Were address cards used by the postal service to deliver a free newspaper exempt wrapping or packaging materials in Texas?

Plain-English summary

A publisher used address cards to distribute its free newspaper through the postal service. Postal regulations required the cards, which supplied the basis for the postal charge. At delivery, the postal worker took a card from the stack and placed the card and a newspaper in the recipient's mailbox.

The publisher argued that the card was exempt wrapping and packaging material under Rule 3.314. The Comptroller disagreed, concluding that the address card was not exempt wrapping or packaging and that the charges associated with producing it were taxable.

What this means for you

A distribution item does not qualify as exempt packaging merely because postal rules require it or because it travels with the publication. The letter classified this address card by its actual function rather than accepting the publisher's packaging label.

Common questions

Was the address card exempt wrapping or packaging material? No.

Were the costs associated with producing the card taxable? Yes.

Did it matter that postal regulations required the card? The publisher raised that fact, but the Comptroller still denied the exemption.

Was the newspaper sold to recipients? No. The request describes it as a free newspaper.

Citations and references

• Comptroller Rule 3.314 — the wrapping-and-packaging rule invoked by the publisher and rejected as a basis for exemption.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8705L0823A13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller May 19, 1987

Dear ***:

Thank you for your recent letter which is restated with response below.

I am taking the liberty of writing you directly as we have previously
corresponded on sales and use tax matters in the past. My question is
in regards to the taxability of component costs associated with our
address cards used to distribute our free newspaper via the postal
service.

Enclosed is a specimen address card which only lacks the newspaper re-
cipient's label. The cards which are required by postal regulations and
serve as the basis for the postal charge are delivered to the postal
service along with our newspapers. The postman upon arriving at the
recipient's address takes the card from a stack of cards and inserts
the card and a newspaper into the recipient's mailbox.

It is our belief that the address card is a wrapping and packaging ma-
terial required for the distribution of our newspaper and would thus be
exempt from sales tax under Rule 3.314. Do you concur?

Response: The address card is not exempt as wrapping and packaging
material. In my opinion the charges associated with producing the card
are taxable.

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,
Al Van Allen
Tax Policy Section
Tax Administration Division