Sales Tax Articles
Sales Tax State Activity Update - April 2007
The 4-1-1 on Telephone Directory Exemptions from New York
A petitioner used a contract carrier in certain instances to deliver telephone directories. An Administrative Law Judge ruled that action alone tainted the sale and use tax exemption afforded certain promotional material in New York Tax Law section 1115(n).
In March 2002, the petitioner timely filed a claim for refund of sales and use tax based on, among other provisions, New York Tax Law section, 1115(n)(4). The total claim included exempt Internet transactions, sales tax paid on printing, and use tax paid on the cost of ink, paper, printing and other services used in making and distributing Yellow Book telephone directories.
The petitioner's refund claim triggered an audit by the New York Tax Division. After the completion of the audit, the Division granted in part and denied in part the petitioner's refund claim. The amount approved included the tax paid on Internet transactions, and use tax paid for producing telephone directories delivered by the United States Postal Service. The balance of petitioner's refund claim was denied. The portion of the claim which was denied relates to directories which were not shipped via a common carrier, the United States Postal Service, or a like delivery service. The exemption for printed promotional materials requires shipping or mailing by one of these methods.
Tax Law section 1115(n)(4) states "Notwithstanding any contrary provisions of paragraph one of this subdivision, promotional materials which are printed materials and promotional materials upon which services described in paragraph two of subdivision (c) of section eleven hundred five have been directly performed shall be exempt from tax under this article where the purchaser of such promotional materials mails or ships such promotional materials, or causes such promotional materials to be mailed or shipped, to its customers or prospective customers, without charge to such customers or prospective customers, by means of a common carrier, United States postal service or like delivery service".
The Appeals Division upheld the refund denial. Based on the facts presented it was concluded that the delivery companies used by the taxpayer were contract carriers, not common carriers, and the taxpayer's argument that "common carrier" should be interpreted to include a contract carrier was without support. Moreover, the same facts that established that the taxpayer's carriers were not common carriers, also proved that they were not a "like delivery service." Specifically, the taxpayer's delivery companies delivered the directories pursuant to negotiated contracts, not set fees, they provided customized service to the taxpayer, and they had an ongoing relationship with the taxpayer. Since the delivery companies used by the taxpayer to deliver its directories were not common carriers or like delivery service providers, the taxpayer could not satisfy the requirements of N.Y. Tax Law section 1115(n)(4) and the costs of producing the directories were subject to sales tax.
This ruling may be viewed on the New York State Division of Tax Appeals website.
(In the Matter of the Petition of Yellow Book of New York, Inc., NYS Division of Tax Appeals, ALJ, DTA No. 820527, 02/26/2007)
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