If a company has advertising materials printed out of state and ships them to its own Tennessee distribution center before sending them on to retail locations across the country, does it owe Tennessee use tax on all of them, just the ones that end up in Tennessee, or none at all?

Plain-English summary

The Taxpayer buys printed advertising materials (signs, brochures, pamphlets, catalogues describing its products) from a printer in another state ("State X"). The materials become the Taxpayer's property as soon as printed, and are shipped by common carrier to the Taxpayer's distribution center in Tennessee. From there, the Taxpayer's field service representatives — located across the country, including Tennessee — pick up the materials and place them in the retail stores of the Taxpayer's customers (national retail chains), where they're eventually handed out to those stores' own retail customers. The out-of-state printer isn't registered to collect Tennessee sales tax, and the Taxpayer believes State X wouldn't tax the sale either, since its goods were headed out of state for transport.

The Department addressed three questions:

1. Does temporary storage in Tennessee before re-shipment trigger use tax? No — at least not for the portion later shipped out of Tennessee. Tennessee's general use tax reaches property "used, consumed, distributed, or stored for use or consumption" in the state (§ 67-6-203(a)), but the statutory definition of "storage" specifically excludes temporary storage pending shipment to nonresidents (§ 67-6-102(90)). However, Tennessee also has a more specific use tax aimed squarely at advertising distributors: § 67-6-203(b)(1) taxes the value of catalogues, advertising fliers, or other advertising publications distributed to Tennessee residents. Since the Taxpayer's activity of handing materials out to retailers fits the ordinary meaning of "distribute," the materials that end up placed in Tennessee stores are taxable under this distributor-specific use tax — while the materials shipped on to other states remain untaxed, both under the general storage exclusion and because they're never "distributed" within Tennessee.

2. What's the tax base for the Tennessee-bound materials? The "entire cost" of designing and printing the materials — not just the print job. Drawing on Rivergate Toyota, Inc. v. Huddleston (interpreting the prior "cost price" standard, now "purchase price"/"sales price" under § 67-6-102(81)(A)(ii)), the Department held the use tax base includes design/development costs, printing costs, transportation costs, and any other production expenses, regardless of where those costs were actually incurred. A footnote adds that even though pure advertising services aren't separately taxable, § 67-6-312(c) folds advertising-service costs into the use tax base for advertising materials specifically.

3. Can a State X tax be credited against the Tennessee use tax? Yes — if State X's tax authorities actually assess and the Taxpayer actually pays a legally imposed sales or use tax on the same materials, Tenn. Comp. R. & Regs. 1320-5-1-.91 lets that payment offset the Tennessee use tax due, avoiding double taxation.

What this means for you

Companies with multistate distribution centers in Tennessee

Routing nationally-distributed advertising materials, catalogs, or similar printed property through a Tennessee distribution center doesn't, by itself, create Tennessee use tax exposure on the portion that's just passing through to other states — but it does create exposure on whatever portion is actually handed out to Tennessee retailers or used within the state. Track where each batch of materials ultimately lands.

Businesses calculating use tax on self-produced advertising materials

If you owe Tennessee use tax on advertising materials, budget for the full production cost (design plus printing plus delivery), not just the print vendor's invoice — Tennessee's use tax base for these items is broader than a simple "cost of goods" calculation.

Multistate businesses paying tax in more than one state on the same property

Keep proof of any sales/use tax actually paid to another state on property later used in Tennessee; Rule 1320-5-1-.91 lets you credit that against Tennessee's use tax, but only the tax you actually paid (not theoretical liability).

Common questions

Q: Does merely storing out-of-state-purchased property at a Tennessee warehouse trigger Tennessee use tax?
A: Not if the property is only there temporarily before being shipped onward to other states — Tennessee's "storage" definition excludes that temporary pass-through. But once any of it is actually distributed or used within Tennessee, that portion becomes taxable.

Q: Is the Tennessee use tax on advertising materials based only on what the printer charged?
A: No — the Department applies an "entire cost" standard covering design, printing, transportation, and other production expenses, regardless of where those costs were incurred.

