Does a mail-order retailer owe Utah sales or use tax on catalogs mailed to Utah customers, and does using a Utah printer create nexus even if the retailer itself has none?

Plain-English summary

A tax representative asked the Utah State Tax Commission a set of layered questions about a mail-order retailer client's catalog tax exposure across several scenarios involving printers located inside and outside Utah.

If the retailer itself has Utah nexus, it owes Utah use tax on catalogs mailed to its Utah customers — even if the catalogs are completely produced, printed, and mailed from a printer located entirely outside Utah. The Commission followed the U.S. Supreme Court's reasoning in a 1988 catalog-tax case (cited in the ruling only as "COMPANY v. COMPANY," 486 U.S. 24 (1988) — publicly reported as D.H. Holmes Co., Ltd. v. McNamara), which it had previously adopted in its own appeals.

If the retailer has no Utah nexus of its own, but hires a printer that does have Utah nexus, that relationship alone does not give the retailer nexus. Utah Code Ann. § 59-12-102(23)(e) and (33)(b) specifically carve a contracted printer's facility out of the definitions of "retailer" and "vendor" — the printer isn't treated as the retailer's agent, and the retailer isn't treated as maintaining a place of business in Utah just because its printed materials sit at the printer's Utah facility.

That carve-out protects the retailer, not the printer. The printer, because it has its own Utah nexus, must still collect and remit Utah sales/use tax on catalogs it delivers to Utah addresses — regardless of whether it mails them from inside or outside Utah, and regardless of whether the retailer itself has nexus. Catalogs the printer sends to addresses outside Utah aren't subject to Utah tax at all (interstate commerce).

What's in the tax base: essentially everything that becomes part of the catalog's purchase price — ink, paper, typesetting, printing, and mailing charges. Photography is separately taxable as a sale of tangible personal property in its own right (Rule R865-19S-75), and when incorporated into the catalogs it becomes part of their taxable price. Graphic design is usually taxable when it's incorporated into taxable printed material (the TPP, not the design service, is the "object" of the sale), though it may sometimes be separated out — a fact-specific call.

Freight and postage split differently. Common-carrier freight can escape tax only if it satisfies all four conditions of Rule R865-19S-71: common carrier, separately stated, actual shipping cost, and shipment occurring after passage of title (which generally means F.O.B. origin/shipping point). Because this retailer kept title until delivery to the customer (F.O.B. destination), its freight charges would not qualify for the exemption. Postage, by contrast, is flatly nontaxable regardless of these conditions.

What this means for you

Mail-order and catalog retailers

Your own Utah nexus is what triggers use tax on catalogs mailed to Utah customers — the location of your printer doesn't change that. If you lack nexus, hiring a Utah printer won't create it for you, but don't assume that means the catalogs escape tax entirely: your printer will likely have to charge you (or collect) Utah tax on the catalogs it delivers within the state.

Commercial printers

If you have Utah nexus, you must collect and remit tax on catalogs and similar printed materials you deliver to Utah addresses on behalf of any client, whether or not that client itself has Utah nexus. Deliveries you make to addresses outside Utah are outside Utah's reach.

Accountants structuring shipping/freight terms

If you want a client's freight charges to qualify for Utah's separately-stated exemption, check the F.O.B. terms carefully — keeping title until delivery (F.O.B. destination) defeats the exemption even if the carrier is a common carrier and the charge is broken out on the invoice. Postage is exempt either way.

Common questions

Q: We have no Utah stores or employees, but our printer is in Utah — do we now have nexus?
A: No. § 59-12-102(23)(e) and (33)(b) specifically exclude a contracted printer's facility from making the retailer a "retailer" or "vendor" with a Utah place of business.

Q: So are our catalogs tax-free in Utah?
A: Not necessarily. If your printer has its own Utah nexus, it must collect and remit tax on the catalogs it delivers to Utah addresses, separate from any nexus question about you.

Q: Is postage taxable?
A: No — postage charges are nontaxable regardless of the freight rules that apply to common-carrier shipping.

Q: Can we avoid tax on freight charges by listing them separately on the invoice?
A: Only if you also meet the other three conditions of Rule R865-19S-71, including that shipment occurs after passage of title (generally F.O.B. origin). Retaining title until delivery defeats the exemption even with a separately stated, actual-cost, common-carrier freight charge.

Q: Can another mail-order retailer rely on this ruling?
A: No — it's an advisory opinion addressing one representative's specific hypothetical scenarios. Your nexus facts, contract terms, and shipping arrangements could change the analysis.

