Can a grocery store chain that prints its own newspaper inserts in its own print shop get a refund of the sales tax it paid on the newsprint and ink?

Plain-English summary

A grocery store chain owned and operated its own print shop, which printed newspaper inserts (flyers/circulars). The store bought newsprint and ink and paid sales tax to its vendors on those supplies. The finished inserts were delivered to the stores, and from there some were mailed to customers, some were sent to local newspapers, and the rest were kept for use inside the stores. The retailer asked the Comptroller whether it could get a refund of the sales tax it had paid on the newsprint and ink, since those materials became part of the inserts.

The Comptroller said no. Texas Sales and Use Tax Law Sec. 151.319(c) exempts the sale of inserts that are printed for the exclusive purpose of being distributed as part of a newspaper -- but only when the printer delivers those inserts directly to the newspaper, not to the advertiser or customer. That exemption lets a business that sells and delivers such inserts to a newspaper claim a tax exemption on the component parts (the newsprint and ink) used to make them. Here, though, the grocery store was not selling its inserts to a newspaper -- it was printing them for its own use (mailing to customers, in-store distribution). Because there was no sale of the inserts to a newspaper, the exemption did not apply, and no refund could be claimed on the newsprint and ink.

What this means for you

Retailers who print their own advertising inserts

If your business operates its own print shop and produces flyers, circulars, or inserts for your own marketing use -- even if some copies end up distributed through a local newspaper -- you are not automatically exempt from sales tax on the printing supplies. The exemption in Sec. 151.319(c) is aimed at printers who sell inserts to newspapers and deliver them directly to the newspaper for distribution as part of the paper. Printing for your own use, even if some inserts pass through a newspaper's distribution channel, does not qualify.

Commercial printers

If you print newspaper inserts and sell them, delivering them directly to the newspaper (not to the advertiser), you may be able to claim an exemption on the component materials (paper, ink) that become part of those inserts. The key facts are who bought the inserts and where the printer delivered them.

Accountants and tax professionals

This 1993 letter turns on a narrow reading of Sec. 151.319(c): the exemption attaches to a sale of inserts by a printer that delivers them directly to a newspaper, not to self-produced advertising materials a retailer distributes through its own channels (mail, in-store, or partial delivery to newspapers). A refund claim on materials used in self-printed inserts fails because there is no qualifying sale.

Common questions

Q: Can a retailer that prints its own newspaper inserts get a refund on the sales tax paid for the paper and ink?
A: No, according to this ruling. Because the retailer never sold the inserts to a newspaper, the Sec. 151.319(c) exemption did not apply, and the tax paid on the newsprint and ink was not refundable.

Q: Does it matter that some of the inserts were sent to local newspapers?
A: Based on this ruling's facts, no. The store was printing the inserts for its own use (mail distribution to customers and in-store use), not selling them to a newspaper for delivery as part of the paper, so the exemption did not apply even though some inserts reached newspapers.

Q: Who can claim the Sec. 151.319(c) exemption on newspaper insert materials?
A: A person who prints inserts for sale and delivers them directly to the newspaper (not to the advertiser or customer) can claim the exemption on the component parts of those inserts, per this ruling.

Q: Can I rely on this 1993 letter for my own situation?
A: This letter is based on the specific facts the taxpayer presented and can be the basis of detrimental reliance only for the taxpayer it was issued to. It may also no longer reflect current Comptroller policy. Confirm current treatment with a Texas tax professional or the Comptroller directly.

Citations and references

Statutes:

• Sec. 151.319(c), Texas Sales and Use Tax Law (exemption for newspaper inserts printed for the exclusive purpose of distribution as part of a newspaper, delivered by the printer directly to the newspaper)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9301L1222C08

Original ruling text

January 29, 1993

Dear ****:

Thank you for your letter of January 4, 1992, concerning the taxability
of supplies purchased by a retailer for use in creating newspaper
inserts.

Your client, a grocery store chain, owns and operates a print shop.
Newsprint and ink are purchased and sales taxes are paid to the vendors.
The print shop prints inserts that are delivered to the stores. The
stores distribute inserts by mail to customers, a number are sent to
local newspapers, and the balance are retained for in-store use. You
questioned whether a refund could be obtained for taxes paid on
newsprint and ink that became component parts of newspaper inserts.

Section 151.319 (c) of the Texas Sales and Use Tax Law allows an
exemption for the sale of inserts that are printed for the exclusive
purpose of being distributed as a part of a newspaper. The inserts must
be delivered by the printer directly to the newspaper and not to the
advertiser or customer.

A person printing the inserts for sale would be able to claim a tax
exemption on component parts of inserts. In the fact situation, the
grocery store is printing its own newspaper inserts for its own use. A
refund claim cannot be made on these items.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct
line is 512/475-0613. You may also write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division