Q: If I already paid sales tax to another state on the same advertising materials, do I pay Tennessee use tax on top of that?
A: You may get a credit — if the other state's tax was legally imposed and actually paid, it offsets the Tennessee use tax due on the same property under Rule 1320-5-1-.91.

Q: Can another company with a similar distribution setup rely on this revenue ruling?
A: No. Revenue rulings are advisory only and not binding on the Department, even for the requesting taxpayer. This summary is informational, not legal or tax advice.

Citations and references

Tennessee statutes and rules (Tenn. Code Ann. / Tenn. Comp. R. & Regs.):

• §§ 67-6-203(a), -203(b)(1) (2011) (general use tax; specific distributor use tax on advertising publications)
• § 67-6-102(90) (2011) (definition of "storage," excluding temporary storage pending shipment to nonresidents)
• § 67-6-313(a) (2011); § 67-6-211 (2011) (related "import for export" provisions, referenced but not the controlling basis)
• § 67-6-102(91)(A) (2011) (definition of "tangible personal property")
• § 67-6-102(81)(A)(ii), (74) (2011) (definitions of "sales price"/"purchase price")
• § 67-6-312(c) (2011) (advertising materials use tax base includes design/development service costs)
• § 67-6-507(a) (2011) (no duplication of tax where an equal or greater like tax was already paid to another state)
• §§ 67-6-101 to -907 (2011) (Retailers' Sales Tax Act)
• Tenn. Comp. R. & Regs. 1320-5-1-.91 (2008) (credit for tax legally paid to another state)

Case law:

• Rivergate Toyota, Inc. v. Huddleston, 1998 WL 83720, at *2-4 (Tenn. Ct. App. Feb. 27, 1998) (use tax base = "entire cost," not just printing cost)
• BellSouth Adver. & Publ'g Co. v. Johnson, 100 S.W.3d 202, 208 (Tenn. 2003) (credit for sales tax paid in another state on materials later used/taxed in Tennessee)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/12-31.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 12-31
WARNING
Revenue rulings are not binding on the Department. This ruling is based on the particular
facts and circumstances presented, and is an interpretation of the law at a specific point in
time. The law may have changed since this ruling was issued, possibly rendering it obsolete.
The presentation of this ruling in a redacted form is provided solely for informational
purposes, and is not intended as a statement of Departmental policy. Taxpayers should
consult with a tax professional before relying on any aspect of this ruling.
SUBJECT
The application of the Tennessee sales and use tax to printed advertising materials shipped to a
distribution center located in Tennessee for temporary storage before dissemination to locations
both in and outside of Tennessee.
SCOPE
Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public. Revenue
Rulings are advisory in nature and are not binding on the Department.
FACTS
The Taxpayer purchases printed advertising materials from Company A, the printer, located in
State X (not Tennessee). The printed materials are shipped by Company A via common carrier to
Taxpayer’s distribution center located in Tennessee. The printed materials become the property
of the Taxpayer as soon as they are printed by Company A. The Taxpayer does not take
possession of the printed materials in State X and does not request that Company A store and
later distribute the printed materials. The Taxpayer believes that State X would not impose a
sales or use tax on the printed materials, based on a State X regulation exempting sales where the
seller is obligated to deliver the goods to a carrier for transportation outside of State X. Company
A is not registered to collect and remit Tennessee sales tax.
The printed materials are stored in the Taxpayer’s distribution center in Tennessee until shipment
to the Taxpayer’s field service representatives who are located throughout the United States,
including Tennessee. The Taxpayer does not alter the printed materials in any way while they are
at the distribution center. The field service representatives then place the printed materials in the
retail stores of the Taxpayer’s customers, who are national retail chains that carry the Taxpayer’s
products. The printed materials remain the property of the Taxpayer in the customer’s stores, and
are eventually distributed in those stores to the stores’ retail customers.
The printed advertising materials include signs, brochures, pamphlets, catalogues, etc., that
describe the Taxpayer’s products that are available for sale in the retail stores of the Taxpayer’s
customers.
1

RULINGS
1.

