Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. Persons who
distribute or cause to be distributed any article of tangible personal
property, except newspapers, the primary purpose of which is to promote the
sale of products or services, are subject to use tax on the value of the
property. RCW 82.12.010,
82.12.020, and chapter 367, Laws
of 2002. This section explains the use tax reporting responsibilities of
consumers when such property is delivered directly to persons other than the
consumer from outside Washington. For the purposes of this section, the term
"promotional material" is used in describing such property where applicable.
This rule provides numerous examples that identify a number of
facts and then state a conclusion. These examples should only be used as a
general guide. Similar determinations for other situations can be made only
after a review of all facts and circumstances. For purposes of these examples,
presume the promotional material is delivered to persons within
Washington.
Chapter 514, Laws of 2005, changed the taxability of delivery
charges associated with direct mail. Refer to subsection (5) of this section
for further information.
(2)
What is the use tax? The use
tax complements the retail sales tax by imposing a tax of a like amount when a
consumer uses tangible personal property or certain retail services within this
state. RCW 82.12.020. The tax does not
apply to the use of any property or service if the present user, donor, or
bailor previously paid retail sales tax under
chapter
82.08 RCW with respect to
the property used or the service obtained. See WAC
458-20-178 (Use tax) for an
explanation of the use tax and use tax reporting requirements.
(3)
Who is liable for the use tax on
promotional material? The use tax is imposed on the consumer. Effective
June 1, 2002, the law provides that with respect to promotional material
distributed to persons within this state, the consumer is the person who
distributes or causes the distribution of the promotional material. A consumer
as defined in this rule is responsible for remitting use tax only if the
consumer has nexus in Washington.
(a)
Example 1. Department Store contracts with Printer to print
promotional material advertising sale merchandise available at Department
Store's Washington locations. Printer distributes promotional material to
Department Store's customers. Department Store is the consumer of the
promotional material and is liable for use tax on promotional material
distributed into Washington. Neither Printer nor Department Store's customers
are consumers of this promotional material.
(b)
Example 2. Retailer
contracts with Seattle Advertising Agency for advertising services. Advertising
Agency makes a single charge for all services, which includes designing,
printing, and distributing catalogs to potential customers. Advertising Agency
contracts with California Printer to print and prepare for distribution
promotional material advertising a new Washington location. Retailer is the
consumer of the catalogs and is liable for use tax on the promotional material
sent to Washington addresses. Neither Advertising Agency nor potential
customers are consumers of this promotional material.
(4)
What is promotional
material? Promotional material is any article of tangible personal
property, except newspapers, displayed or distributed in the state of
Washington for the primary purpose of promoting the sale of products or
services. Examples of promotional material include, but are not limited to,
advertising literature, circulars, catalogs, brochures, inserts (but not
newspaper inserts), flyers, applications, order forms, envelopes, folders,
posters, coupons, displays, signs, free gifts, or samples (such as carpet or
textile samples).
(a)
Is advertising
contained on billing statements promotional material? It is presumed
that the primary purpose of billing statements and statements of account is to
secure payment for goods or services previously purchased. Thus, unless the
facts and circumstances indicate that the primary purpose of the property is to
promote the sale of goods and services, billing statements and statements of
account are not considered promotional material. Attaching, affixing, or
otherwise incorporating property promoting the sale of goods or services does
not alter the primary purpose of billing statements and statements of account.
However, flyers, inserts, or other separate property enclosed with billing
statements or statements of account that promote the sale of goods or services
are promotional material and subject to use tax.
(i)
Example 1. Richland Attorney
contracts with Oregon Printer to print and prepare for distribution monthly
billing statements and return remittance envelopes to Attorney's clients. The
contract also includes printing and inserting flyers promoting Attorney's
estate planning services. The primary purpose of the flyers is to solicit the
sale of services. Consequently, the flyers are promotional material. The
primary purpose of the billing statements is to secure payment for services
rendered. The billing statements are not promotional material.
(ii)
Example 2. Department Store
prints the monthly billing statements for its store credit card in Atlanta,
Georgia, and mails them to customers located in Washington. Although the
billing statement includes three sentences noting an upcoming sale, this
information does not alter the primary purpose of the billing statement, which
is to secure payment for services rendered. The billing statements are not
promotional material.
(iii)
Example 3. The following month, Department Store's billing
statement includes a detachable coupon for fifteen percent off selected items
purchased during a specified period. Although the detachable coupon solicits
the sale of goods or services, it does not alter the primary purpose of the
billing statement, which is to secure payment for goods or services already
purchased. The billing statement and detachable coupon are not promotional
material.
(iv)
Example
4. In the third month, Department Store lengthens the billing statement
to include information promoting the grand opening of a location. Although the
lengthened portion of the billing statement contains information promoting the
sale of goods or services, it does not alter the primary purpose of the billing
statement, which is to secure payment for goods or services already purchased.
The lengthened billing statement is not promotional material.
(b)
When are envelopes
considered promotional material? Envelopes used solely to mail property
to promote the sale of goods or services are considered promotional material
and subject to use tax.
