Were catalogs printed and mailed from South Carolina taxable when sent to the out-of-state retailer's customers inside and outside South Carolina?

Plain-English summary

South Carolina Private Letter Ruling 88-21 split ABC's printed catalogs by their mailing destination:

• Catalogs mailed to South Carolina residents were taxable sales of tangible personal property.
• Catalogs mailed to residents of other states were exempt under the out-of-state delivery provision.
• For taxable South Carolina catalogs, the tax base was ABC's full charge to the retailer, including delivery charges.

The catalog recipients were treated as the retailer's donees. The retailer paid ABC to print and deliver tangible catalogs to them.

The printing and mailing arrangement

ABC was located in South Carolina and printed catalogs for an out-of-state retail merchandising company.

The retailer had no South Carolina offices, personnel, real estate, or finished-goods inventory. It could supply ABC with paper, film, inserts, or other printing materials, and retailer personnel occasionally visited the printing plant for several days to inspect proofs against the contract requirements.

ABC printed the catalogs, prepared them for mailing, and placed all of them into the U.S. Postal System at a postal facility located at the South Carolina printing plant.

Some catalogs were delivered to South Carolina residents, while most were delivered in other states.

Why the catalogs were tangible personal property sales

Section 12-35-100 defined a sale as a transfer of tangible personal property for consideration. Section 12-35-140 defined tangible personal property as property perceptible to the senses.

The ruling also used the purchase definition in section 12-35-70, which covered acquisition for consideration through transfer of title, possession, or a right to use or consume.

ABC received consideration from the retailer and transferred the physical catalogs to the retailer's customers. The Commission therefore treated the transaction as a sale of tangible personal property even though the recipients did not pay ABC directly.

South Carolina recipients were taxable

Section 12-35-550(40) exempted property when the seller was contractually obligated to deliver it to the buyer, the buyer's agent, or the buyer's donee outside South Carolina, including delivery to a carrier or the mails for transportation to that out-of-state destination.

Catalogs sent to South Carolina residents did not satisfy the destination requirement. They were delivered to in-state donees of the retailer and were taxable.

Out-of-state recipients were exempt

Catalogs mailed to residents of other states qualified because ABC's contract required it to place the catalogs in the mail for transportation to the retailer's donees outside South Carolina.

The exemption applied even though ABC printed and mailed the catalogs from its South Carolina plant.

Delivery charges were included in the tax base

Section 12-35-30 defined gross proceeds broadly without deductions for the seller's costs and expenses.

Regulation 117-174.214(a) included transportation in gross proceeds when the seller bore delivery responsibility under an F.O.B.-destination or comparable lump-sum arrangement. The seller could not separate or deduct estimated or actual transportation cost from taxable gross proceeds.

The ruling therefore measured tax on the total amount ABC charged the retailer for catalogs mailed to South Carolina residents, including delivery charges.

What this means for you

Commercial printers

PLR 88-21 sourced the result by the recipient's destination. Printing and entering catalogs into the mail in South Carolina did not make every copy taxable.

Catalog and direct-mail retailers

Free catalogs sent to customers still could involve a taxable printer-to-retailer sale. The recipients were the retailer's donees, and the retailer supplied the consideration.

Fulfillment and mailing companies

The out-of-state exemption depended on a contractual delivery obligation and an out-of-state buyer, agent, or donee destination.

Accounting teams

For taxable in-state pieces, postage or delivery was included in the historical gross-proceeds measure described in the ruling.

Readers applying the ruling today

PLR 88-21 applied 1988 printing, delivery, and direct-mail rules. Current direct-mail sourcing, purchaser certificates, postage treatment, bundled charges, digital catalogs, exemptions, and destination records must be checked independently.

Common questions

Q: Were catalogs mailed to South Carolina residents taxable?

A: Yes. They were tangible personal property delivered to the retailer's in-state donees.

Q: Were catalogs mailed to other states taxable?

A: No. They qualified for the out-of-state delivery exemption on the stated contract.

Q: Did it matter that all catalogs entered the mail in South Carolina?

A: No for the out-of-state copies. The exemption followed the required out-of-state destination.

Q: Why was there a sale if recipients received catalogs for free?

A: The out-of-state retailer paid ABC to print and deliver the physical catalogs to its donees.

Q: Were delivery charges taxable on the South Carolina copies?

A: Yes. The measure was ABC's total charge for those catalogs, including delivery charges.

Q: Can another printer or retailer rely on PLR 88-21?

A: No. The ruling states that it applied only to ABC's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-35-550(40) (Supp. 1987) — out-of-state delivery exemption
• S.C. Code section 12-35-30 (1976) — gross proceeds of sales
• S.C. Code sections 12-35-70, 12-35-100, and 12-35-140 (1976) — purchase, sale, and tangible personal property definitions
• S.C. Regulation 117-174.214(a) — transportation charges in gross proceeds
• South Carolina Tax Commission Decision S-D-152 (Mar. 10, 1983) — postage included in printed-check gross proceeds, cited in the ruling
• Edisto Fleets, Inc. v. South Carolina Tax Commission, 256 S.C. 350, 182 S.E.2d 713 (1971) — sale and purchase construed together
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-21.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-21

TO:

ABC Company

SUBJECT:

Catalogs Printed in South Carolina
(Sales and Use Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-30 (1976)
S.C. Code Ann. Section 12-35-70 (1976)
S.C. Code Ann. Section 12-35-100 (1976)
S.C. Code Ann. Section 12-35-140 (1976)
S.C. Code Ann. Section 12-35-550(40) (Supp. 1987)
S.C. Regulation 117-174.214(a)

AUTHORITY:

S.C. Code Section 12-3-170(1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer, upon
request, and it applies only to the specific facts or circumstances related in the
request. Private Letter Rulings have no precedential value and are not
intended for general distribution.

