North Carolina has started auditing companies for sales tax it says is owed on postage.
The audits, now in the administrative hearing stage, involve small local co-op mailers that billed clients for postage, according to Melanie C. Hill, a tax specialist with DL&A Price Tax Consulting Group LLC, Greenville, SC.
Hill is helping four co-op clients fight the tax. She wouldn't name the clients, but noted that the total sum exceeds $100,000 for all four, she said in an interview during the Direct Marketing Association's Government Affairs conference.
The measure also affects printers and lettershops that acquire postage for clients as a service even when that is done at cost “as a straight pass-through,” Hill added.
Postage is taxable only when it is past due on an invoice, she continued.
The state revised its definition of taxable services last summer, several months after adopting the Streamlined Sales Tax plan.
As part of that plan, the state decided to tax services that are necessary to complete a sale. That means postage and other delivery costs, but also includes addressing and inserting services conducted by a lettershop when they are needed to finish a mailing for which it has printed a piece, Hill explained.
Hill wasn't clear if that definition also includes list brokerage services or data acquisition.
Either way, industry observers believe this constitutes a tax on postage.
“It's hard to justify paying tax on postage,” said Mark Micali, vice president of government affairs for the DMA.
Nine states have adopted the Streamlined Sales Tax plan, according to Hill. But she is not sure how many of these — if any — have adopted the “optional provision” of taxing postage.
Hill is advising clients to pay a deposit on postage “in an agency relationship,” and not to include it as a revenue item on an invoice. “That might be enough to protect you,” she said.
Micali agreed that this practice might enable a firm to withstand an audit.
In a speech, DMA president H. Robert Wientzen called the plan “a voluntary — though not truly simplified — tax collection regime.”
He added, “Presuming a number of state legislatures adopt this simplification plan, we anticipate that something similar could be introduced in Congress — in other words, a bill that would mandate interstate tax collection.”