Envelopes used to mail nonpromotional material, such as billing
statements and statements of account, are used to secure payment for goods
purchased or services rendered. The same is true of return envelopes that are
enclosed for submitting payment. Unless the facts and circumstances indicate
otherwise, the presumption is that the primary purpose of envelopes used for
mailing both promotional and nonpromotional material in the same envelope is
not to promote the sale of goods and services. Thus, envelopes and return
envelopes used for dual purposes are not subject to use tax, even though
promotional material may be printed on or attached to the envelopes. Although
the imprinted or attached material promotes the sale of goods or services, it
does not alter the primary purpose of the envelopes.
(i)
Example 1. Bank mails
brochures, applications, and return envelopes from Atlanta, Georgia, to
Washington addresses promoting Bank's credit card. The primary purpose of
envelopes used to mail the brochures, applications, and return envelopes is to
solicit the sale of services. The envelopes, brochures, and applications are
promotional material.
(ii)
Example 2. Telephone Company mails monthly billing statements to
Washington customers from St. Louis, Missouri. Inserts promoting the sale of
various telephone accessories are included. Return envelopes to be used in
making payment of the statement amount are also enclosed. The primary purpose
of the envelopes used to mail the billing statements and the return envelopes
is to secure payment. Neither the mailing envelopes nor the return envelopes
are promotional material.
(iii)
Example 3. Mortgage Company mails monthly billing statements to
Washington residents from its administrative offices in Nevada. The enclosed
return envelope for customers to use in making payment includes an attachment
promoting additional banking services. Although the attachment to the return
envelopes contains advertising information, it does not alter the primary
purpose of the envelope which is to obtain payment. Neither the mailing
envelopes nor the return envelopes are promotional material.
(5)
What is the
measure of tax? The measure of the use tax is the value of the article
used. For the purposes of computing the use tax due on promotional material,
the measure of tax is the amount of consideration paid for the promotional
material without deduction for the cost of materials, labor, or other service
charges, even though such charges may be stated or shown separately on
invoices. Except as noted below, it also includes the amount of any freight,
delivery, or other like transportation charge paid or given by the consumer to
the seller. The value of the promotional material also includes any tariffs or
duties paid. If the total consideration paid does not represent the true value
of the article used, the value must be determined as nearly as possible
according to the retail selling price at place of use of similar materials of
like quality and character.
RCW
82.12.010.
A consumer who has paid retail sales or use tax that is due in
another state with respect to promotional material that is subject to use tax
in this state may take a credit for the amount of tax so paid.
RCW
82.12.035. For further information, refer to
WAC 458-20-178 (Use tax).
(a)
Delivery charges.Chapter
514, Laws of 2005, altered the measure of the use tax with respect to the value
of delivery charges made for the delivery of direct mail.
(i)
Delivery charges May 17, 2005, and
after. Effective May 17, 2005, amounts derived from delivery charges for
the delivery of direct mail may be deducted from the measure of use tax when
the delivery charge is separately stated on an invoice or similar billing
invoice provided to the buyer.
(ii)
Delivery charges from June 1, 2002, through May 16, 2005. The
measure of tax includes all delivery charges. Postage is a delivery charge and
is therefore included in the measure of tax if the cost is part of the
consideration paid by the consumer to the seller.
RCW
82.08.010 and
82.12.010. It is immaterial if
amounts charged for postage are stated or shown separately on invoices. Amounts
charged for postage and other delivery costs are not included in the measure of
tax only if the amounts are not part of the consideration paid.
(A)
When are delivery charges part of
the consideration paid? Charges for postage or other delivery costs are
considered part of the consideration paid if the permit to use precanceled
stamps, a postage meter, or an imprint account for bulk mailings is in the name
of the party contracted to provide and/or prepare promotional material for
distribution. Such parties are liable to the post office for payment and the
consumer's payment of such amounts represents a payment on the sale of tangible
personal property or the services provided. For further information, refer to
WAC 458-20-111 (Advances and
reimbursements).
(B)
When are
delivery charges not part of the consideration paid? Charges for postage
or other delivery costs are not considered part of the consideration paid if
the permit to use precanceled stamps or a permit imprint account for bulk
mailings is in the consumer's name. The consumer in these cases has primary or
secondary liability for payment of the postage costs. (Refer to WAC
458-20-111 for information about
advances and reimbursements.)
(iii)
What is direct mail?
"Direct mail" means printed material delivered or distributed by United States
mail or other delivery service to a mass audience or to addressees on a mailing
list provided by the purchaser or at the direction of the purchaser when the
cost of the items is not billed directly to the recipients. "Direct mail"
includes tangible personal property supplied directly or indirectly by the
purchaser to the direct mail seller for inclusion in the package containing the
printed material. "Direct mail" does not include multiple items of printed
material delivered to a single address.
RCW
82.08.010 and chapter 514, Laws of
2005.
(iv)
What are delivery
charges? "Delivery charges" means charges by the seller of personal
property or services for preparation and delivery to a location designated by
the purchaser of personal property or services including, but not limited to,
transportation, shipping, postage, handling, crating, and packing.
