Were postage and carrier charges taxable when a check printer mailed taxable checks directly to bank depositors?

Plain-English summary

A check printer took orders from banks and other financial institutions, printed checks, mailed them directly to depositors, and separately itemized postage or delivery on the bank's invoice.

The postage and delivery charges were taxable because the seller billed them in connection with taxable checks.

If the bank merely acted as the depositor's agent—forwarding an order in the depositor's name and charging that depositor's account—the depositor was the check printer's client, not a third-party recipient. Postage and delivery remained taxable.

If the bank bought and resold the checks, it needed a sales-tax permit and gave the printer a resale certificate. The bank then collected tax from depositors on both the checks and postage or delivery because the depositor was the bank's client, not a third party.

Rule 3.303(d)'s exemption applied only to U.S. postage charges. Delivery by a common or contract carrier did not qualify.

Common questions

Were separately stated postage charges automatically exempt? No.

Did a bank acting as the depositor's agent change the result? No.

What did a reseller bank need? A tax permit and a valid resale certificate.

Could common-carrier delivery use the postage exemption? No.

Citations and references

• 34 Tex. Admin. Code Rule 3.303(d)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8909L0958E14

Original ruling text

September 6, 1989

Dear *****:

Thank you for your inquiry regarding the taxability of postage and delivery
charges.

You state that your client, ***** (the company), which is based in
Atlanta sells and manufactures checks used for checking accounts. The company
has four locations in Texas. Various banks and other financial institutions
inside and outside Texas place orders for the printing of checks to be used by
their depositors. The company prints the checks and sends them directly to the
depositors through either the U. S. Postal Service or other independent common
or contract carriers. The company then bills the bank or financial institution
for the cost of the checks. The invoices contain a separate column for
detailing the postage or delivery charges incurred for each order of checks
sent to depositors.

You also state that you feel the postage and delivery charges billed by the
company aren't taxable because they are exempt under section (d) of the
enclosed Comptroller's Rule 3.303 (Transportation and Delivery Charges).

The charges for postage and delivery are taxable because they are billed by the
seller in connection with the sale of taxable items (i.e. checks).

If the bank or financial institution is merely acting as an agent for their
depositors, the postage and delivery charges would be taxable because the
charges would be incurred in connection with the distribution of the checks to
the company's client (the depositors); not a third party recipient. The
financial institution would be acting as an agent if they merely forward the
check order in the depositor's name and subsequently charge the depositor's
account for the company's check charges to the depositor. That is, the charges
for each customer must be itemized on the billing to the financial institution.

On the other hand, if the financial institution is purchasing the checks and
reselling them to their depositors, the institution should have a tax permit.
For example, the financial institution would be reselling the checks if the
company billed the financial institution a total printing charge without
itemizing the check charges for the individual depositors. In this case, the
financial institution should issue a valid, properly completed resale
certificate to the company in lieu of tax on the checks.

If the financial institution is reselling the checks, the institution would be
required to charge tax on the checks and the delivery or postage charges
because the checks would be distributed to the bank's client; not to third
party recipients.

In any case, you should note that the exemption in Rule 3.303(d) applies only
to U.S. postage charges. Therefore, charges for delivery by either a common or
contract carrier don't qualify for this exemption.

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

If you have any questions, please contact Tax Correspondence. You may call
toll-free 1-800-252-5555, or our regular number is 512/463-4600. My extension
is 3-4662.

Sincerely,

Bob Jeffcoat
Tax Correspondence