Can a newsletter publisher buy the envelopes it uses to mail newsletters to subscribers tax-free with a resale certificate?

Plain-English summary

A publisher of two newsletters — mailed to subscribing churches around the country — asked the Comptroller whether it owed sales tax on the envelopes it purchased to mail those newsletters. The Comptroller held that the envelopes are taxable. Under Tax Code Section 151.302(c), internal or external wrapping, packing, and packaging supplies used to wrap, pack, or package tangible personal property (or used in performing a service) to further the sale of that property or service cannot be purchased tax-free for resale, even if the item being wrapped is itself sold or exempt. Because the envelopes are used to package and deliver the newsletters, they fall squarely within that exclusion, and the publisher must pay tax on them.

The ruling also addresses the newsletters themselves. Newsletters are normally taxable as an information service under 34 Tex. Admin. Code § 3.342(b)(1), but the publisher may accept an exemption certificate in lieu of tax from subscribing churches (which typically qualify as exempt organizations). Separately, the Comptroller noted that a resale certificate may be issued for items that are physically transferred to the subscriber's care, custody, and control — for example, the paper the newsletter is printed on, the ink, and the staples used to bind it, per 34 Tex. Admin. Code § 3.342(e)(1). Envelopes don't get that treatment because they're wrapping/packaging supplies, which Section 151.302(c) carves out from resale treatment regardless of what's inside them.

What this means for you

Publishers and newsletter/subscription businesses

If you mail a newsletter, magazine, or similar publication to subscribers, you cannot buy the mailing envelopes tax-free with a resale certificate — you owe sales tax on them, even if the underlying publication is sold to an exempt customer or the sale itself is otherwise not taxed at the envelope level. You can, however, issue a resale certificate for materials that become part of the item transferred to the subscriber's care, custody, and control, such as the paper, ink, and staples used to produce the newsletter itself.

Organizations that receive newsletters from vendors (e.g., churches, nonprofits)

If you're an exempt organization receiving a taxable information-service newsletter, you may be able to give the publisher an exemption certificate in lieu of paying tax on the subscription — but that's a separate question from whether the publisher owes tax on its own envelope purchases, which it does regardless of your exempt status.

Anyone selling wrapping, packing, or packaging supplies

This ruling illustrates the general rule under Section 151.302(c): wrapping, packing, and packaging supplies used to further the sale of property or a service are excluded from resale treatment. That exclusion applies broadly, not just to envelopes — it's the general Texas rule for any packaging material used to wrap, pack, or ship taxable or exempt goods and services alike.

Common questions

Q: Why can the publisher buy paper and ink tax-free but not the envelopes?
A: Because the paper and ink become part of the newsletter that's physically transferred to the subscriber's care, custody, and control (making a resale certificate proper under Rule 3.342(e)(1)), while the envelopes are wrapping/packaging supplies, which Tax Code Section 151.302(c) specifically excludes from resale purchases no matter what they contain.

Q: Does it matter that the newsletters go to churches, which are often tax-exempt?
A: Not for the envelope question. The exemption-certificate option for subscribing churches applies to the taxability of the newsletter (an information service) — it doesn't change the fact that the publisher's envelope purchases are taxable wrapping/packaging supplies under Section 151.302(c).

Q: Are newsletters always taxable in Texas?
A: Under Rule 3.342(b)(1), newsletters are normally taxable as an information service, but the ruling notes the publisher may accept an exemption certificate in lieu of tax from exempt subscribers, such as churches.

Q: Is the "ALERT" at the top of this letter part of the original 1994 ruling?
A: No. It's a later STAR system notice pointing to current Rule 3.285 (Resale Certificates; Sales for Resale, amended 11/01/2017) for general guidance on care, custody, and control of tangible personal property in taxable services — it doesn't state that this letter's specific holding on envelopes has been superseded.

Citations and references

• Tex. Tax Code § 151.302(c) (wrapping, packing, and packaging supplies excluded from resale purchases)
• 34 Tex. Admin. Code § 3.342(b)(1) (newsletters taxable as an information service)
• 34 Tex. Admin. Code § 3.342(e)(1) (resale certificate for items transferred to customer's care, custody, and control)
• 34 Tex. Admin. Code § 3.285 (Resale Certificates; Sales for Resale, amended 11/01/2017, referenced in STAR ALERT)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9404L1299E03

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

April 29, 1994

Dear ***:

Thank you for your letter of April 17, 1994. You asked us to address the
taxability of envelopes purchased by ***. The envelopes are used
to mail newsletters to subscribers.

As I understand it, *** publishes two newsletters. Subscribers of
the newsletters are churches throughout the country.

Newsletters are normally taxable as an information service as provided in
Subsection (b)(1) Rule 3.342. However, you may accept an exemption certificate,
in lieu of tax, from subscribing churches.

A resale certificate may be issued to suppliers of items that are transferred
to the care, custody, and control of the subscriber. Please refer to Section
(e)(1) of Rule 3.342. For example, you may issue a resale certificate to
suppliers of the paper on which the newsletter is printed, ink, and staples.
You owe tax on the envelopes used to mail the newsletter. Texas Tax Code
Section 151.302 (c) Sales for Resale states:

(c) Internal or external wrapping, packing, and packaging supplies used by
a person in wrapping, packing, or packaging tangible personal property or
in the performance of a service for the purpose of furthering the sale of
the tangible personal property or the service may not be purchased by the
person for resale.

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

If you have any questions or need additional information, you may call
toll free 1-800-531-5441, ext. 50037. The regular Austin number is
512-475-0037. You also may write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 9404319L