Could buyers issue Texas resale certificates for magazine inserts, statement enclosures, catalogue inserts, scratch-and-sniff labels, or fragrance slurry?

Plain-English summary

The Texas Comptroller treated magazine inserts, statement enclosures, catalogue inserts, and scratch-and-sniff labels as taxable advertising materials rather than property bought for resale. Their purchasers could not issue resale certificates merely because the items were bound into or attached to products that were resold.

Texas tax still depended on delivery and control. For magazine inserts delivered to a Texas binder, the seller did not have to collect Texas use tax if the customer neither took delivery nor controlled the inserts in Texas, but shipping documents had to prove delivery to the binder rather than to the customer in care of the binder. Statement enclosures delivered outside Texas carried no Texas tax under the letter; Texas delivery did. Catalogue inserts delivered to or possessed by the store in Texas were taxable.

Scratch-and-sniff labels were an advertiser's expense and part of its cost of goods sold, not resold property. By contrast, a printer could issue a resale certificate for fragrance slurry when it incorporated the slurry into printed materials sold to the printer's customer. Texas printers had to provide properly completed certificates.

What this means for you

Physical incorporation into a magazine, catalogue, statement, or cereal box did not by itself make an advertising item a resale purchase. The letter separated the advertiser's promotional inputs from a printer's ingredient incorporated into the printed goods it sold, while also requiring delivery and control documentation.

Common questions

Were magazine inserts bought for resale? No.

Could statement or catalogue enclosures be covered by resale certificates? No.

Were scratch-and-sniff labels resold with the product? No. The letter treated them as the advertiser's expense.

Could fragrance slurry qualify for resale treatment? Yes, when a printer incorporated it into printed materials sold to the printer's customer.

Why did shipping documents matter? They proved whether the customer took delivery or control in Texas.

Citations and references

• The letter cited no numbered statute or Comptroller rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8703L0807G02

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 25, 1987

Dear ***:

Thank you for your letter of March 12, 1987 concerning the taxability of
various advertising items in the situations described as follows.

In all cases, these items are for advertising by **'s customer.
*'s customer pays to have our product used by a third party, such as
a department store or magazine. Also, * is registered in every state
with a state sales tax.

1. Magazine Inserts - * sells the inserts to company A.
   Company A then pays company B to have the inserts bound into
   company
   B's magazine. * drop ships the inserts for company A to
   company B's binder (located in your state) to be bound into company
   B's magazine. Company B's magazine is for resale. Is * 's sale
   to company A exempt for resale? What documentation does * need
   from customer A?

Response: Company A's purchase of the inserts from * does not
qualify for
exemption as a sale for resale. The inserts are taxable advertising
materials. If company A does not take delivery or have control of the
inserts in Texas, then * is not required to collect Texas use tax
from
Company A. ** will need shipping documents to prove that the
inserts were
delivered to Company B's binder and not to Company A in care of the
binder at
the binder's location.

2. Statement Enclosure - included with department store statement.
   The store's customer is not charged for the enclosure. Is ** 's
   sale to the department store exempt from sales tax? What documenta-
   tion does ** need from the store?

Response: The statement enclosures are taxable advertising materials.
The
purchaser may not issue a resale certificate as the enclosures are not
resold. If * delivers to a location out of Texas, no Texas tax
is due. If
* delivers to a location in Texas, then Texas use tax is due.

3. Catalogue Inserts -- insert is bound into a store catalogue. The
   catalogue is given to the customer at no charge. Is * 's sale
   to the store exempt from sales tax? What documentation does *
   need from the store?

Response: The inserts are taxable to the store. As in situations 1 and
2, a
resale certificate is not appropriate. It is not clear whether the
inserts
are delivered to the store's catalog printer or binder or whether the
store
takes possession in Texas for distribution to the printer or binder. If
the
store takes delivery of the inserts in Texas, then ** should charge
Texas use
tax.

4. Scratch and Sniff Labels - they are either bound into a book or
   magazine which is for resale or attached to a product which is for
   resale, such as a cereal box. Is * 's sale to the customer
   (book, magazine, etc.) exempt for resale? What documentation does
   * need from the customer?

Response: The labels are not resold. They are an expense to the
advertiser
(cereal company, for example), a part of the cost of goods sold. A
resale
certificate may not be issued. Please refer to situations 1, 2 and 3.

5. Slurry - Liquid which holds encapsulated fragrances - printer
   applies in printing process to a product and the finished product
   is for resale. Is * 's sale to the printer exempt for resale?
   What documentation does * need from the printer?

Response: The printer may issue a resale certificate to * if the
printed
materials are sold to the printer's customer. * should obtain
properly
completed resale certificates on all deliveries to printers located in
Texas.

This opinion is based on the facts presented. If there are additional
or
different facts, the opinion may change.

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Julie Pesl
Tax Policy Section
Tax Administration Division