DMC continues fight against postage tax

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The Direct Mail Coalition is continuing its fight to stop states from adopting legislation that would tax postage by claiming it does not meet contract law principles.

States may tax postage as a result of an optional provision in the Streamlined Sales and Use Tax Agreement, which lists postage as a delivery charge. Created by the Streamlined Sales Tax Project, the agreement took effect Nov. 1. It lets remote sellers collect taxes on sales to people in member states that occur via the Internet, telephone or catalog.

DMC co-founder Melanie Hill, a sales tax expert with Dow Lohnes Price Tax Consulting Group, Greenville, SC, said the taxation of postage purchased in this fashion ignores contract law and Uniform Commercial Code principles.

"The SSTA applies sales tax to delivery charges only when the delivery is part of the sale of tangible personal property," Ms. Hill said. "However, when the mailing agent delivers campaign literature to the postal service, title to the literature has already passed from the printer to the legislator. The subsequent purchase of postage using fiduciary funds is not part of the sales price of the campaign literature. The Project creates a dichotomy between each state's business and commerce code and the sales tax code. Such a dichotomy has the unintended effect of weakening commercial law and creating confusion."

Ms. Hill said that the majority of the agreement member states support the recognition of agency law and contract law in the determination of whether postage is part of the sales price of printed materials.

However, at a meeting last December in Seattle with the SSTA Governing Board, the DMC tried to get an interpretive rule passed that would stop sales tax from being imposed on postage purchased by mailing agents. The resolution failed to pass with eight supporting votes and five opposing votes.

"Businesses using mailing agents in Kentucky, Nebraska and New Jersey are at risk because these states did not vote for our proposal," Ms. Hill said. "This uncertainty is an impediment to interstate commerce and will drive printing and mailing services to states that have not passed SSTA legislation or states that have affirmed that such postage is not taxable."

Ms. Hill said that this ruling would be voted on again at the SSTA Governing Board meeting in Charlotte, NC on March 16 and 17. She encouraged concerned direct marketers to contact DMC members, including fellow founding members Gene Del Polito of the Association for Postal Commerce; Mark Micali of the Direct Marketing Association; Leo Raymond of the Mailing and Fulfillment Service Association; and Lisbeth Lyons of the Printing Industries of America/Graphic Arts Technical Foundation.

"The states that voted for us are firmly in our corner," Ms. Hill said, "and we are working on specific strategies in each of the five specific states that voted against us to try to get their support."
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