materials in supermarkets and other retail outlets
for use by the customers and prospective customers of Company A’s client when they enter the store,
the promotional materials do not qualify for exemption under Section 1115(n)(4), since they are not

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Sales Tax
November 30, 1999

mailed or delivered to Company A’s customers or prospective customers. Accordingly, Company
A’s purchases of such promotional materials are subject to sales and use tax. Petitioner does not
indicate what Company A does with sweepstakes entry blanks and other promotional materials
which are not placed in supermarkets. Thus, this Advisory Opinion cannot provide guidance with
respect to these promotional materials in such other circumstances.
Company A may be entitled to a refund or credit under Section 1119(a)(2) of the Tax Law
of sales tax paid on the sweepstakes entry blanks and other promotional materials, as well as prizes,
purchased in bulk in this State if they are stored and not used by Company A in this State and they
are then reshipped to locations outside of New York State for use outside the State.

DATED: November 30, 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.