Citations and references

Statutes, rules, and case law:

• Utah Code Ann. § 59-12-102(23)(e) (printer's facility excluded from "retailer" definition)
• Utah Code Ann. § 59-12-102(33)(b) (printer's facility excluded from "vendor" definition)
• Utah Code Ann. § 59-12-107; Utah Admin. Rule R865-21U-3 (printer with nexus must collect/remit)
• Utah Admin. Code R865-19S-71 (four-part common-carrier freight exemption test)
• Utah Admin. Rule R865-19S-75 (photography is a taxable sale of tangible personal property)
• Utah State Tax Commission Tax Bulletin 16-00 (catalog purchase price; postage nontaxable)
• Utah State Tax Commission Bulletin 15-00 (graphic design services)
• 486 U.S. 24 (1988) (cited in the ruling as "COMPANY v. COMPANY"; publicly reported as D.H. Holmes Co., Ltd. v. McNamara — verified independently, not stated by name in the redacted ruling)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/00-039.htm

Original ruling text

REQUEST LETTER

00-039

Response May 5/18/01

Dear Mr. TP REPRESENTATIVE

We are evaluating the sales and
use tax responsibilities of one of our clients, a mail order retailer. As part of our analysis, we need to
determine if your state imposes a sales or use tax on product catalogs. Although many states have taken a position
on the matter in the context of COMPANYH
v. COMPANY, 486 U.S. 24, not all of the following is entirely clear to us.

Please respond to the following
and provide the appropriate technical authority for your decision:

1) Assuming that the retailer has agency nexus with your state, does
your state impose a tax on catalogs sent into the state via common carrier or
U.S. mail from outside the state?

2) Assuming the retailer does not have nexus with your state, but
the third-party printer of the catalogs does have nexus in your state, does
your state impose a tax on catalogs sent by the printer into the state from
outside of the state to customers of the retailer which reside in your state?

3) Same as above except the printer sends the catalogs to customers
in your state from within the state.

4) If the catalogs are subject to tax, explain what costs are
included in the tax base.

For example, the printer has a
variety of charges, including, ink, paper, typesetting, printing, and
mailing. Would the tax only apply to
the tangible personal property (ink and paper), or would it also apply to any
of the other charges imposed by the printer?

5) In addition, there may be other costs incurred by the retailer
such as photography, design, freight, and postage, some of which are paid to
different third-parties, some of which are internal costs, but none of which
are for purchases of tangible personal property. Which, if any, of these costs would be subject to tax?

Thank you for your
assistance. Please call me at PHONE if you have any questions.

Sincerely,

NAME

RESPONSE LETTER

May 18, 2001

NAME

ADDRESS

RE: Advisory Opinion - Sales and Use Tax on Product Catalogs

Dear NAME:

We have
received your request for an advisory opinion concerning an out-of-state mail
order retailer and whether it is liable for sales and use tax in Utah on its catalogs delivered to Utah customers under several
scenarios. Also, should the mail order
retailer be liable for sales and use tax in Utah, you ask for information on
how the tax liability is calculated.

** QUESTION 1: **Assuming the retailer has agency nexus with your state,
does your state impose a tax on catalogs sent into the state via common carrier
or U.S. mail from outside the state?

The
United States Supreme Court addressed this issue in COMPANY. v. COMPANY, 486
U.S. 24 (1988), finding that a mail order retailer that hired an out-of-state
printer to print and mail catalogs into STATE was responsible for use tax on
those catalogs. In that case, the
out-of-state retailer had stores in STATE, so there was no question concerning
the retailer having nexus with the state seeking to impose the use tax. In COMPANY v. Utah State Tax Commission,
Appeal No. ##### (USTC YEAR), the Utah State Tax Commission adopted the DH
Holmes view and imposed a use tax on an out-of-state company having nexus
with Utah for the catalogs it sent into Utah, even though the catalogs were
completely produced, printed, and mailed from a location outside of Utah. Accordingly, a retailer that has nexus with
Utah is liable for Utah�s sales and use tax on catalogs sent to customers in
Utah.

QUESTION 2:
Assuming the retailer does not have nexus with your state, but the
third-party printer of the catalogs does have nexus in your state, does your
state impose a tax on catalogs sent by the printer into the state from outside
of the state to customers of the retailer which reside in your state?

If
the mail order retailer does not otherwise have nexus with Utah, but has a
contract with a printer that has nexus with Utah to print and deliver catalogs
to Utah customers, then the mail order retailer does not acquire nexus with
Utah because of this relationship.
Under Utah Code Ann. �59-12-102(23)(e), a �retailer,� for sales and use
tax purposes, does not include:

(i) a printer's facility with which a retailer has contracted for printing shall not be considered to be a salesman, representative, peddler, canvasser, or agent of the retailer; and

(ii) the ownership of property that is located at the premises of a printer's facility with which the retailer has contracted for printing and that consists of the final printed product, property that becomes a part of the final printed product, or copy from which the printed product is produced, shall not result in the retailer being deemed to have or maintain an office, distribution house, sales house, warehouse, service enterprise, or other place of business, or to maintain a stock of goods, within this state.