Questions:

1. Are catalogs, manufactured by ABC Company for an out-of-state retailer and
   subsequently mailed to South Carolina residents, subject to the State's sales tax as a sale
   at retail?
2. Are catalogs that are mailed to residents of other states subject to the South Carolina sales
   tax?
3. If such transactions are taxable, what is the measure of the tax?
   Facts:
   ABC Company, located in South Carolina, has been selected by an out-of-state retail
   merchandising company ("retailer") to print its catalogs.
   The retailer does not have any offices, personnel, real estate or finished goods inventory in South
   Carolina. The retailer may provide paper, film, inserts or other printing supplies to ABC in
   connection with the printing of the catalogs. Personnel of the retailer will make occasional visits
   (several days in duration each) to the printing facility to inspect proofs to ensure that the product
   meets the criteria established in the contract.
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ABC will print the catalogs and prepare them for mailing through the U.S. Postal System. All
catalogs will be mailed by ABC from a postal facility at the printing plant in South Carolina.
Some catalogs remain in South Carolina, but the bulk of the catalogs will be delivered to
residents of other states.
Discussion:
The issue is whether or not the delivery of catalogs, manufactured by ABC, to the customers of
an out-of-state retailer constitutes a sale of tangible personal property subject to the tax.
South Carolina Code Section 12-35-30 reads, in part:
The term "gross proceeds of sales" means the value proceeding or accruing from the sale
of tangible personal property (and including the proceeds from the sale of any property
handled on consignment by the taxpayer), including merchandise of any kind and
character without any deduction on account of the cost of the property sold, the cost of
materials used, labor or service cost, interest paid or any other expenses whatsoever and
without any deductions on account of losses;....(emphasis added)
Code Section 12-35-100 defines the term "sale", in part as: "[a]ny transfer, exchange or barter,
conditional or otherwise, in any manner or by any means whatsoever, of tangible personal
property for a consideration" (emphasis added).
Code Section 12-35-140 reads, in part:
The term "tangible personal property" means personal property which may be seen,
weighed, measured, felt or touched or which is in any other manner perceptible to the
senses, except notes, bonds, mortgages or other evidences of debt and stocks and shall
include rooms, lodgings or accommodations furnished to transients for a consideration.
In Edisto Fleets, Inc. v. South Carolina Tax Commission, 256 S.C. 350, 182 S.E. 2d. 713 (1971)
the South Carolina Supreme Court held that "[t]he terms "sale" and "purchase" are inextricably
related and bound together and must be so construed...."
It is therefore necessary to review the statutory definition of "purchase".
Code Section 12-35-70 reads:
The term "purchase" means acquired for a consideration, whether (a) such acquisition
was effected by a transfer of title or of possession, or of both, or a license to use or
consume, (b) such transfer shall have been absolute or conditional and by whatever
means it shall have been effected and (c) such consideration be a price or rental in money
or by way of exchange or barter. (emphasis added)
As stated in the "facts" section, the catalogs are delivered to the out- of-state retailer's customers,
both within and without South Carolina, by ABC through the U.S. Postal Service.
Code Section 12-35-550(40) exempts from the sales and use tax "[t]he gross proceeds of the
sales of tangible personal property where the seller by contract of sale is obligated to deliver to
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the buyer or an agent of the buyer or to a donee of the buyer at a point outside of the State or to
deliver it to a carrier or to the mails for transportation to the buyer, to an agent of the buyer or to
a donee of the buyer at a point outside this State."
The issue of delivery charges has been previously addressed in Decision S-D-152, dated March
10, 1983. The Commission reviewed a business which printed personalized checks for use by
bank customers. The taxpayer contended that the delivery charges (postage) should not be
subject to the tax. The Division contended the postage was part of the taxable gross proceeds of
sales. The Commission, in citing Regulation 117-174.214 (a), held that the postage was part of
gross proceeds of sales.
Furthermore, Regulation 117-174.214(a), reads:
If the sale is made f.o.b. point of destination or place of business of the buyer, for a lump
sum price or a price per unit, in such manner as to indicate that the cost of transportation
is a cost to be borne by the seller, the total amount received by the seller constitutes
"gross proceeds of sale," within the meaning of the Sales Tax Act. In such case, the
seller is not permitted to separate the cost of the goods from the cost of the transportation
nor may the seller deduct any estimated or actual cost of transportation from such gross
proceeds in making returns under the Sales Tax Act.
Conclusions:

1. The transfer of catalogs by ABC to in-state donees of the retailer, constitutes a sale of
   tangible personal property subject to sales tax. Such transfers do not qualify for the
   exemption under Code Section 12-35-550(40) as they are not delivered to a donee outside
   the state or to a carrier or the mails for delivery to an out-of-state donee.
2. Catalogs mailed to residents of other states are exempt from the tax, pursuant to Code
   Section 12-35-550(40). Pursuant to the contract of sale, ABC is "obligated to deliver [the
   catalogs]...to the mails for transportation...to a donee of the buyer at a point outside"
   South Carolina.
3. The measure of the tax for catalogs mailed to South Carolina residents is gross proceeds
   of sales, as defined at Code Section 12-35-30. The measure being the total amount ABC
   charges the out-of-state retailer for such catalogs, including delivery charges.
   SOUTH CAROLINA TAX COMMISSION
   s/S. Hunter Howard Jr.
   S. Hunter Howard, Jr., Chairman
   s/A. Crawford Clarkson Jr.
   A. Crawford Clarkson, Jr., Commissioner
   Columbia, South Carolina
   October 26,
   1988

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