Was a Texas periodical-subscription agency the taxable seller of magazines it ordered for libraries and corporate customers?

Plain-English summary

A Texas subscription agency sent periodical catalogs to libraries and corporations, placed customer orders with publishers, paid the publishers, and directed them to mail periodicals straight to customers. The agency never possessed the periodicals and later billed the customers for subscriptions plus a service fee.

The Comptroller treated the agency as providing a nontaxable service, not selling tangible personal property. The publisher made the magazine-subscription sale to the ultimate customer.

Catalogs were different. A Texas printer's charge for catalogs mailed to Texas recipients was taxable to the agency. Beginning December 21, 1990, Rule 3.346 also imposed use tax when an out-of-state printer produced and mailed catalogs to Texas recipients. Catalogs sold to customers were taxable retail sales.

What this means for you

The result depended on the agency model: publishers fulfilled subscriptions directly, and the agency never took possession. The ruling separately taxed the agency's promotional catalogs where applicable.

Common questions

Was the agency's service fee taxable? The described subscription-agency service was nontaxable.

Who sold the magazine subscription? The publisher sold it to the ultimate customer.

Did reimbursing the agency for tax paid to a publisher make the agency the seller? No change in result was stated.

Were catalogs taxable? Texas-printed catalogs mailed to Texas recipients were taxable to the agency; the letter said the same use-tax treatment began for out-of-state printing on December 21, 1990. Sold catalogs were taxable.

Citations and references

• 34 Tex. Admin. Code Rule 3.346 (use tax)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9012L1061F01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller

December 13, 1990

Dear *****:

Thank you for your letter concerning periodical subscription
agencies. You stated that the fact situation for which you
have requested a ruling is exactly the same as in the Massa-
chusetts case you sent me. As I understand them, the facts
are as follows:

The subscription agency is in-state. The agency obtains list-
ings of periodicals and the subscription prices from various
publishers. The agency has catalogs printed that contain
this information. These catalogs are then mailed to potential
customers, such as libraries and certain corporations.

The customers then submit their order forms to the subscrip-
tion agency. No payment is made at this time by the custo-
mers. The agency then places the orders with the respective
publishers and the agency pays the publishers. The agency
directs the publishers to mail the periodicals directly to
the customers. The agency never takes possession of the
periodicals.

The agency then bills the customers for the amount of the
subscriptions ordered and then adds a service fee to the
billing. If the publisher had billed the agency for sales
tax, which was paid by the agency, the agency will bill
the customer for the tax; in effect, the agency is being
reimbursed for taxes paid to the publisher.

First, I would like to point out that if the Texas sub-
scription agency has a Texas printer produce and mail the
catalogs, the agency will owe sales tax on the cost of the
catalogs mailed to Texas residents or businesses. If the
agency uses an out-of-state printer to produce and mail the
catalogs, beginning December 21, 1990, when our amendment
to Rule 3.346, "Use Tax", takes effect, the agency will owe
use tax on the cost of catalogs mailed to Texas residents
or businesses.

If the catalogs are sold to the customers, sales tax must
be collected.

In regard to the subscriptions, the Comptroller has taken
the position that a subscription agency operating in the
manner of the one in the Massachusetts case is providing a
nontaxable service and will not be considered the seller of
tangible personal property. The sale of the magazine
subscription is made by the publisher to the ultimate
customer or user of the subscription.

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

Please write or call if you have any questions. You can
call toll-free at 800-531-5441. Our regular number is 512-
463-3830 and our FAX number is 512-475-0900.

Sincerely,
Larry Koenig
Taxability Section
Legal Services Division