In addition, Section
59-12-102(33)(b) provides that a "vendor" does not mean a printer's
facility described in Subsection (23)(e).
It is the Commission�s opinion that these exceptions from the
definitions of �retailer� and �vendor� were intended to preclude the imposition
of sales and use tax nexus on a party, such as a mail order retailer, under the
circumstances you describe when that party otherwise would not have nexus with
Utah.

Nevertheless,
a printer who has nexus with Utah is required to collect sales and use tax on
its Utah sales, which includes those sales of tangible personal property that
are delivered to a Utah location. See
Utah Code Ann. �59-12-107; Utah Admin. Rule R865-21U-3. Accordingly, for those catalogs that the
mail order retailer contracts with the printer to deliver within Utah, the
printer should collect and remit sales and use tax from the retailer. For those catalogs that are delivered
outside of Utah and, thus, considered items sold in interstate commerce, there
is no Utah sales and use tax liability.

**QUESTION
3: ** Same as Question 2, except the printer sends the catalogs to
customers in your state from within the state.

For
the same reasons explained in Question 2, the out-of-state mail order retailer
would incur Utah sales or use tax liability on catalogs the printer sends
within Utah, but not on catalogs the printer sends outside of Utah.

QUESTION
4:
If the catalogs are subject to tax, explain what costs are included in
the tax base. For example, the printer
has a variety of charges, including, ink, paper, typesetting, printing, and
mailing. Would the tax only apply to
the tangible personal property (ink and paper), or would it also apply to any
of the other charges imposed by the printer?

Almost
all charges associated with the purchase of printed materials become part of
the printed material�s purchase price, the amount on which the sales and use
tax is imposed. As explained in the
Utah State Tax Commission Tax Bulletin 16-00 (copy enclosed), charges for all
the items and services you describe above become part of the catalogs� purchase
price for taxation purposes.
Accordingly, sales and use tax is imposed on all these charges you
describe when they are associated with catalogs that are subject to taxation.

QUESTION
5:
In addition, there may be other costs incurred by the retailer such as
photography, design, freight, and postage, some of which are paid to different
third-parties, some of which are internal costs, but none of which are for
purchases of tangible personal property.
Which, if any, of these costs would be subject to tax?

Photography. Utah Admin. Rule 865-19S-75 provides that
the sale of photography is the sale of tangible personal property and is, thus,
taxable. Any photography charges
related to the purchase of catalogs that are taxable in Utah becomes part of
the taxable purchase price of those catalogs.

Graphic
Design. Utah State Tax Commission
Bulletin 15-00 (copy enclosed) explains that charges for graphic design
services incorporated into tangible personal property are usually taxable
because the tangible personal property, not the graphic design services, is the
object of the transaction. However, there
may be occasions where the graphic design services may be separated and not
included in the taxable purchase price for the printed materials. Please refer to Tax Bulletin 15-00 for more
information on how this distinction may apply to your specific circumstances.

Freight. If the item being shipped is exempt
from taxation, the transportation charges associated with the sale are also
exempt. On the other hand, if the item
being shipped is taxable, the transportation charges are usually taxable, too,
as part of the sales price of the item.
However, there is an exemption from sales tax for transportation
charges, if stated separately, when the freight is shipped by common carrier. However, the transportation charges must
satisfy all of the following conditions, as set forth in Utah Admin. Code
R865-19S-71 to qualify for the exemption:

1. Shipment must take place by means of common carrier.

2. Charges must be segregated and listed separately.

3. Charges must reflect the actual cost of shipping the particular tangible personal property by common carrier.

4. Shipment of the tangible personal property must take place after passage of title.

a) Shipment of the tangible personal property takes place after passage of title if the terms of the sale or lease are F.O.B. origin or F.O.B. shipping point.

b) If the invoice does not indicate an F.O.B. point, and a common carrier is used, it is assumed the terms are F.O.B. origin.

c) In all other cases, the shipment of tangible personal property takes place before passage of title.

We
understand that you will retain title to the catalogs until their delivery to
the ultimate recipient so you would not appear to qualify for the exemption.

Postage. Tax Bulletin
16-00 explains that postage charges are nontaxable.

Please contact us if your have any other questions.

For the Commission,

Pam Hendrickson

Commission Chair

PH/KC

00-039