Opinion Letter

Letter Number:O-2011-012
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Sales tax as it applies to a direct-mail advertising company.
Approval Date:11/18/2011

Office of Policy & Research

November 18, 2011

Dear XXXX:

Thank you for your recent letter. You work for ZZZZ . ZZZZ is a direct-mail advertising company whose home office is in Springfield, Missouri. ZZZZ's web site provides the following overview of its Kansas operations and the Kansas residents it targets for its direct-mail advertising promotions:

ZZZZ intends to begin soliciting businesses in the Kansas City metropolitan area to pay for advertisements placed in direct-mail packets that are mailed to homeowners in Kansas and Missouri. The packets, which will contain coupons, offers, and advertisements, will be printed and assembled in Wisconsin. ZZZZ will provide the Wisconsin printer with a list of the homeowner's names and addresses. The printer will use the list to address the direct mail, which it delivers to the United States Postal Service in palletized, shrink-wrapped bundles.

You ask how Kansas sales tax laws apply to your business. ZZZZ's web site and your letter show that ZZZZ will have agents and employees who operate in Kansas. The question of whether an out-of-state business has nexus with a state because it utilizes in-state sales agents was answered by Scripto, Inc. v. Carson, 362 U.S. 207 (1960). Sales and Use Tax Answer Book, p. 2-20, Nelson, Collins, & Healy, 2008 Ed. CCH, discusses Scripto:
Sales made through independent contractors or brokers
See also National Geographic Society v. California Board of Equalization, 430 US 551 (1977).

The Kansas-Missouri state line runs though the Kansas City metropolitan area. Business competition in the Kansas City market area requires companies in the area to leave their home state and engage in business in the other state if they expect to stay in business. The department works with Kansas and Missouri companies in the Kansas City area on a daily basis helping them sort through their Kansas and Missouri sales and use tax collection and reporting responsibilities.

This knowledge and experience has led the department to advise Kansas companies in the metro with business operations like yours to register as a retailer with the Missouri Department of Revenue and report Missouri tax on their taxable Missouri sales. The department instructs Missouri companies with similar operations to register as a Kansas retailer with the Kansas Department of Revenue and report Kansas tax on their taxable Kansas sales. ZZZZ has nexus with Kansas and is required to register with the Kansas Department of Revenue to report Kansas consumer's use tax.

Kansas is a member of the Streamlined Sales Tax Project (SSTP). Project members have agreed to provide uniform sales tax treatment of direct mail for the benefit of advertisers, their customers, and printers. This uniform treatment means the Kansas requirements should be the same or very similar to the treatment of direct-mail advertising provided by other SSTP member states. Missouri currently is not a member of the SSTP.

The Kansas definition of “direct mail” is” found at K.S.A. 79-3602(j). It is consistent with the SSTP definition of "direct mail":
K.S.A. 79-3603(a) imposes sales tax on charges for direct mail by taxing: "The gross receipts received from the sale of tangible personal property at retail within this state. . . ." The legislative intent to impose sales and use tax on charges for direct mail is confirmed by: (1) the definition of "direct mail" in K.S.A. 79-3602(j); (2) the exclusion of "direct mail" from the definition of "delivery charges" in K.S.A. 79-3602(i); and (3) the sourcing provisions for "direct mail" and "other direct mail" in K.S.A. 79-3672. The legislative intent shown in these statutes overcomes nearly every claim a direct-mail advertiser with nexus can make about the State's authority to tax charges the advertiser pays for direct mail it has delivered to Kansas residents.

K.S.A. 79-3672 provides: Subsection (a) applies to ZZZZ's direct-mail packets. Subsection (b) does not apply to ZZZZ's direct-mail because the packets satisfy the definition of "direct mail" rather than "other direct mail." Compare K.S.A. 79-3602(j) with K.S.A. 79-3672(c)(2).

Wisconsin has enacted SSTP conforming legislation, as have its neighbor states Minnesota, Iowa, and Michigan. SSTP conforming legislation has been introduced in Illinois. All of this legislation enacted by Wisconsin and its neighboring states suggests the Wisconsin printer is familiar with the SSTP requirements for charging and collecting sales tax for the different states when it charges advertisers for printing and mailing direct mail. Please contact the Wisconsin printer to see if it is registered or will become registered to collect and remit Kansas retailers' sales or use tax on the direct mail it prints and ships to Kansans.

If the Wisconsin printer is registered or will become registered with Kansas, the printer probably can instruct ZZZZ how to create a list for the printer to use to report the appropriate Kansas state and local tax. The printer may be equipped to do this already from the ship-to address list ZZZZ provides. A printer that offers direct-mail advertisers this tax collection and remittance service is offering something of value that sets the printer apart from many of its competitors.

If the printer is not registered and does not wish to become registered to collect and remit Kansas state and local sales or use tax, ZZZZ is responsible for self-accruing and remitting the Kansas tax based on the number of direct-mail packets shipped to different taxing jurisdictions in Kansas.

To self-accrue the tax, ZZZZ is required to provide its printer with a completed ST-31, Direct Mail Sourcing Certificate. ZZZZ then is responsible for assigning its printing costs for the mailers to each Kansas taxing jurisdiction based on number and cost of the direct mail packets mailed to addresses in each tax jurisdiction. Commercial software may be available that does this for direct mail companies based on the addresses the direct mail company provides to the printer. The ST-31 can be downloaded from the department's home page, www.ksrevenue.org.

Whichever approach is taken, ZZZZ should ask the printer to bill charges for delivering the direct mail as a separate line-item amount. The tax base for the sale and delivery of most tangible personal property to Kansas buyers includes "delivery charges." K.S.A. 79-3602(ll)(1)(D). However, the definition of "delivery charges" in K.S.A. 79-3602(i) specifically excludes "charges for delivery of direct mail if the charges are separately stated on an invoice or similar billing document given to the purchaser." K.S.A. 79-3602(i) provides:
This means delivery charges for direct mail that the Wisconsin printer bills to ZZZZ will not be subject to Kansas sales tax if the delivery charges are separately stated on the invoice or other billing document the printer issues to ZZZZ. The other charges billed to ZZZZ for the direct-mail packets are taxable for direct-mail packets mailed to Kansas residents.

This approach to taxing direct mail means ZZZZ should not charge sales tax when it bills its customers for advertising that will be distributed by direct-mail. The taxable event is ZZZZ's purchase of the direct mail from the Wisconsin printer, which is delivered at ZZZZ's direction to addressees in Kansas. ZZZZ owes Kansas use tax on the cost of the direct-mail packets shipped to Kansas addresses. ZZZZ is required to self-accrue the tax if the Wisconsin printer does not bill Kansas tax to ZZZZ on its charges.

I believe all other SSTP states that tax direct mail will advise you to follow a similar procedure for their state. I recommend that ZZZZ contact the other SSTP states that will receive ZZZZ's direct mail in order to determine whether those states impose tax on charges for direct mail, and if a state does, whether it excludes any amounts like separately-state delivery charges. This knowledge will simplify and clarify ZZZZ's tax collection duties for a large part of the nation.

Date Composed: 11/21/2011 Date Modified: 11/21/2011