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ST 1996-02 - Certain Printed Materials - November, 1996
Persons engaged in publishing/printing, particularly of
advertising materials, are advised to consider updating their
sales and use tax compliance procedures to reflect recently
passed legislation. S.B. 266, which became effective November
20, 1996, changes the tax consequence of transactions between
publisher/printers and their advertising clients when the
printed matter is distributed free of charge to third party
recipients. The law changes the Department of Taxation's
prior position that certain advertising material was "sold"
to advertisers, an interpretation which was based on several
years of consistent court rulings. Instead of viewing such
transactions as sales, the new law focuses on the consumption
of the printed matter by publisher/printers. A description of
the advertising transactions and the Department's guidance on
them are offered below.
A typical affected situation involves a publisher/printer,
its advertising clients, advertising material, and the free
receipt of the material by households and others. The
publisher/printer solicits clients to place advertisements in
a printed medium for a charge. The publisher arranges for a
printer to produce the material or, in the case of a
publisher/printer, does the printing itself. The
publisher/printer then distributes or otherwise gives away
the printed material to individuals or households targeted by
the publisher and/or advertiser. Examples of advertising
which is printed and distributed in this manner are:
- flyers distributed door-to-door;
- flyers and other inserts distributed with
- advertising material delivered by direct mail;
- advertising and entertainment publications, which
are not "community newspapers" as defined in Rule
5703-9-28 of the Ohio Administrative Code, that are
normally distributed at various locations within a
- telephone yellow pages.
Ramification and Law
S.B. 266 establishes that publisher/printers of materials
like those listed in the previous paragraph are performing an
(nontaxable) advertising service for their customers;
further, the publisher/printers are the consumers of all
materials and services purchased in providing this service.
interprets this law as applying to situations where the
publisher/printer produces individual items, multi-page
matter, or packets that contain the advertising of more than
As noted, S.B. 266 essentially replaces the previous
reasoning enunciated in court cases, which held that such
transactions were sales of tangible personal property by the
publisher/printers to their advertiser customers. The
consideration (or price) for these "sales" was deemed to be
the charge associated with placing advertising space in the
The act makes these changes by amending Section 5739.01 (D)
to include certain types of taxpayers within the meaning of
"Consumer" in new paragraphs (4)(a) and (b), and by
specifying the nature of such a transaction in paragraph (c).
Section 5739.01(D)(4) reads:
"(a) In the case of a person who purchases printed matter for
the purpose of distributing it or having it distributed to
the public or to a designated segment of the public, free of
charge, that person is the consumer of that printed matter,
and the purchase of that printed matter is a sale.
(b) In the case of a person who produces, rather than
purchases, printed matter for the purpose of distributing it
or having it distributed to the public or to a designated
segment of the public, free of charge, that person is the
consumer of all tangible personal property and services
purchased for use or consumption in the production of that
printed matter. That person is not entitled to claim
exception under division (E)(8) of this section for any
material incorporated into the printed matter or any
equipment, supplies, or services primarily used to produce
the printed matter.
(c) The distribution of printed matter to the public or to a
designated segment of the public, free of charge, is not a
sale to the members of the public to whom the printed matter
is distributed or to any persons who purchase space in the
printed matter for advertising or other purposes."
Since the placement of multi-client printed advertisements on
printed matter, as explained above, is no longer considered
the sale of tangible personal property, publisher/printers
can no longer claim sales tax exceptions based on making such
sales. That is, publishers can no longer claim the resale
exception [Section 5739.01(E)(1) O.R.C.] when arranging for a
printer to produce the advertising material, and
publisher/printers can no longer claim the printing exception
[Section 5739.01(E)(8) O.R.C.] when they print the
advertising materials themselves.
Publishers should pay the sales tax on the purchase price of
the printed material or thepublisher/printers should pay tax
on the materials, supplies, and any taxable services consumed
in the production of the printed material. Publisher/printers
should pay the tax to the Ohio vendors or registered
out-of-state sellers who produce the printed matter or supply
the taxable materials, supplies, or services. If tax is not
paid to a vendor or seller, the publisher/printer should
accrue it and pay tax on a consumer's use tax account.
