Does Utah sales or use tax apply to printed customer statements a Utah printer produces and mails to both Utah and out-of-state policyholders, depending on who supplies the paper and where the printer ships the materials?

Plain-English summary

An out-of-state insurance company's corporate attorney-in-fact purchased printed monthly statements and disclosure documents from a Utah-based printer/fulfillment company. The company's data center sent print files electronically to the Utah printer, which printed and mailed statements directly to policyholders (5% located in Utah, 95% out of state); occasionally, the printer instead shipped finished statements to the company's out-of-state headquarters for approval before mailing. The paper could come from either the printer or the company itself. The company asked the Commission to sort out Utah sales/use tax treatment across three scenarios: (A) the Utah printer supplies the paper and does the printing, (B) the company supplies its own paper and the printer only prints, and (C) the printer ships finished statements to the company's out-of-state headquarters for further distribution -- and, for any tax found to apply on interstate shipments, why the interstate commerce exemption wouldn't apply.

Scenario A -- printer supplies paper and printing. Utah taxes retail sales of tangible personal property made in the state (§ 59-12-103(1)), and Utah Admin. Rule R865-19S-80(3) requires a printer to collect tax on printed-material charges even when the customer supplies the paper. Materials shipped to Utah policyholders are taxable; materials shipped to non-Utah policyholders are exempt as interstate commerce under Rule R865-19S-44, but ONLY if both the printed material and all pre-press materials physically leave Utah. If the printer keeps or retains any pre-press material in Utah, that pre-press material's cost is separately taxable -- and if it isn't separately stated on the invoice, the entire transaction becomes taxable.

Scenario B -- company supplies paper, printer only prints. The fabrication (printing) labor is taxed the same way as Scenario A: taxable if shipped to Utah customers, exempt as interstate commerce if shipped out of state and it meets Rule R865-19S-44's requirements. Separately, though, the company itself owes Utah use tax on the paper it supplies to the Utah printer -- regardless of where the finished statements ultimately get mailed, including paper used for out-of-state statements. If the company already paid a similar tax to its home state on that paper, Utah allows a credit up to the amount of Utah tax otherwise due.

Scenario C -- printer ships to company's out-of-state headquarters for redistribution. The company owes Utah use tax on ALL the paper it supplies to the printer, regardless of ultimate destination (again with credit available for home-state tax already paid). Additionally, whatever portion of the finished statements gets reshipped from headquarters back into Utah to Utah policyholders separately triggers Utah sales or use tax on that reshipment.

A nexus caveat applies throughout. Under § 59-12-107(1)(d), merely owning property (like paper) sitting at the Utah printer's facility does NOT by itself create Utah nexus for the out-of-state company. Utah sales tax is still legally due on Utah-bound sales, but without nexus, the company itself has no obligation to collect it (though the printer, having its own Utah nexus, generally must). If the company has other Utah contacts -- a sales office, agents, etc. -- those could independently create nexus and shift collection responsibility onto the company. The Commission left it to the company to determine whether any such other nexus-creating contacts existed.

What this means for you

Companies using out-of-state or multi-location print/mail fulfillment vendors

The destination of each shipment, not just where your vendor is located, drives Utah tax exposure. Track and document which finished pieces go to Utah addresses versus out-of-state addresses, and make sure ALL pre-press materials (proofs, plates, digital files used only for production) also leave Utah on interstate-bound jobs -- retaining any pre-press material in Utah can taint the whole exemption unless it's separately priced and taxed.

Businesses supplying their own paper/materials to a Utah printer

Supplying your own paper doesn't avoid Utah tax -- it shifts the tax from a sales tax on the printer's finished-goods charge to a use tax you self-assess on the paper itself, and that use tax applies to ALL the paper used (even paper destined for out-of-state customers), not just the Utah-bound portion. Check whether you already paid a similar tax in your home state; Utah allows a credit against that.

Out-of-state companies whose only Utah contact is a vendor relationship

Simply owning property that happens to be located at a Utah vendor's facility does not, by itself, create Utah nexus obligating you to collect sales tax. But any additional Utah presence (offices, employees, agents) can create nexus independently -- evaluate your full footprint, not just the vendor relationship.

