Direct Mail Printing Sales

							         VERMONT AND RHODE ISLAND TURN FROM YELLOW TO PINK!


If you’re participating in the Direct Mail Coalition, you know exactly what it means to say that a
state is turning from yellow to pink. If you don’t know the meaning of the change in color, be
forewarned—it is a statement full of significance to the printing, publishing and direct mail
industries. Turning pink means the state has passed sales tax legislation enabling it to become a
full member of the Streamlined Sales Tax Agreement (“SSTA”).

Vermont and Rhode Island have passed SSTA legislation and will submit their Certificate of
Compliance to the Governing Board of the SSTA at its August 28 meeting in Bismarck, North
Dakota. If the Governing Board certifies Vermont’s and Rhode Island’s Certificate of
Compliance, these states will become full voting members of the Governing Board. The
implications are enormous.


 The implications are enormous. The proper forum for Taxpayer ruling requests may now
  be a committee comprised of representatives from other states rather than the Vermont
                Department of Tax or the Rhode Island Tax Administrator.

For example, if a Taxpayer in Vermont has a question on how to interpret the language in the
new legislation it may not be a matter that can be resolved by a ruling to the Vermont
Department of Taxes. The proper forum for the ruling request may be the Compliance Review
and Interpretation Committee (“CRIC”) of the SSTA. Vermont and Rhode Island are not
presently members of this important committee. The CRIC of the SSTA is comprised of
delegates from North Carolina, North Dakota, Indiana, Michigan, Minnesota, Oklahoma, and
Wyoming. These representatives will vote on ruling requests and then prepare rulings to be
submitted to the Governing Board for a formal vote on the interpretation.

As a result, tax administrators in SSTA states may be less responsive to taxpayer requests and
will definitely wield less authority as to how their sales tax statutes are administered. This is
arguably an unintended negative result of passing the legislation. This is notable and must be
taken into consideration by taxpayers in all pink and blue states, as shown by the colors used on
the SSTA map in Exhibit 1. Taxpayers in yellow states must arm themselves with the
knowledge needed to prepare for the SSTA; it is only a matter of time before these states turn
from yellow to pink. The fact that they are yellow on the SSTA map signifies that they are
already participating in the SSTA process.

The recent actions by Vermont and Rhode Island don’t make sense after a cursory review: why
would any state tax administrator cede its right to interpret its own statutes?
  The recent actions by Vermont and Rhode Island don’t make sense after a cursory review:
  why would a state voluntarily relinquish part of its taxing authority to a consortium of
                                      other states?

You need more background to understand why any state would relinquish part of its taxing
authority to a consortium of states.

The SSTA was adopted by a vote of a consortium of states on November 12, 2002; all states
shown in pink, blue and yellow on the SSTA map voted for the SSTA in 2002 or later. As of
November 1, 2005, enough states to comprise 20% of the population of the country had enacted
legislation conforming to the SSTA to allow the Governing Board of the SSTA to come into
legal existence. The goal of this consortium is to eventually convince Congress to allow all the
participating states to impose sales tax collection responsibilities on remote sellers. Many
prominent storefront vendors and local businesses ardently support the SSTA as a means for
them to alleviate their competitive disadvantage from remote catalog and internet vendors who
do not collect sales tax. While businesses in publishing, printing and direct mail marketing are
not the primary target of the SSTA consortium, provisions in the SSTA will nonetheless
immediately and directly affect them. This may be the direct result of the change in a particular
state’s law before and after passing the SSTA legislation or it may be an indirect result arising
from the administrative interpretations of the legislation as ruled on by the CRIC of the SSTA.


While businesses in publishing, printing and direct mail marketing are not the primary target
 of the SSTA consortium, provisions in the SSTA will nonetheless immediately and directly
 affect them. This may be a direct impact from the change in law or an indirect impact
               from how the CRIC of the SSTA interprets the law change.

An example of a direct impact can be seen in the taxation of delivery charges in Vermont before
and after the July 1, 2006 effective date of the legislation. Prior to July 1, 2006, Vermont did not
tax delivery charges on the sale of tangible personal property; after this date, delivery charges are
now part of the taxable sales price of tangible personal property sold or delivered in Vermont.
Tangible personal property includes printed material. Therefore, while delivery charges for
printed material were not previously taxable in this state, they are now taxable. Vermont
excluded the taxation of direct mail delivery charges but this exclusion does not apply to other
printed materials. Publishers and printers in this state should be concerned about this expansion
of the tax base that puts them at a competitive disadvantage against printers in other states that
do not impose taxes on delivery charges. Publishers and printers in yellow states that do not
currently tax delivery charges should also be concerned because the SSTA legislation that will
eventually come to their state may also carry the same negative baggage.

