When a mailing list broker charges for lists that mix Texas and out-of-state addresses, is the sale taxable based on the percentage of Texas names on the list, and does that change if the list is sold to an out-of-state customer?

Plain-English summary

This letter answers a Comptroller field auditor, not an outside taxpayer — the auditor was examining a mailing list broker ("A") that calls list owners and orders mailing lists for its customers for a licensing fee, with the list owner delivering the list directly to A's customer. A had been collecting Texas sales tax from its Texas-located customers based on the percentage of Texas names on each list, but not charging tax on sales to out-of-state customers ("B") even when those lists included Texas addresses.

The Comptroller confirmed A's approach on all three points raised:

1. Percentage-of-Texas-names test applies, but out-of-state delivery is exempt regardless. Under Rule 3.342(b)(3), the taxable share of a mailing list sale is measured by the percentage of names on the list located in Texas. But information services (which mailing lists are) delivered to a customer for use out of state aren't subject to Texas sales or use tax at all — so A was right not to tax its out-of-state customers even though some of their purchased lists included Texas names.
2. A can rely on its own purchase-order zip codes, not multistate certificates. A determines the Texas percentage from purchase orders showing Texas zip codes and taxes its Texas-address customers accordingly, without collecting multistate exemption certificates confirming whether a customer is itself a multistate business — that's an acceptable basis for the percentage calculation.
3. The audit test is subsection (b)(3), not subsection (h). When auditing the mailing list seller/provider's own books to determine where the benefit is derived, the applicable test is Rule 3.342(b)(3) (the percentage-of-Texas-names approach), not subsection (h) of the same rule.

What this means for you

Mailing list brokers and information service providers

If your list mixes Texas and out-of-state names, you generally tax only the Texas-name percentage of an in-state sale, and you don't tax a sale delivered for an out-of-state customer's use at all, even if the list includes Texas addresses. Purchase-order zip codes are an acceptable basis for the percentage calculation — you don't need to chase down multistate exemption certificates from every customer.

Businesses being audited on mailing list or information service sales

Expect the Comptroller to apply the percentage-of-Texas-benefit test under Rule 3.342(b)(3) to determine your taxable base, focused on where the service is actually delivered/used rather than where your business itself is located.

Accountants and tax professionals

Notable because it's an auditor-to-auditor internal ruling request (addressed to a State Comptroller field audit office employee auditing a taxpayer), not a taxpayer's own letter request — illustrating how the same Rule 3.342(b)(3) percentage test is applied consistently whether the question comes from the taxpayer or from the Comptroller's own audit staff.

Common questions

Q: How is a mailing list sale that mixes Texas and out-of-state names taxed?
A: Based on the percentage of names on the list located in Texas, under Rule 3.342(b)(3).

Q: Is a mailing list sale to an out-of-state customer taxable if the list includes Texas names?
A: No — an information service delivered for use out of state isn't subject to Texas sales or use tax, regardless of what addresses the list contains.

Q: Does a mailing list broker need multistate exemption certificates from customers to use the percentage-of-Texas method?
A: No — using purchase-order zip codes to determine the Texas percentage is an acceptable basis without collecting multistate certificates.

Q: Can I rely on this letter for my own mailing list business?
A: No. It's based on the specific facts presented and can be relied on only by the taxpayer/auditor to whom it was issued; other facts, even if similar, may produce a different result.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.342(b)(3) (Information Services -- percentage-of-Texas-names taxability test)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9908635L

Original ruling text

August 17, 1999

My Hanh Truong
State Comptroller ** Audit Office

Dear Mr. Truong:

This is in response to your request for a ruling on the following fact
situation and questions:

I'm auditing a mailing list broker. I have a few questions about mailing list
services remained unanswered after I read rule 3.342 and did STAR research. I
would really appreciate if you would please give me a ruling on these
questions.

My taxpayer is a mailing list broker (A). The company calls the mailing list
owners and orders mailing list for its customers for a fee. The mailing list
owners will deliver the lists to the customer themselves. Per the taxpayer, the
price that the mailing list owners charge A's customer is licensing fee. The
customers have to pay additional fee if they want to use the lists again. My
taxpayer has been collecting sales tax from Texas customer based on % of Texas
location. The taxpayer doesn't charge sales tax on sales of mailing list to out
of state customers (B) even if the lists included Texas location.

Questions:

1) Are the sales to B taxable to the extent of % of Texas location? Can mailing
lists be treated as TPP when shipped out of state?

Response: Subsection (b)(3) of Rule 3.342 - Information Services, provides
that a person may use the percentage representing the names of persons located
in Texas is determining the taxability of a mailing list. Information services
delivered to a customer for use out of state would not be subject to Texas
sales or use tax. See fiche #9102L1074G13.

2) A keeps purchase orders that show Texas zip code included in the mailing
lists. A uses the purchase orders to determine % of Texas location and taxes
its Texas customers (customers' addresses are in Texas) accordingly. A doesn't
keep multistate certificates. Can A be allowed to tax only Texas portion
without knowledge of knowing if its customer is a multistate customer?

Response: Yes, see response to #1.

3) How can one determine whether benefit derived in Texas if one is auditing
the seller's book (i.e. mailing list provider's book).

Response: The taxability of mailing lists is determined based on subsection
(b)(3) of Rule 3.342, rather than subsection (h) of this rule.

Sales tax rules are available on the Internet
.

The State Tax Automated Research system may be accessed on the Internet at:

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Gilbert Zamora

Tax Policy