Taxation of
postage discussed by National Conference of State Legislatures Melanie Hill, a certified public accountant with the Greenville, S.C. tax consulting firm, DowLohnes Price, appeared before the committee to explain the perils of taxing postage and the confusion that exists with the multi-state Streamlined Sales Tax Agreement (SSTA). Hill is leading a national Direct Mail Coalition that has the backing of several printing industry trade groups including Printing Industries of New England, Printing Industries of America/Graphic Arts Technical Foundation (PIA/GATF) and other professional organizations representing the mailing, direct marketing and direct mail industries. Hill led the discussion at the NCSL tax committee meeting and made it personal for the senators and representatives by asking how many legislators had their own postal permit to use in direct mail political campaigns. She then described typical arrangements for implementing a direct mail campaign. Typically the printer will provide an estimate of the postage needed to mail the literature as well as a fixed price for the printing and mailing services. The legislator would give the printer funds to purchase postage in advance, which are held in a fiduciary capacity by the printer. The printer then purchases the postage as an agent on behalf of the legislator. The mailing agent is disclosed and certified on forms audited by the U.S. Postal Service when it accepts the literature mailed on behalf of the legislator by its mailing Agent. Hill then explained that some SSTA states are misinterpreting the definition of delivery charges to include postage purchased by a mailing agent to enter mail into the mail stream. In doing so, the state ignores the agency relationship in the receipt of fiduciary funds to purchase postage by the mailing agent and instead treats it as a sale of postage by the mailing agent. The USPS is aware of this potential problem and has issued a letter to the SSTA Governing Board asserting that it is incorrect to treat the transaction as a sale of postage by the Mailing Agent. Even more disturbing is the fact that the taxation of postage purchased by mailing agents is a position that ignores contract law and Uniform Commercial Code principles. The SSTA applies sales tax to delivery charges only when the delivery is part of the sale of tangible personal property. However, when the mailing agent delivers campaign literature to the postal service, title to the literature has already passed from the printer to the legislator. The subsequent purchase of postage using fiduciary funds is not part of the sales price of the campaign literature. The SSTA project creates a dichotomy between each state’s business and commerce code and the sales tax code. Such a dichotomy has the unintended effect of weakening commercial law and creating confusion. Fortunately, the majority of the SSTA states support the recognition of agency law and contract law in the determination of whether or not postage is part of the sales price of printed material. North and South Dakota, Kansas, Oklahoma, Indiana, Iowa, Michigan and West Virginia supported the Direct Mail proposal voted on at the December SSTA meeting, however, the SSTA requires a super-majority vote and the Direct Mail Rule failed to pass. Businesses using mailing agents in Kentucky, North Carolina (prior to October 2004), New Jersey (after October 2006) and Nevada are at risk because these states did not affirm that postage purchased with fiduciary funds as documented on official U.S. Postage Statements is a non-taxable event. This uncertainty is an impediment to interstate commerce and will drive printing and mailing services to states that have not passed SSTA legislation or states that have affirmed that such postage is not taxable. This issue will be voted on again in Charlotte at the March SSTA meeting. Contact a member of the Direct Mail Coalition if you are concerned about this issue and the underlying legal issue of recognizing agency and contract law in the application of sales tax. |