Vermont did not intend to put its printing and publishing industries at a competitive disadvantage
when it began taxing delivery charges. Indeed, in conversation with the Vermont delegate
representing the state in the SSTA, he admitted that it was an unintended consequence.
According to the delegate, the legislation to tax delivery charges was intentionally added and
supported by local vendors in Vermont who perceived that delivery charges associated with
deliveries by remote vendors into the state put them at a disadvantage if such delivery charges


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were not also taxed. There may be some truth in that statement in that it benefits certain
consumer-oriented retailers, yet it has a negative impact on other Vermont vendors, such as
printers and publishers, who must now pay tax on delivery charges associated with the sale of
printed material to their business customers.


 The taxation of delivery charges was intentionally added and supported by local vendors in
  Vermont, who perceived that they were at a competitive disadvantage with remote vendors
  delivering goods into the state. Yet it has a negative impact on other Vermont vendors,
such as printers and publishers, who must now pay tax on delivery charges associated with
                  the sale of printed material to their business customers.

There is a solution for Vermont’s particular dilemma. It can be found in joining the Direct Mail
Coalition, a business and trade association coalition specifically formed to address these issues in
a coordinated manner in all pink, blue and yellow states. Businesses must form a coalition
because the states have already formed a coalition through their participation in the SSTA. The
effort must be coordinated among businesses in these states. The Michigan printing industry has
a proposal before the CRIC of the SSTA that could be used by the Direct Mail Coalition to effect
a greater change in all the states. It could specifically be used in Vermont to allow the
publishing and printing industries to return to no taxation on the delivery of printed materials.
However, to change Michigan’s request to a broader delivery charge exclusion, publishers and
printers in Michigan and Vermont and other states must join together to support this
interpretation so that it will be adopted by a majority of the Governing Board delegates who will
eventually vote on the ruling. The industry can draft a printed material delivery exclusion, have
it adopted by the Governing Board of the SSTA, and thereby make it available to yellow states as
they pass SSTA legislation similar to Vermont. It will provide a means for states that previously
did not tax delivery charges to retain this exclusion for the printing and publishing industries
while at the same time tax delivery charges on consumer retail purchases.

Trade associations that have joined or are expected to join the Direct Mail Coalition include the
Printing Industries of America, the Direct Marketing Association, the Mailing & Fulfillment
Services Association, The Association for Postal Commerce, the Saturation Mailers Coalition,
PINE, Graphic Arts Association, PI of the Midlands, Association of Graphic Communications,
PI of Illinois & Indiana, PI of the Midlands, PI of the Carolinas, PI of the South and the Printing
Association of Florida. The efforts of these trade associations will not be successful unless the
business community representing publishers, printers, direct mail advertising and their customers
and suppliers in the pink, blue and yellow states join together in this initiative. However, the
taxation of delivery charges is just the tip of the iceberg when it comes to the impact of the
SSTA on publishing, printing and direct mail advertising.


  However, the taxation of delivery charges is just the tip of the iceberg when it comes to the
          impact of the SSTA on publishing, printing and direct mail advertising.

Other issues raised by the direct mail provisions of the SSTA include the taxation of mailing or
other ancillary services provided by printers and mailing houses, the taxation of electronically
provided mailing lists, the taxation of every piece of direct mail according to the mailing list


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addresses rather than the place of service, and possibly even the imposition of use tax on material
mailed into the state by remote vendors. All of these issues are buried in the SSTA legislation
and most of them can be addressed by the CRIC of the SSTA in an administrative ruling.

                                           Tax Imposition
The SSTA shifts the point of the taxable transaction to the destination. That requirement will
create a very difficult task for most printers and direct mail advertisers and other companies
using direct mail. The direct mail sourcing provisions apply to stockholder report distributions
and member communications—it is not limited to advertising material! For the direct mail
industry, that means maintaining the detailed addresses of all recipients of each direct mail piece
for the entire statute of limitations period in each state. The point where the performance of a
mailing service occurs is the best point of taxation rather than the destination of each piece of
mail. This is supported by Uniform Commercial Code principles; all states, with the exception
of Louisiana, adhere to the Uniform Commercial Code in determining where a sale occurs based
on the passage of title. The change to sourcing sales based on the ultimate destination of printed
material does not follow these principles.