Publishers who purchase multi-client advertising material are
consumers of that matter. Accordingly, they are to pay tax on
the purchase of such material. Printers who produce the
material for publishers may continue to claim "to use or
consume the thing transferred in the production and
preparation in suitable condition for market and sale of
printed, imprinted, overprinted, lithographic, multilithic,
blueprinted, photostatic, or other productions, or
reproductions of written or graphic matter" [Section
5739.01(E)(8) O.R.C.] on exemption certificates furnished to
Publisher/printers who print matter (such as brochures,
annual reports, single-client advertising material, etc.) for
sale to customers are responsible for collecting sales tax on
those transactions. Publisher/ printers are entitled to the
same exception described in the previous paragraph when
purchasing material and equipment for this purpose. However,
when material and equipment is consumed for printing
multi-client advertising material, publisher/printers are
consuming the material and equipment in a taxable manner.
They owe tax on any portion of their purchases consumed for
this purpose. Equipment primarily used to print
sale qualifies for exception, while equipment
used to print matter for consumption now is
Vendors who sell tangible personal property or provide
taxable services to publishers or printers are encouraged to
consult with all customers whose tax status may have been
changed by this law. Confirmation of the continuing validity
of any claim of exemption reduces the risk of an unexpected
tax liability should noncompliance be discovered.
Sales Tax Effects of S.B. 266
The law was also amended to include a definition for the term
"newspaper" and provides a new exception for those engaged in
printing a newspaper. Section 5739.01(SS) O.R.C. defines a
newspaper as being "an unbound publication bearing a
title or name that is regularly published, at least as
frequently as bi-weekly, and distributed from a fixed place
of business to the public in a specific geographic area, and
that contains a substantial amount of news matter of
international, national, or local events of interest to the
general public." The exception in Section
5739.01(E)(14) O.R.C. reads "to use or consume the thing
transferred in the production of a newspaper for distribution
to the public." Readers should note that wording of this
section allows exception whether a newspaper is sold by
subscription or at a per copy price or is distributed without
charge to the recipient.
Ten examples are provided to illustrate the Department's
position on the tax consequences of various
advertising-related transactions involving printed materials.
Example #1: Company A arranges for the
printing of a "magazine-like" publication containing
advertisements of vendors of tangible property as well as a
variety of service providers, including real estate
companies, insurance agents, beauty and barber salons, home
maintenance contractors, lawn care providers, and medical,
dental and veterinarian practitioners. The printed matter is
distributed free to households by direct mail, is included
with other advertising matter which is hung on door knobs or
mailboxes by a distribution company, or is put in free access
street corner boxes.
Tax Treatment: Company A is the consumer of
the magazine under Section 5739.01(D)(4)(a) or (b) O.R.C. If
it prints the magazine itself, it owes tax on the paper, ink,
and other supplies it consumes. Any equipment used primarily
to produce the magazine would also be taxable because the
equipment is not primarily used to print items for sale. If a
printer supplies the printed material to Company A or to a
distribution company, Company A should pay tax on the price
of the printed matter. Company A's charges to the persons
placing advertisements in the magazine are not taxable.
Example #2: Company B operates similarly to
Company A except that it periodically produces photo
advertisement and other newsprint-type publications in which
businesses and individuals advertise cars and trucks for
sale. Company B charges for placing the ads. The publications
are sold to vendors who sell them at retail on a per copy
Tax Treatment: Company B is not affected by
S.B. 266. It remains a printer of tangible personal property
for sale. If B produces the publication itself, it is
entitled to claim exception on its purchases that are
consumed in printing under Section 5739.01(E)(8) O.R.C. If a
printer produces them for B, B could purchase the
publications without payment of tax based on the resale
exception [Section 5739.01 (E)(1) O.R.C.]. B's charges to
those placing advertisements are not taxable. B's sales of
the publications to vendors are not taxable, but B should
obtain exemption certificates from the vendors to confirm
their entitlement to the resale exception. The vendors should
charge tax on sales of the publications.
Example #3: Company C also operates
similarly to Company A except that it uses a different kind
of printing to convey its clients' advertising messages.
Instead of a "magazine" of coupons or ads, it distributes
envelope-size packets containing material produced for
several advertisers that are delivered by mail to residents
in pre-selected zip codes.
Tax Treatment: Like Company A in Example #1,
Company C would owe tax on any material purchases if it
produced the matter itself, or on the charge for having the
matter produced if another company was hired to print it. Any
charge to C for postage or to deliver the material to a post
office is not taxable. C's charges to the advertisers for
placing the advertisements are not taxable.
