Receipts from Printing and Mailing Patient Billing Statements are Subject to Sales Tax, New York Tax Department Rules

The issue in this advisory opinion issued by the New York State Department of Taxation and Finance (“Department”) is whether Petitioner’s receipts from printing and mailing patient billing statements are subject to sales tax.

The Department concluded that Petitioner’s receipts are subject to sales tax, provided that separately stated, reasonable charges made for printed materials that are mailed to addresses outside New York State, other than the outside mailing envelopes, would not be subject to tax.

By way of background, Petitioner is a New York corporation that produces, sells, and services medical practice management computer systems to doctors’ offices. Petitioner, under a separate optional agreement, also prints and mails patient billing statements for its customers.

Further, Petitioner’s customer (a doctor’s office) selects patients to be billed using the medical billing software system Petitioner licenses to its customer. The customer uses the software system to create an electronic file with patients’ billing information, and sends the file electronically to Petitioner’s server.

According to the Department, the sales tax is a “destination tax.” The point of delivery controls both the tax incidence and the tax rate, the Department held, citing 20 NYCRR §525.2(a)(3).

Accordingly, Petitioner’s sales of printed materials (i.e., patient billing statements and return envelopes included in the mailing) will be subject to sales tax if the printed materials are mailed to New York addresses. Petitioner’s sales of the printed materials will not be taxable if they are mailed to addresses outside New York.

However, outside mailing envelopes used to mail printed matter from a post office located in New York are fully taxable at the location from which they are mailed, because use of those envelopes occurs in New York State, even though all or a portion of their contents may be subject to tax or exempt, based on mailing destination.

The Department explained that charges for the services of sorting printed material to prepare for mailing, folding printed material and inserting it in envelopes, sealing the envelopes, affixing postage or metering mail, bagging and mailing the printed material, and the cost of postal charges are not subject to sales tax if those charges are reasonable and separately stated from the charges for taxable services on the customer’s bill.

In this regard, the charges for these non-taxable services may be combined in a single amount under the designation of “non-taxable mailing” or “exempt services” if the invoice includes an itemized list of the exempt services provided, the Department stated, citing George Silver, Adv Op St Tx Comm, April 24, 1986, TSB-A-86(15)S; Morton L. Coren, P.C., Adv Op Comm T & F, March 6, 1997, TSB-A-97(12)S.

However, if Petitioner’s invoices to its customers do not separately state reasonable charges for these “non-taxable mailing” or “exempt services” from taxable charges, the entire amount Petitioner charges its customers will be taxable.

Petitioner pays a third party printer-mailer for printing and mailing the printed material, and for postage. The Department further held that because Petitioner provides the invoice paper and envelopes, the third party is performing printing or imprinting services for Petitioner under Tax Law §1105(c)(2) rather than selling tangible personal property.

Petitioner’s purchases of the printing or imprinting services are excluded from tax as purchases for resale, because Petitioner resells the printed material to its customers.

Citing Tax Law, §1132(c); 20 NYCRR §532.4, the Department added that Petitioner, if registered for sales tax purposes, should provide the third party with a properly completed resale certificate (Form ST-120) within 90 days of the rendition of the services in order to purchase the services exempt from sales tax.

Separately stated, reasonable charges by the third party to Petitioner for the “non-taxable mailing” or “exempt services” discussed above and for postage are not taxable.

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