Is sales tax owed on the flyers and promotional items (pens, magnets, calendars) stuffed into free door-to-door advertising bags?

Subject

Plastic Bag With Advertising — And Stuffed With Flyers And Promotional Items (Pens/Magnets/Calendars) — Delivered Door To Door

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9402L1287C13

Plain-English Summary

A business sold advertising space inside a large (9" x 16") plastic bag that was stuffed with advertisers' flyers and delivered free to homes. The business originally planned to just accept finished flyers from advertisers, stuff the bags, and deliver them. But because advertisers often didn't have their flyers ready on time, the business ended up producing the flyers itself — contracting for duplicating machines and a typesetter to handle the printing and typesetting. Some advertisers also included giveaway items like pens, magnets, and calendars in the bags.

The Comptroller ruled that sales tax is due on all the supplies, materials, equipment, and services used to produce the flyers — since the business was performing a taxable printing/duplicating service rather than merely distributing pre-made advertising materials. Separately, the advertisers who supplied pens, magnets, calendars, and other promotional giveaways owe tax on those items themselves. The one exception: a charge that is separately stated on an invoice and clearly identified as advertising (as opposed to printing or tangible goods) is not subject to tax.

The letter also notes that the bags were stuffed and distributed by two church-affiliated Christian schools as a fund-raiser, with volunteers doing the work and proceeds going to the schools. The Comptroller pointed out that the business itself was a for-profit partnership and said she didn't see how the churches' involvement changed the taxability analysis, inviting the taxpayer to follow up if they wanted to discuss that angle further.

What This Means For You

If you produce and distribute advertising flyers or bags: Tax applies to the supplies, materials, equipment, and services you use to actually produce the flyers (printing, duplicating, typesetting, etc.). Simply calling the whole arrangement "advertising" doesn't shield the production side from tax.

If you are an advertiser placing promotional giveaways (pens, magnets, calendars) in someone else's ad bag: You owe tax on those promotional items yourself, separate from whatever the bag producer owes on the printing side.

If you want to avoid tax on a pure advertising charge: Make sure any charge that is genuinely just for advertising space is separately stated and clearly identified as advertising on your invoice — that portion is not taxable, unlike the printing/production charges.

Q&A

Q: Is tax due on the flyers stuffed into the advertising bags?
A: Yes. Sales tax is due on all supplies, materials, equipment, and services used to produce the flyers.

Q: Who owes tax on the pens, magnets, and calendars included in the bags?
A: The advertisers who supply those promotional items owe the tax on them, not necessarily the business assembling and delivering the bags.

Q: Can any part of the charge to advertisers avoid sales tax?
A: Yes — a charge that is separately stated and clearly identified as advertising (rather than printing or tangible personal property) is not subject to tax.

Original ruling text

February 3, 1994

Dear *****:

This is in response to your letter dated January 10, 1994, regarding
sales tax as it applies to your business activities.

FACTS: Advertising space is sold in a 9" x 16" plastic bag (**).
The bag is stuffed with advertisers flyers to promote their goods or
services. The bags are delivered free to homes. Initially it was planned
to just accept the advertisers flyers, stuff the bag and deliver to homes.
Some advertisers include pens, magnets, calendars, etc. to add to the bag.
However, due to advertisers not having their flyers ready on time, we were
forced to produce the flyers for our advertisers. We contracted for
duplicating machines for use in our office and a typesetter to handle our
typesetting needs.

* is stuffed and distributed by the Christian Schools at *
and **. **** has proven to be an excellent fund-raiser
for these two church schools. The church staff, teachers, parents, and
volunteers stuff and distribute bags and all money earned by these
volunteers goes directly towards Christian education.

QUESTION: What is subject to tax in the situation described above?

RESPONSE: Sales tax is due on all supplies, materials, equipment, and
services used to produce the flyers. The advertisers owe tax on the pens,
magnets, etc., that are placed in the bag and given away as promotional
items. A separately stated charge that is clearly identified as advertising
is not subject to tax.

** is a for-profit partnership and I fail to see where the churches
fit in, especially since you stated that all money earned goes to the church
schools. You may wish to write or call me regarding the churches part in the
operation.

This opinion is based on the facts presented. Different facts, though similar,
might lead to different answers. If you have any questions or need more
information, please write or call me toll free at 1-800-531-5441, extension
50330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9402071L