Are advertising materials printed in State X (which is not Tennessee) that are shipped to
the Taxpayer’s distribution center located in Tennessee, and subsequently shipped
throughout the United States, exempt from the Tennessee use tax under the “import for
export” exemption?
Ruling: Advertising materials printed outside of Tennessee that are shipped to the
Taxpayer’s distribution center located in Tennessee, and subsequently shipped outside
Tennessee, are exempt from Tennessee use tax pursuant to TENN. CODE ANN. §§ 67-6102(90), -203(a) (2011). When such materials are shipped from the Taxpayer’s
distribution center in Tennessee to locations within Tennessee, however, the use tax is
imposed.

2.

Assuming that all or a portion of the printed advertising materials are determined to be
subject to the Tennessee use tax, what is the correct tax base for the Taxpayer’s use tax
liability for those materials?
Ruling: The Taxpayer’s use tax liability with respect to printed advertising materials
remaining in Tennessee is determined based upon the “entire cost” of designing and
printing the advertising materials.

3.

If State X taxing authorities assert a sales or use tax due on the printed advertising
materials, can the State X tax be credited against any Tennessee use tax due?
Ruling: If State X taxing authorities assert a sales or use tax due on the printed
advertising materials, and the Taxpayer actually pays such tax, the State X tax may be
credited against any Tennessee use tax due.
ANALYSIS

The Taxpayer has requested guidance regarding the application of the “exemption” found in
TENN. CODE ANN. § 67-6-313(a) (2011) to its importation of advertising materials for subsequent
shipping to retail locations, both within and outside of Tennessee. Discerning the proper
treatment of TENN. CODE ANN. § 67-6-313(a), historically intertwined with TENN. CODE ANN.
§ 67-6-211 (2011) 1 and yet often misinterpreted, is not, however, necessary to determine the
application of the Tennessee sales and use tax to the Taxpayer’s transactions. By its plain terms,
the controlling use tax statute provides the necessary means of analysis.
1.

Distribution and Storage in Tennessee

The Taxpayer’s advertising materials, printed in State X (outside Tennessee) and shipped to the
Taxpayer’s distribution center located in Tennessee, and subsequently shipped throughout the
1

See generally Retailers’ Sales Tax Act, ch. 3, § 4, 1947 Tenn. Pub. Acts 22, 29-30 (codified as amended at TENN.
CODE ANN. §§ 67-6-211, 313(a) (2011)).

2

United States, are generally not subject to the Tennessee sales and use tax. Those advertising
materials that are distributed within Tennessee, however, are subject to Tennessee use tax under
TENN. CODE ANN. § 67-6-203(b)(1).
Retail sales in Tennessee of tangible personal property and certain enumerated items and
services are subject to the sales and use tax under the Retailers’ Sales Tax Act, 2 unless an
exemption from taxation applies.
A complement to the sales tax, TENN. CODE ANN. § 67-6-203(a) (2011) imposes a tax at the
same rate as the sales tax on “the purchase price of each item or article of tangible personal
property 3 when the tangible personal property is not sold, but is used, consumed, distributed, or
stored for use or consumption in this state; provided, that there shall be no duplication of the
tax.” 4
Although TENN. CODE ANN. § 67-6-203(a) appears applicable because the Taxpayer is storing
items in Tennessee, 5 TENN. CODE ANN. § 67-6-203(b)(1) imposes a more specific tax on
“distributors” 6 based “on the value of catalogues, advertising fliers, or other advertising
publications distributed to residents of Tennessee; provided that this tax shall not be duplicative
of a sales or use tax otherwise collected on such publications.” The inclusion of the terms
“distributor” and “distributing” is significant because a number of courts have looked to those
terms’ appearance, or absence, in their respective use tax statutes as a guidepost. 7
The Tennessee Code Annotated does not define “distributor” for purposes of the TENN. CODE
ANN. § 67-6-203(b)(1) use tax, except to state that the “commercial printer or mailer of any such
catalogues, advertising fliers, or other advertising publications” is not a distributor. The statute
also provides that a relationship with a Tennessee commercial printer or mailer, without more,
does not establish nexus. 8 In common parlance, however, to “distribute” means to “hand or share
something out to a number of people,” or to “supply goods to retailers.” 9
The Taxpayer’s activities include storing a portion of its advertising materials for distribution
within this state to retailers that sell the Taxpayer’s products. The provision of advertising
2

