98-051
Response
August 14, 1998
REQUEST
LETTER
July
21, 1998
RE: Clarification for Taxable/Non-Taxable
Sales
To
Whom It May Concern;
Our
company was referred to the Advisory Board by Gill Nesbitt, Compliance Auditor. We are
seeking
clarification of Taxable/Non-Taxable Sales for our company. In the past we have
contacted
the Utah State Tax Commission 6 times regarding Sales Tax collection. In the
specific
cases
we presented, your Customer Service agents up to your Compliance Auditors
instructed
that
our services are Taxable under Regulation: R865-19S-80.
We
have a current issue with one or our clients regarding exempt sales. They are
debating
invoices
paid over the past 2 years are non taxable. These are the very cases we
presented to the
State
Tax Commission. Our customer claims the State of Utah has granted our services
as Non-
Taxable.
We have not received written notification from the State of Utah nor our client
confirming
this decision. Our customer has verbally requested a refund including interest
on
invoices
paid over the last two years. They are refusing to pay any of our current
invoices until
we
comply. In addition this customer has never provided us with a signed TC-71
Exemption
Form.
We are unsure of what to do next. We
would like the committee to review our services
and
inform us in writing if our services are considered Taxable or Non-Taxable. We
would
appreciate
a prompt response. We are being held hostage by our customer. They owe our
company
large sums of money and are refusing to pay.
COMPANY
A performs Direct Marketing and Fulfillment Services for other companies. An
advertising
piece is supplied by the customer to COMPANY A. with a computer file of names.
We
data process the names on the disk, compile with other mailing lists, clean the
address, sort
the
address for postage discounts, etc. We then insert the advertising piece into a
customer
supplied
envelope. The address is then printed on the envelope. We deliver the piece sorted and
bundled
to the post office with appropriate forms. Each marketing piece that comes to
our office
is
unique. Sometimes the client provides the piece, other times we create, print or fold the
piece.
If the piece is complicated, we must hand insert the items rather than use
machines.
We
also assemble marketing kits fulfilled with promotional items. The customer provides the
items
for these kits. COMPANY A warehouses
the promotional items upon their approval we
assemble
the kits and send them out to the list of names they have provided. These are
promotional
items and not for resale. In some cases we purchase the items for the customer.
We
purchase our supplies tax exempt. These supplies include ink, toner cartridges,
paper,
envelopes,
tabs, bubble wrap, boxes, tape, printing services, etc..
We
provide these services to several other companies, which have never questioned
Sales Tax.
If
we refund to this customer we would also need to refund to all others. Over the past two
years
we have paid $$$$$ in Sales Tax. We
have been told by Gill Nesbitt to continue
collecting
Sales Tax, as in the past until writing confirmation arrives from the State of
Utah.
We
are willing to refund any Sales Tax collected on Non-Taxable Service when we
receive
clarification
from the State of Utah in writing. Your explanation and expertise is
appreciated.
Your
prompt attention in this matter is appreciated. If you need further
assistance or information, please contact NAME at #####. If possible, please fax the decision to our office #####.
Thank
You,
NAME
August
14, 1998
NAME
ADDRESS
CITY,
STATE ZIP
RE: Advisory
Opinion - Direct Marketing Services Subject to Sales Tax
Dear
NAME,
We have received your request for an
advisory opinion concerning the services provided by COMPANY A (“COMPANY A”),
which include the printing and mailing of direct marketing advertisements and
the assembling and mailing of promotional kits. You have specifically asked whether sales tax should be applied
to the charges for these services.
At present, the Tax Commission is
studying the taxation of the printing industry, particularly as it relates to
recent technological changes and the consistency of tax liability between
various providers. The findings from
this study should be available for possible implementation in the near
future. Until then, the Tax Commission
will address those questions that concern printing issues using the guidelines
currently in place.
Direct Marketing Advertising. For this service, you state that your customer
supplies an advertising piece, a computer file with a list of recipients, and
envelopes. Then, COMPANY A processes
the names on the provided computer file, compiles this file with other mailing
lists, cleans and sorts the addresses, puts the advertising pieces in the
envelopes, prints the addresses on the envelopes, and mails them. In this instance, COMPANY A is not
considered to have produced a tangible personal property for which its customer
is paying because the customer has supplied the printed matter (the advertising
pieces). Also, while one might consider
the printing of the addresses as the installation of tangible personal property
(ink) onto other tangible personal property (envelopes), which is a taxable
event, the Tax Commission does not currently characterize this service as
falling within the meaning of such an installation. Thus, on a job consisting of these services, the Tax Commission
would not consider the transaction to be subject to sales tax.
However, you then add that on some
jobs, COMPANY A 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 A
is printing and mailing for them. This
sale is subject to sales tax. Utah
Admin. Code R865-19S-80(B) 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.
Thus, on such a job as this, all charges to COMPANY A’s customer are
taxable, except those for actual postage costs.
Assembling Marketing Kits. For this service, you state that the
customer provides promotional items to COMPANY A and a list of names to receive
the assembled promotional kits comprised of these items. COMPANY A’s services
consist of warehousing the items, assembling the items into promotional kits,
then sending the kits to the names on the mailing list. These services do not comprise the sale of
tangible personal property, and the charges for the services are not subject to
sales tax.
However, you then state that the
promotional items are sometimes not supplied by the customer, but bought by
COMPANY A instead. In this case, the
charge to the customer is not to assemble promotional kits, but for the
purchase of the promotional kits themselves.
Because tangible personal property has been sold to your customer, all
charges to the customer are subject to sales tax under these circumstances.
Purchasing Supplies. You have stated that COMPANY A purchases its
supplies tax exempt. You have listed
these supplies to include ink, toner cartridges, paper, envelopes, tabs, bubble
wrap, boxes, tape, and printing services.
Depending upon the services provided by COMPANY A, some of the supplies
may be bought tax exempt, but others should have sales tax paid on them.
Supplies that are bought for resale
either in their original form or as component parts of a compounded product may
be bought tax exempt. Thus, when
COMPANY A sells printed matter or promotional kits to its customers, which were
determined to be taxable sales above, COMPANY A may purchase tax exempt the
items and supplies that become a component part of these taxable products.
For supplies bought to provide
services that are not subject to sales tax, COMPANY A is considered the final
consumer of these supplies.
Accordingly, COMPANY A should pay sales tax on its purchase of these
supplies. Also, supplies that are
consumed in the ordinary course of COMPANY A’s business, such as pencils, pens,
etc., are also subject to sales tax when purchased by COMPANY A.
Please contact us if you have any
other questions.
For
the Commission,
Joe
B. Pacheco, CPA
Commissioner
^^