Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.

Direct Mail Industry Group Files Interpretive Ruling Requests with the Streamlined Sales Tax Agreement (SSTA)

Virtually every state government is facing budget problems and many are therefore looking to the Streamline Sales and Use Tax Agreement (SSUTA) to increase sales tax revenues. Originally enacted in the fall of 2005, the SSUTA is currently a voluntary system of assessing, collecting and remitting taxes to the appropriate states. The Streamline Sales Tax Governing Board has a mission "to assist states as they administer a simpler and more uniform sales and use tax system."

The two areas of concern to printers, mailers, advertising agencies and advertisers are primarily the SST applied to postage and secondarily the distribution of digital products. The later will not go into effect until January 1, 2009 and will encounter a number of interpretive definitions of both digital products and the distribution alternatives. The hottest issue of concern is that of possible tax on postage as it applies to direct mail projects.

While there have been some isolated attempts and successes by trade associations to deal with particular state SST actions to enact such taxes, a national coalition of interested parties was deemed prudent. A Direct Mail Industry Group was formed July 26, 2006 to address provisions anticipated to impact the advertising, printing and mailing industries. The coalition founding members include the Direct Marketing Association, Mailing and Fulfillment Service Association, Printing Industries of America (PIA/GATF), the thirteen PIA regional affiliates, the Saturation Mailers Coalition, the Association for Postal Commerce and Carlson Advisors LLC, which is a Minnesota based CPA firm. The Washington DC based tax firm of Dow Lohnes Price DLP has been retained to represent the coalition. Melanie C. Hill, a DLP tax specialist, is providing leadership and coordination for the effort.

While businesses in direct mail marketing are not the primary target of the tax initiative, certain provisions in the SSTA will nonetheless immediately and directly affect them. The Coalition's goals are not to oppose the SSTA but rather to promote interpretations of its provision that are consistent with Uniform Commercial Code principles and are workable from a business perspective.

The goals of the Direct Mail Coalition as enumerated on their website (dlptax.com/ssta) are;

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 the sale of the direct mail campaign to advertisers.
4. No use tax on direct mail mailed from out-of-state by a remote vendor.
5. No direct mail sourcing when title transfers prior to delivery to the USPS.
6. Broad interpretation of Direct Mail if agreement is reached on the above.
7. Add a printed material delivery exclusion definition to the Agreement.

Currently the SSTA includes language defining postage as a delivery charge and therefore subject to a tax. It also offers alternative language that exempts delivery charges from taxation. States have been choosing been these two interpretations. States fall in one of five categories:

1. Those who participate in SSTA but exempt postage from taxation; Washington, Utah, South Dakota, Iowa, Oklahoma, Minnesota, Vermont, New Jersey, North and South Carolina (10 states)
2. Those who participate and tax postage; Nevada, Nebraska, Wyoming, North Dakota, Michigan, Kansas, Kentucky, Ohio, Indiana, Texas, and West Virginia (11 states)
3. Those who participate but have not yet completed their definition of taxable products/services; Hawaii, California, Arizona, New Mexico, Illinois, Missouri, Louisiana, Mississippi, Arkansas, Tennessee, Georgia, Maine, Massachusetts, New York, Maryland, Florida (16 states)
4. Those choosing not to participate in SSTA; Idaho, Colorado, Wisconsin, Connecticut, Rhodes Island, Pennsylvania, Virginia and Alabama (8 states)
5. Those five states without sales tax; Alaska, Oregon, Montana, New Hampshire and Delaware (5 states)

Additional firms are invited to become members of the coalition. Association members get a discount. Companies of less than $20 million annual sales are asked to pay $900 a year. Contact your association or Melanie Hill at 864-241-2001 or mchill@ dlptax.com.

The Direct Mail Coalition announced that two Interpretive Ruling Requests were filed October 13 with the SSTA Governing Board. The Requests seek to clarify definitions for direct mail and delivery charges under the SSTA. Included with the Requests were drafts of the Proposed Rules outlining the suggested interpretations.

The Proposed Rules have been reviewed by numerous businesses of all sizes in the printing, mailing, advertising, and direct mail marketing industries. In particular, there has been active participation in the development of these rules by small businesses and local affiliates of the Printing Industries of America who have been impacted most heavily by the direct mail provisions in the SSTA. The coalition's primary goal is to establish workable rules derived from an understanding of the industry that are consistent with historical sales tax principles and existing contract law.

The group submitted the rulings sixty days in advance of the December Streamlined Sales Tax Governing Board Meeting to meet SSTA submission rules and to provide for a sufficient public comment period. The expectation is that both rules will be added to the December agenda. The SST Compliance Review and Interpretations Committee (CRIC) is scheduled to discuss the group's Interpretive Ruling Requests in a November telephone-conference meeting. After consideration of the Requests and public comments, CRIC will forward its response and recommendations to the Board. A vote on the Proposed Rules is expected to take place at the next Streamlined Sales Tax Governing Board meeting in Seattle December 13-14, 2006.

Michael Makin, President and CEO of PIA/GATF remarked, "Providing the Streamlined Sales Tax Governing Board, CRIC, and those in the industry ample time to review and comment on the interpretive rulings will be critical in having all involved parties understand the issue. Public comments already expected this week will heavily weigh-in as the board considers the issuance of the Rules for the direct mail definitions and delivery charges."

Ms. Pritha Mehra, USPS Manager of Marketing Technology and Channel Management, issued a public comment to the SST Governing Board in support of these interpretations.

Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.