The U.S. Postal Service is concerned about a provision of the Streamlined Sales and Use Tax Agreement that requires mailing services providers in certain states to charge customers sales tax on the combined total of fees and postage.
The states' tax on postage is an optional provision within the SSUTA. It was approved by the Streamlined Sales Tax Project, an effort that began in March 2000 to simplify and modernize sales and use tax collection and administration by the states. More than 40 states are part of the project.
The provision's regulations vary by state. Generally, states that adopted the provision collect the tax from printers, lettershops and consolidators that use their postal permit number or postage meter on behalf of their customers.
These printers and other businesses generally provide a full-service package to their clients that could include paper, envelopes, printing, inserting and entering. Because postage is considered part of the value of adding these services, they would be required to charge their customers sales tax on the combined total of fees and postage.
The SSUTA was implemented by 19 states, most of whom accepted the optional postage-tax provision. However, many states are considering adopting the overall agreement because they view it not only as a means to simplify their tax codes but also as a way to increase total tax revenue collections.
Mailers fear that if the provision is implemented in their state, their customers will switch to printers and mailers in nearby states that do not charge the tax. Some mailing services firms are considering relocating to states that do not tax postage.
“We are concerned about the adverse economic impact this legislation may have on mailing bureaus, print shops and others who may have to charge their customers sales tax on postage or to absorb that cost themselves,” said Richard T. Cooper, an attorney with the USPS. “[The legislation] may have an impact on the postal service's volume and revenue. If [the legislation] ultimately raises the cost of doing business through the mail, then we are concerned about that.”
The USPS “is concerned about shifts in where mailers enter their mail, because it may have operational implications for us,” he said.
The SSUTA also gives states the option of not taxing postage by requiring mailing firms to list on a separate invoice, or line-item, the cost of the postage and track it as a pass-through. But in many states, such as Washington, legislation must be passed to allow this exemption.
Mailing services companies there are working with state legislators, hoping they introduce and pass a bill that would recognize postage purchased on behalf of customers as a pass-through cost — not as a portion of gross receipts subject to full retail sales and other taxes. Currently, postage purchased on behalf of customers is not taxable in Washington state, but that would change July 1.
During the past three years, mailing services firms have met with Washington state legislators, explaining how the state would lose hundreds of jobs if a law were not enacted granting them continuance of the current practices. Bills were introduced in the state House and Senate to recognize the pass-through as law, but they died in session in 2003 and 2004.
Mailers got a reprieve this year when an outpouring of industry and legal response prompted the state Department of Revenue to push back implementation of the new taxation provision from January to July 1. A new bill supporting the pass-through was expected to be introduced late last week.
“We are trying to get the law passed that says if mailers itemize postage separately from service fees, the customer may avoid payment of the sales tax on the postage portion of the work or the need to change their print/mail processes to work around the new taxes,” said Joe Jovanovich, general manager of Walt's Mailing Services, a direct mail lettershop that also provides presort and printing services in Spokane Valley, WA.
The USPS is meeting with mailers and mailer representatives to hear their concerns about how the legislation may affect various states, “especially Washington state, because that seems to be where they are getting ready to implement the new tax regime,” Cooper said.
Cooper also said the USPS is preparing a position paper this month to distribute to the mailing groups with whom the postal service is discussing the issue.
Leo Raymond, the Mailing & Fulfillment Service Association's director of postal affairs, advises members to pay attention to what their state legislatures are doing and act similarly to mailers in Washington state. The association's chapter in Washington state worked with mailers there on the issue.
“While it's difficult to keep track of these things, we tell our members to try to be mindful of what is going on,” he said. “And in all cases, consult with their tax professional in their jurisdiction.”
Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters
