Every evening, people across the United States walk down their driveway and open their mailbox. Inside, we discover the latest stack of junk mail which has been dropped off by our local mail carrier. Some people, like my wife, simply add this to an ever-growing stack of advertisements that I then need to regularly go through and redistribute to my local recycling center. As you might guess, this is a source of frustration in my household and likely yours, too.
Every once in a while, while sifting through these “marketing materials,” I come across something from a company I work with (or want to). In most cases, I take a quick photo and text it to my contacts at the company along with a short note like “we need to talk;” “direct mail is a sales tax nightmare;” or “I bet I can find you significant refunds related to this stuff.” The irony here, of course, is that now I’ve likely created junk mail for another human being to promptly dispose of. But sometimes the conversation carries on, and usually my text message rings true.
In an earlier post, I mentioned that the two most troubling sales tax issues for companies tend to be related to software and direct mail. Direct mail is especially difficult, as there are numerous issues to untangle, and a robust understanding of the facts is critical. Here are some key issues to consider in that assessment:
There are four types of statutory provisions that typically apply to advertising materials. States may have statutes or guidance which exempt: (1) advertising materials, (2) direct mail, (3) periodicals or publications; and/or (4) goods temporarily stored in-state and shipped to another state. With these exemptions in mind, a thorough understanding of the facts is essential. Some critical questions to ask include:
What am I buying?
Are the materials shipped directly to the targeted audience?
If the materials are not shipped directly to the targeted audience, where are they shipped to?
Who is delivering the materials to the targeted audience (both the party initiating the delivery and the party conducting the delivery)?
Are the materials inserted into a newspaper or magazine when delivered to the target audience?
What percentage of the materials are delivered to a state other than where we originally take possession of the goods?
Once these threshold questions are answered, layering the state-by-state exemption statutes onto the facts helps determine where and whether tax should be paid. States differ both in terms of the exemptions provided as well as the type of factual documentation required. Understanding these state-by-state distinctions is critical to arriving at an accurate tax calculation.
So, next time your spouse is upset because you haven’t filtered through the week’s junk mail (first, take a moment to do so…and then), consider how much more difficult that conversation would be with your boss. Analyzing your company’s purchases of advertising materials to determine proper sales tax treatment is critical, yet often overlooked. Avoid the clutter on your kitchen countertop and look into it before it becomes a problem.
Kyle is a State and Local Tax practitioner, focused on providing value to clients across a variety of industries: healthcare, financial services, construction, manufacturing and retail. He develops the tax departments with which ...
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