Common questions

Q: Is Utah sales tax due on printed statements mailed by a Utah printer to out-of-state customers?
A: No, provided both the finished printed material and any pre-press materials used to produce it are physically shipped out of Utah, satisfying the interstate commerce exemption requirements.

Q: Does supplying my own paper to a Utah printer avoid Utah tax?
A: No -- it shifts the tax from sales tax on the printer's charge to a use tax you self-assess on the paper itself, which applies to all the paper used regardless of final shipping destination.

Q: If I own paper or materials sitting at a Utah printer's facility, does that create Utah nexus for my business?
A: Not by itself. Ownership of property at a Utah vendor's facility alone does not create nexus, though other Utah contacts (offices, agents, etc.) independently can.

Q: Does this ruling apply to my print/mail fulfillment arrangement?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission applies the interstate commerce exemption and use tax rules to similar print-and-mail scenarios.

Citations and references

Statutes and rules:

• § 59-12-103(1)(l) (tax on tangible personal property used, stored, or consumed in Utah)
• § 59-12-102(104) (definition of "use")
• § 59-12-107(1)(d) (ownership of property at a Utah facility alone doesn't create nexus)
• Utah Admin. Rule R865-19S-80(3) (printer collects tax on printed material even if customer supplies paper)
• Utah Admin. Rule R865-19S-44 (interstate commerce exemption requirements)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/07-004.pdf

Original ruling text

REQUEST LETTER

07-004

December 19. 2006

Utah State Tax Commission
Technical Research Division
210 North 1950 West
Salt Lake City UT 84134

SUBJECT: Tax Opinion Letter

On behalf of our client, COMPANY, we respectfully request written advice for the taxability of
printed materials purchased from a Utah printer/fulfillment company. The vendor is registered
for sales and use tax purposes in Utah. COMPANY does not currently have any pending
administrative matters before the Utah Tax Commission.

FACTS

COMPANY is a STATE corporate attorney-in-fact for 2ND COMPANY, which is a STATE
domiciled reciprocal interinsurance exchange.

COMPANY is purchasing printed materials including but not limited to monthly statements,
disclosure documents, and similar printed materials. COMPANY CITY data center compiles a
print file with all mailing addresses and customer information. The print files are sent
electronically to a printer located in Utah for printing and fulfillment. Customer statements are
mailed directly to COMPANY customers. Currently, COMPANY policyholders/customers are
located in the following states: 5% located in Utah and 95% located outside of Utah.

On occasion, customer statements may be delivered directly to COMPANY’s STATE
headquarters for approval and mailing to policyholders. The paper used to print the customer
statements may be provided by either COMPANY or the printer.

ISSUES:

Assuming the Utah printer performs the printing and provides the paper/supplies:

Does Utah sales tax apply to printed materials shipped to COMPANY’s Utah policyholders?

Does Utah sales tax apply to printed materials shipped to COMPANY’s Non-Utah policyholders
(interstate shipments?)?

Assuming the COMPANY provides the paper and printer performs printing only:

Page 2

Does Utah sales tax apply to the fabrication labor for property shipped to COMPANY’s Utah
policyholders?

Does Utah sales tax apply to the fabrication labor used to produce property shipped to
COMPANY’s Non-Utah policyholders (interstate shipments?

Does COMPANY owe Utah use tax on the paper shipped to Utah from STATE (no STATE tax
previously paid), if the paper is used to produce customer statements delivered within and
without Utah?

Assuming the printer ships the printed materials to COMPANY’s STATE Headquarters for
further distribution.

Does Utah sales/use tax apply to property reshipped to COMPANY’s Utah policyholders?

Note: To the extent Utah sales or use tax is determined to apply to property shipped outside of
Utah, please address why an interstate commerce exemption does not apply.

Thank you in advance for your assistance to determine the proper application of Utah sales and
use tax to these transactions. If you require any additional information, please give me a call at
(###) ###-####.