Tennessee Retailers’ Sales Tax Act, ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts 22, 22-54 (codified as amended at TENN.
CODE ANN. §§ 67-6-101 to -907 (2011)).
3

Tangible personal property, as defined in the Retailers’ Sales Tax Act, means “personal property that can be seen,
weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses.” TENN. CODE ANN. §
67-6-102(91)(A). There is no question that the Taxpayer’s advertising materials constitute tangible personal
property.
4

TENN. CODE ANN. § 67-6-203(a) (footnote added).

5

See also TENN. CODE ANN. § 67-6-102(90) (defining “storage”).

6

“‘Distributor’ does not include the commercial printer or mailer of any such catalogues, advertising fliers, or other
advertising publications.” TENN. CODE ANN. § 67-6-203(b)(1).

7

See 2 JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE TAXATION ¶ 16.04[3][a][ii], at 16-33 (3d ed. 2000
& Supp. 2012).
8

9

Id.
COMPACT OXFORD ENGLISH DICTIONARY OF CURRENT ENGLISH 288 (3d rev. ed. 2008).

3

materials to a number of retailers is properly considered distribution for purposes of TENN. CODE
ANN. § 67-6-203(b)(1). Consequently, the Taxpayer must pay use tax on the value of the
advertising materials distributed within the state of Tennessee.
The portion of the Taxpayer’s advertising materials shipped outside of Tennessee, however, is
not subject to the Tennessee sales and use tax. Under TENN. CODE ANN. § 67-6-203(a), the
advertising materials are neither distributed in nor stored for use in this state. Rather, they are
only being temporarily stored in Tennessee “pending shipping or mailing . . . to nonresidents of
Tennessee,” which is nontaxable. 10 Nor does TENN. CODE ANN. § 67-6-203(b)(1) impose a tax
on the advertising materials shipped outside of Tennessee because those materials are not being
distributed within the state.
Consequently, the Taxpayer must pay use tax only on that portion of its advertising materials that
will be distributed in Tennessee. The Taxpayer’s advertising materials brought into this state for
temporary storage before being shipped out of state are not subject to the Tennessee sales and
use tax.
2.

Use Tax Base

As discussed above, the Taxpayer is liable for Tennessee use tax with respect to the printed
advertising materials purchased from an out-of-state vendor when the Taxpayer distributes such
materials in Tennessee. The determination of the Taxpayer’s use tax liability is based on the
value of the materials that ultimately remain in Tennessee.
TENN. CODE ANN. § 67-6-203(b)(1) levies the use tax on the “value of catalogues, advertising
fliers, or other advertising publications distributed to residents of Tennessee.” 11 The Tennessee
Court of Appeals has held that the term “value” as used in TENN. CODE ANN. § 67-6-203(b)(1)
has the same meaning as “cost price” under an older version of subsection (a), which does not
allow “any deductions therefrom on account of the cost of materials used, labor, or service costs,
transportation charges, or any expenses whatsoever.” 12 The court applied the cost price reasoning
to a transaction involving the printing of brochures to hold that the proper use tax base was the
entire amount paid to design and print the brochures, not just the cost of printing the brochures. 13
TENN. CODE ANN. § 67-6-203(a) (2011) no longer uses the “cost price” to establish the use tax
base, but now uses the “purchase price” as the benchmark. “Purchase price” is defined to be the
same as the “sales price,” 14 which is the “total amount of consideration” without deduction for,
among other things, “[t]he cost of materials used, labor or service cost, interest, losses, all costs
of transportation to the seller, all taxes imposed on the seller, and any other expense of the

10

TENN. CODE ANN. § 67-6-102(90).

