Sales Tax Articles
Sales Tax State Activity Update - March 2007
Advertiser Gets Stuck for Use Tax in the Tarheel State
The Taxpayer who was an out of state publisher paid fees to an out of state print broker for circulars that were distributed in North Carolina free of charge. The Secretary of Revenue ruled the fees were not for non-taxable advertising services but were for taxable tangible personal property.
Issues
- Did the Taxpayer purchase non-taxable advertising services or tangible personal property in the form of printed advertising material for distribution in North Carolina which is subject to use tax on its cost price?
- Is the charge for postage on the printed advertising material considered a part of the "sales price" of the printed advertising material distributed in North Carolina taxable?
Facts
During the audit period which was October 1, 1999 to September 30, 2003, the Taxpayer was engaged in business as a publisher for a print broker both of whom were located out of state. Neither the Taxpayer nor the print broker was registered to collect sales and use tax in North Carolina.
The circular which is mailed to citizens free of charge would solicit for advertisers also within North Carolina.
The advertisements were sent to a print broker on a computer disk along with an order form with the quantity to be mailed, and payments for labels, printing and postage. The circulars were then printed also out-of-sate.
After the circulars were printed, addressed and sorted by zip code, they were weighed and metered by the United States Postal Service. The publications were then wrapped and sealed and shipped to a postal distribution center in North Carolina. At this point the packages were unwrapped, sorted and delivered to the appropriate post offices to be mailed to the Taxpayer's clients in North Carolina.
Taxpayer's Position
The Department of Revenue is attempting to levy a use tax on intangible personal property and services rather than tangible personal property. The Taxpayer contends that it actually purchases only non-taxable advertising services and does not sell the circulars since circulars are distributed free to the public. The Taxpayer also contends that the relationship between the parties is that of an out-of-state printer which prints the free distribution circulars and the Taxpayer which sells advertising space in the circulars.
Decision
The Circulars meet the definition of tangible personal as defined in G.S. 105-164.3(46). Effective October 1, 1999, the exemption provided in G.S. 105-164.13(39) for tangible personal property sold to commercial printers and publishers for use in free circulation publications as well as the exemption for sales by printers of free circulation publications to the publishers of these publications was repealed.
Effective January 1, 2002 the following law changes apply: Separately stated postage charges are subject to sales or use tax under G.S. 105-164.3(18), the definition of "use" in G.S. 105-164.3(18) and G.S. 105-164.3(49) includes distribution, purchase price under G.S. 105-164.3(33) provides that term has the same meaning as the term sales price when applied to an item subject to use.
The essence of what the print broker conveyed, in substance, in exchange for consideration paid by the Taxpayer is taxable tangible printed matter and the Taxpayer owned and used the property in North Carolina, fulfilling the definition of "use." As a result the Secretary of revenue ruled the Taxpayer is liable for the use tax based on its "use" of the taxable tangible personal property in North Carolina pursuant to G.S. 105-164.3(18) and (49).
This ruling may be viewed on the North Carolina Department of Revenue website.
(North Carolina Department, Secretary of Revenue Decision, No. 2006-243, 1/11/2007)
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