Sincerely

NAME
COMPANY

Cc: 2ND NAME, 2ND COMPANY

Page 3

October 29, 2007

NAME
ADDRESS

RE: Private Letter Ruling 07-004
Application of Sales and Use Tax to printed materials purchased from a Utah
printer/fulfillment company

Dear Mr. NAME,

    We have received your letter requesting a ruling regarding the applicability of Utah sales

and use tax to printed materials purchased from a Utah printer/fulfillment company. The request
asks a series of questions under different scenarios. Our response addresses each question
separately. It should be noted, however, that the ruling in this letter is not intended to be a
statement of broad Tax Commission Policy. It is an interpretation of the tax law as it relates to
the facts presented in your request letter and the assumptions stated in this ruling. If the facts or
assumptions are not correctly described in this ruling, please let us know so we can assure a more
accurate response to your circumstances.

                                           FACTS

    Taxpayer, COMPANY, is a STATE corporate attorney-in-fact for ND     2 COMPANY.

COMPANY purchases printed materials from a printer located in Utah. Occasionally, the printed
materials are delivered directly to COMPANY’s STATE Headquarters. Either COMPANY or the
printer provides the paper. The printed materials include monthly statements, disclosure
documents and similar printed materials. COMPANY also compiles a print file in its CITY data
center that includes the data and the mailing addresses of its customers. These files are then sent
electronically to the Utah printer for printing and fulfillment. COMPANY’s customers are
located both within (5%) and outside (95%) Utah. Under different scenarios, COMPANY wants
to know if the Utah sales and use tax are applicable to printed materials purchased from a Utah
printer/fulfillment company.

                                   APPLICABLE LAW

    Utah Code § 59-12-103 imposes tax on the purchaser for, “(1)(l) amounts paid or charged

for tangible personal property if within this state the tangible personal property is: (i) stored; (ii)
used; or (iii) otherwise consumed;”

Utah Code § 59-12-102(104) defines the term “use” as, “(a) ‘Use’ means the exercise of any
right or power over tangible personal property under Subsection 59-12-103(1), incident to the
ownership or the leasing of that property, item, or service.”

Page 4

                                       ANALYSIS

    Your letter requests answers with respect to the taxability of printed materials under three

different scenarios. Our response addresses the questions under each scenario separately.

A. Utah printer performs the printing and provides the paper/supplies.

1. Does Utah sales tax apply to printed materials shipped to COMPANY’s Utah
   policyholders?
2. Does Utah sales tax apply to printed materials shipped to COMPANY’ Non-Utah
   policyholders (interstate shipments)?

Answer:

    Utah sales tax is imposed on retail sales of tangible personal property made within the

state per Utah Code §59-12-103(1). Tax Commission rule R865-19S-80 (3) clarifies that a
printer shall collect sales and use tax on charges for printed material, even though the customer
may provide the paper. However, pursuant to the Tax Commission rule R865-19S-80 and R865-
19S-44, sales made from Utah via interstate commerce are not subject to Utah sales tax, provided
the materials, including pre-press materials are physically shipped out of state.

    So in reference to question A.2 above, Tax Commission Rule R865-19S-44 defines the

circumstances for which the exemption applies: “B. Before a sale qualifies as a sale made in
interstate commerce, the following must be complied with: 1. The transaction must involve
actual and physical movement of the property sold across the state line; 2. such movement must
be an essential and not an incidental part of the sale; 3. the seller must be obligated by the
express or unavoidable implied terms of the sale, or contract to sell, to make physical delivery of
the property across a state boundary line to the buyer;”

    Private Letter Ruling, 00-039 previously stated that “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.” It goes on to say “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.”

    In a related ruling, Private Letter Ruling 98-051, the Commission dealt with a fulfillment

company that provided various mailing services such as cutting, folding, stapling, etc. while
these services standing alone would normally not be taxable, the Commission stated, “However,
you then add that on some jobs, COMPANY 1 also creates and prints the advertising piece. This
changes the nature of the services provided. In this instance, the customer is purchasing printed
matter (the advertising pieces) that COMPANY 2 is mailing for them. This sale is subject to sales
tax. Utah Administrative Code R865-19S-80 further provides that services in connection with the
sale of printed matter, such as cutting, folding, addressing, and mailing are taxable, but actual
postage charges where the cost is passed through to the customer without markup are exempt.

Page 5

Thus, on such a job as this, all charges to COMPANY 1 customer are taxable, except those for
actual postage costs.”