11

TENN. CODE ANN. § 67-6-203(b)(1) (emphasis added).

12

Rivergate Toyota, Inc. v. Huddleston, No. 01A01-9602-CH-00053, 1998 WL 83720, at *2-3 (Tenn. Ct. App. Feb.
27, 1998); see also TENN. CODE ANN. § 67-6-203(a) (1994).
13

Rivergate Toyota, Inc., 1998 WL 83720, at *3-4.

14

See TENN. CODE ANN. § 67-6-102(74).

4

seller.” 15 In other words, despite the change in statutory language, the court’s rationale in
Rivergate Toyota, Inc. still holds true under the new “purchase price” terminology.
Applying that rationale to the Taxpayer’s transactions at issue, the proper use tax base includes
the “‘entire cost of the transaction’” to the Taxpayer. 16 This would include the costs paid to
design and develop the advertising materials, 17 the costs paid to print the advertising materials,
transportation costs, and any other expenses paid by the Taxpayer to produce the advertising
materials, regardless of where the expenses were incurred.
3.

Credit against Tennessee Use Tax Due

If State X taxing authorities assert a sales or use tax due on the printed advertising materials, and
the Taxpayer actually pays such tax, the State X tax may be credited against Tennessee use tax
due.
As discussed above, TENN. CODE ANN. § 67-6-203(b)(1) levies a use tax to be paid by the
distributor “on the value of catalogues, advertising fliers, or other advertising publications
distributed to residents of Tennessee; provided, that this tax shall not be duplicative of a sales or
use tax otherwise collected on such publications.” 18
In addition, TENN. COMP. R. & REGS. 1320-5-1-.91 (2008) specifically provides that “[p]ersons
actually paying a legally imposed Sales or Use Tax to another State on tangible personal
property or taxable services imported into this State may claim such payment as a credit against
any Use Tax liability accruing in this State.”
Accordingly, if State X taxing authorities impose a sales tax on the printed advertising materials,
and the Taxpayer actually pays such tax, the State X sales tax can be credited against the
Tennessee use tax due.

15

TENN. CODE ANN. § 67-6-102(81)(A)(ii).

16

See Rivergate Toyota, Inc., 1998 WL 83720, at *4; see also TENN. CODE ANN. § 67-6-312(c) (2011).

17
Advertising services are not an enumerated taxable service under TENN. CODE ANN. § 67-6-205(c) (2011).
Nevertheless, the use of advertising materials in Tennessee is taxable under TENN. CODE ANN. § 67-6-312(c) (2011),
which unlike the second clause of TENN. CODE ANN. § 67-6-312(b), does not contain a prohibition against including
advertising services in the sales price of the advertising materials. Consequently, all of the costs the Taxpayer paid
to have its advertising materials developed are included in the use tax base, including advertising services. Cf. TENN.
CODE ANN. § 67-6-102(81)(A)(ii) (seller’s service cost).
18

TENN. CODE ANN. § 67-6-203(b)(1) (emphasis added); see also TENN. CODE ANN. § 67-6-203(a) (providing that
“there shall be no duplication of the tax”); TENN. CODE ANN. § 67-6-507(a) (2011) (Sales and use tax “does not
apply with respect to the use, consumption, distribution or storage of tangible personal property . . . for use or
consumption in this state, upon which a like tax equal to or greater than the amount imposed by [the Retailers’ Sales
Tax Act] has been paid in another state.”); cf. BellSouth Adver. & Publ’g Co. v. Johnson, 100 S.W.3d 202, 208
(Tenn. 2003) (holding that the taxpayer was due a credit for the sales tax paid in another state for photocompositions
that were subsequently used and taxed as a component of phone directories in Tennessee under TENN. CODE ANN. §
67-6-203 (1998)).

5

R. John Grubb II
Tax Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

November 29, 2012

6