                                          Mailing Services
Many states do not regard mailing, addressing and inserting services as taxable and printers and
mailers that provide these services on printed material produced for a customer have not
historically collected tax on these services in the majority of states as long as they are separately
stated on the invoice.

Officials in at least one state are interpreting the SSTA to hold mailing services provided with
printing services are now taxable even if they are separately priced and billed. While this state’s
position may not hold up on further analysis and protest, the issue is too important for the
printing and mailing industries to leave for later resolution. The Direct Mail Coalition will
affirmatively address this issue before the CRIC and the Governing Board delegates of the
SSTA.

                                          Postage Charges
Pass-through postage charges by a printer are traditionally non-taxable. Some state regulations
historically provide that when a printer sells an envelope with postage affixed to it, the charge for
the postage is not taxable when separately stated. Officials in these states typically interpret this
type of regulation broadly and do not tax postage charges passed-through by a printer. The
definition of “delivery charges” in the SSTA provides that delivery charges, including postage,
are taxable when incurred in connection with the sale of tangible personal property. Thus, if a
printer sells printed material and also incurs postage to mail the material according to the direct
mail advertiser’s mailing list, the postage charges are regarded as taxable delivery charges unless
the state specifically enacts the direct mail delivery exclusion. However, this issue may also be
resolved as a matter of interpretation before the Governing Board by applying Uniform
Commercial Code principles to the sales tax statutes.

                                     Tax Collection by Printers
If the SSTA initiative is successful and Congress ultimately allows the states to require remote
sellers to collect sales tax, states may presume that use tax may be imposed on catalogs and



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printed material mailed into a state by remote vendors. The Direct Mail Coalition seeks to
affirmatively address this issue before Congress passes Federal legislation.

                                           Conclusion
The Direct Mail Coalition is planning to effectively address these issues through the CRIC of the
SSTA which will allow for effective resolution on a timely basis without a need for immediate
legislation. The goals of the Direct Mail Coalition include:

   1. No taxation of postage.
   2. No taxation of mailing services when separately stated from printed material sales.
   3. Adoption of advertising agency rules that allow agencies to pay tax to printers rather than
      collect tax on sale to advertisers.
   4. No use tax on direct mail materials mailed from out-of-state by a remote vendor.
   5. No direct mail sourcing when title transfers prior to delivery by USPS or any other
      delivery service.

Subsequent articles to be published in future editions will further explain each of these issues and
the solution proposed by the Direct Mail Coalition. If you’re doing business in a yellow state
preparing to turn pink, the SSTA should be near the top of the list for attention by your Tax
Director or your Governmental Affairs Director. If your business does not have this in-house
expertise connect with PINE or one of the other trade associations involved in the Direct Mail
Coalition to find out how problems can be avoided in your state as it adopts this legislation.

Remote sellers have been actively involved in monitoring the SSTA and are especially interested
in whether or not Congress will act to allow the states to require remote sellers to collect sales
tax. However, large and small direct mail advertisers, mailing houses and printers, while
certainly will be affected by pending Congressional action, will be more directly impacted by
SSTA legislation at the state level. The impact of state legislation on direct mail marketers will
be immediate, regardless of whether or not Congress ultimately supports the SSTA. It is critical
that they understand the impact of proposed legislation in order to prepare for and minimize the
impact of the changes and to support the enactment of the postage exclusion.



                                             Author

Melanie Hill of Dow Lohnes Price Tax Consulting Group, LLC has been closely watching the
developments of the SSTA as it relates to Direct Mail for several years now. While other
industries have banded together to work for their own reasonable solutions to issues raised by the
SSTA, the printing, publishing and direct mail advertising industries have not been involved to
the degree necessary to ensure that the SSTA truly does simplify sales tax compliance for their
businesses. In fact, current interpretations accepted by many SSTA participants result in an
overly complex tax administration structure. Dow Lohnes Price is forming the Direct Mail
Coalition to bring together interested trade associations and companies to work together to effect
interpretations to resolve direct mail issues created by the SSTA. For more information on this
coalition or the SSTA, contact Melanie Hill at mchill@dlptax.com or Nancy Drummond at



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ndrummond@dlptax.com or at (864)241-2001. This article is not intended to provide specific
tax advice.




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