  Therefore, the answer to question A.1 above is yes: that is, the items shipped to Utah

customers are subject to Utah sales or use tax. If the printer does not collect the sales tax from
COMPANY, then COMPANY must accrue and remit use tax on these items to the State of Utah.

    The answer to question A.2 is no, provided the printed material and all pre-press

materials are shipped outside of Utah pursuant to the requirements of rule R865-19S-44. If the
pre-press material is retained by the Utah printer or otherwise remains in Utah, Utah sales tax is
due on the pre-press material. In that case, the purchase price of the pre-press material must be
separately stated and taxed on the invoice; otherwise the entire transaction is subject to Utah
sales tax.

B. Assuming COMPANY provides the paper and printer performs printing only.

 1. Does Utah sales tax apply to the fabrication labor used to produce property shipped to
       COMPANY’s Utah policyholders?
 2. Does Utah sales tax apply to the fabrication labor used to produce property shipped to
    COMPANY’s non-Utah policyholders?
 3. Does COMPANY owe Utah use tax on the paper shipped to Utah from STATE if the
    paper is used to produce customer statements delivered within and without Utah?

Answer:

    Tax Commission rule R865-19S-80 states that “(3) Except as provided in Subsection (3),

a printer shall collect sales and use tax on the following: (i) charges for printed material, even
though the paper may be furnished by the customer.” So the answer to the taxability of the
printer’s charges, question B.1, is the same as for A. above. When the property produced is
shipped to Utah customers, it is subject to Utah sales or use tax. However, when the property is
shipped to COMPANY’s non-Utah customers, question B.2, and fits the interstate commerce
provisions of rule 865-19S-44, the product is not subject to Utah sales and use tax.

    As for whether COMPANY owes Utah use tax on the paper it supplies to the printer,

question B.3, the answer is yes. Therefore, under the above quoted provisions of the Utah law,
use tax would be reportable to the State of Utah on of the paper used, including paper that is
ultimately shipped to non-Utah policy-holders and statements shipped back to COMPANY by
the printer. If tax were properly paid and first due to the State of STATE, Utah would allow
credit for the tax paid to STATE up to the amount of the Utah tax.

C. Assuming printer ships printed materials to COMPANY’s STATE Headquarters for

further distribution; does Utah sales/use tax apply to property reshipped to COMPANY’s Utah
policyholders?

Answer:

Page 6

      In this case, COMPANY owes Utah use tax on all the paper it supplies to the printer

regardless of where it was distributed. This is based on Utah Code 59-12-103 (1)(l): amounts
paid or charged for tangible personal property if within this state the tangible personal property
is: (i) stored; (ii) used; or (iii) consumed. As is the case with question B.3., Utah would allow
credit for tax paid to STATE on the paper if first due to STATE.” (Emphasis added.)

     While the analysis for your questions is accurate, a caveat must be added. Under 59-12-

107 (1) (d) the ownership of property by the retailer (COMPANY) at the printer’s facility by
itself does not create nexus. The sales tax is due, but in the absence of nexus, the retailer has no
obligation to collect the tax. However, if the retailer has other contacts within Utah that create
nexus, such as the presence of a sales office or agents, then the retailer is required to collect the
sales tax. It is up to COMPANY to take the responsibility for determining whether other aspects
of its operations in Utah create nexus.

                                     CONCLUSION

    Based on the analysis provided above and in line with the facts stated in your request

letter, our ruling is as summarized as follows:

 Utah sales tax is due on items shipped to Utah customers of COMPANY when the Utah
printer performs the printing and provides the paper/supplies.

 Utah sales and use tax are not applicable to printed materials shipped to COMPANY’s
non-Utah policyholders, provided the printed material and all pre-press material are
shipped outside of Utah.

 Utah sales and use tax are due on items shipped to Utah customers of COMPANY, while
items shipped to non-Utah policyholders are not taxable, even when COMPANY
provides the paper and the Utah printer performs printing only.

 When items are reshipped to COMPANY’s Utah policyholders, use tax is owed to the
State of Utah, which would allow credit for tax paid to STATE on the paper if first due to
STATE.

    Our conclusions are based on the facts you presented. Should the facts be different from

those represented in this letter, our opinion may change accordingly. Thank you for your inquiry
into this matter.

For the Commission,
Marc B. Johnson
Commissioner

MBJ/BA
07-004