Example #4: Company D owns retail stores and
arranges (or works through its advertising agency) to have a
publisher/printer produce and distribute advertising flyers.
The flyers are sent to area newspapers, to the same
door-to-door deliverer in Example #1, and to D's own stores
for distribution to walk-in customers .
Tax Treatment: Company D is the consumer of
all the printed matter. If the flyers do not "price
describe" tangible personal property D sells at retail, D would owe
tax on the purchase of the flyers. If the flyers do "price
and describe" property D sells at retail, D may claim
exemption on its purchases from the publisher/printer under
Section 5739.02 (B)(37)(a) O.R.C.
Example #5: Company E sells (or contracts
with others to sell) advertising space in "books" made
available without charge to telephone service subscribers. E
then prints the books or causes them to be printed and has
them delivered to residences and businesses in a prescribed
telephone service area.
Tax Treatment: Company E is the consumer of
the books and owes tax on the materials it uses to print
them, or on their purchase price if bought from a
printer/publisher. E's charge to its advertising clients for
space in the books is not taxable.
Example #6: Company F arranges with several
advertisers to place their advertising messages and coupons
on the back side of blank cash register tape rolls. F pays a
printer to print its clients' advertisements and coupons on
the tapes and then provides the tapes without charge to
retailers who use them to produce cash register receipts.
Tax Treatment: Company F is the consumer of
the printed register tape rolls. F has no exemption for the
purchase of the rolls or the printing charges. F's charges to
the advertisers are not taxable.
Example #7: Company G, a large retailer, and
Company H, a service provider, separately contract with a
printing company to produce multi-page or single page
advertising inserts for distribution with a newspaper.
Tax Treatment: Both Company G and Company H
are the consumers of the advertising inserts. G may claim
exemption from tax on its purchases from the printing company
provided the inserts price and describe tangible
personal property offered for retail sale. (Refer also
to Example #4.) Company H does not sell tangible personal
property and is not entitled to exemption; therefore, H
should pay tax to the printing company on the charge for the
Example #8: Company I is a manufacturer of
household products which engages a company to print coupon
inserts and furnish them to selected newspaper publishers for
distribution with their Sunday editions.
Tax Treatment: Company I is the consumer of
all advertising inserts that are delivered into Ohio. Since
it is a manufacturer, I does not qualify for the exemption
for advertisements that "price and describe" tangible
personal property offered for retail sale. I must pay tax at
the proper state and local tax rate(s) in effect where the
material is delivered.
Example #9: Company J prints (or causes to
have printed) newspaper inserts consisting of advertisements
by manufacturers, retailers, direct marketers, and others who
advertise nationally. The inserts are provided to large
newspaper publishers throughout the country and distributed
with the newspapers on predetermined dates.
Tax Treatment: Company J is the consumer of
the inserts, whether it buys them or prints them. The Ohio
consumption of materials (and any equipment used primarily
for this purpose) is subject to tax. J's charge to its
advertising clients is not subject to tax.
Example #10: Company K distributes printed
material received from clients who desire to have them
included with other advertising matter that K hangs on door
knobs or mailbox posts. K stuffs, or has outside contractees
stuff, plastic "hanger" bags which K purchases. Clients'
advertisements are printed on one side of the plastic hanger
bag, and one of K's own advertisements is on the other.
Tax Treatment: Company K is the taxable
consumer of the bags and the printing put on them, as well as
any other material K purchases to perform the service. Its
per item or other charge to the bag advertiser and to the
companies that provide the printed material is not taxable.
Rate of Taxation
Ohio vendors collect tax based on their location. Delivery
vendors and out-of-state sellers collect tax based on the
county where the advertising material is delivered. If a
purchaser consumes taxable item(s) in a county with a
and use tax rate than the county rate used to charge tax, the
consumer owes additional use tax. The amount of additional
use tax due (payable on a consumer's use tax return) would be
based on the difference in rates between the two counties.
If separately itemized, a delivery charge is not part of the
price upon which tax is based. However, failure to have
separately stated any otherwise nontaxable charge results in
the tax being applied to the entire amount charged, including
any delivery/shipping. Section 5739.01(H) O.R.C.
Persons engaged in transactions where printed matter is
distributed free of charge to the public or designated
portions thereof are advised to analyze the language of S.B.
266 in light of the text and examples in this release and
adjust their sales and use tax compliance where necessary.
If you have any questions regarding this matter, you should
call us at 1-888-405-4039.
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