RCW
82.08.010.
(b)
What is the measure of tax when a
consumer contracts with one person for the promotional material and a separate
person to prepare the material for distribution? A consumer of
promotional materials is subject to use tax on the value of the promotional
material and the value of certain services rendered in respect to promotional
material used in this state when the retail sales tax has not been paid.
The use tax is imposed on the value of the article used in this
state. The tax is also imposed on the value of labor and services rendered in
respect to altering, imprinting, or improving tangible personal property for
use in this state when the retail sales tax has not been paid.
RCW
82.12.020. With respect to promotional
material, this includes activities typically performed by mailing bureaus or
mail houses to prepare material for distribution, such as addressing, labeling,
binding, folding, sealing, and tabbing.
(i) For discussion about activities performed
by mailing bureaus, refer to WAC
458-20-141 (Duplicating
activities and mailing bureaus).
(ii) For discussion about activities
performed by the printing industry, refer to WAC
458-20-144 (Printing
industry).
(c)
What is the measure of tax when a consumer manufactures its own
promotional materials? The measure of use tax is the value of the
promotional material. Refer to WAC
458-20-112 (Value of products). A
consumer who manufactures its own promotional material may also be conducting
manufacturing activities and should refer to WAC
458-20-134 (Commercial or
industrial use) and WAC
458-20-136 (Manufacturing,
processing for hire, fabricating).
(6)
Determining the applicable local
use tax rate. For purposes of determining the applicable rate of local
use tax for promotional material, the following guidelines must be followed
unless the consumer obtains prior written approval from the department to use
an alternative method. Refer to (c) of this subsection for an explanation of
the circumstances under which the department will consider approving alternate
methods and how to obtain such approval.
(a)
Operations directed from within Washington. The applicable local
taxing jurisdiction and tax rate is the in-state location from where the
consumer directs or manages its Washington operations.
(i)
Example 1. Department Store
operates ten locations in western Washington. Department Store's corporate
headquarters, the location from where it manages its in-state operations, is in
Seattle. The local use tax rate for Seattle is the applicable rate.
(ii)
Example 2. Retailer, a
national company with headquarters in Chicago, Illinois, operates multiple
locations in Washington. Retailer manages its Washington operations from a
location in Spokane. The local use tax rate for Spokane is the applicable
rate.
(b)
Operations directed from outside Washington. A consumer that
manages or directs its Washington activities from outside the state must
equally apportion the value of the promotional material among the local tax
jurisdictions where the consumer conducts its business activities. Promotional
material that is targeted to specific business locations of the consumer must
be apportioned solely between those business locations. Targeted material is
material specifically distributed to promote sales of products or services
solely at a specific location(s) and at a different price(s) or terms than
those offered at all other Washington locations.
(i)
Example 1. Bank directs the
operations of its four Washington branches from its headquarters in Sacramento,
California. The branches are in Seattle, unincorporated King County, Tacoma,
and Everett. For purposes of determining use tax liability, twenty-five percent
of the value of the promotional material must be equally apportioned to
Seattle, unincorporated King County, Tacoma, and Everett.
(ii)
Example 2. Furniture Store,
headquartered in Nevada, orders 100,000 flyers from a Portland, Oregon, printer
to be mailed to Washington households announcing the opening of its new store
in Spokane. Customers will receive a ten percent discount on all items
purchased at the Spokane store. This discount will not apply to purchases made
at Store C's other Washington locations. The local use tax rate for Spokane is
the applicable rate.
(iii)
Example 3. Restaurant manages the operations of its Washington
locations from Portland, Oregon. Restaurant contracts to have coupon books
printed and mailed to households in Clark and Cowlitz counties. The coupons are
accepted only at the Vancouver and Longview locations. The value of the
promotional material must be equally apportioned to both locations.
(iv)
Example 4. Ohio
Manufacturer has no offices, warehouses, or storefront locations in Washington.
A salesperson operating from the person's Kent home solicits sales from
Washington distributors for the manufacturer. Manufacturer mails promotional
material to its distributors' customers in Washington. The local use tax rate
for Kent is the applicable rate.
(v)
Example 5. Michigan
Wholesaler without offices, warehouses, or storefront locations in Washington
sends salesperson into Washington to solicit sales. Wholesaler mails
promotional material to potential customers in Washington. The applicable local
use tax rate is a uniform statewide local rate of .005.
(c)
Are there alternative methods for
determining the place of first use? For purposes of reporting use tax on
promotional material, the department may agree to allow a consumer to use
another method of determining the applicable local use tax rate provided that
the method proposed by the consumer results in an equal or more equitable
distribution of the tax. A consumer may request written approval for the use of
an alternative method by contacting the department's taxpayer services division
at:
Department of Revenue
Taxpayer Services
P.O. Box 47478
Olympia, WA 98504-7478
Statutory Authority:
RCW
82.32.300 and
82.01.060(2).
06-06-046, § 458-20-17803, filed 2/24/06, effective 3/27/06; 05-03-051,
§ 458-20-17803, filed 1/11/05, effective
7/1/05.