North Carolina has started auditing companies for sales tax it says is owed on postage.
The audits, which are 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 the company of DL&A, Greenville, SC.
Hill is helping four co-op clients fighting the tax. She wouldn’t name the clients, but said 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 redefined its definition of taxable services last summer several months after adopting the Streamlined Sales Tax plan.
As part of that, the state decided to tax services necessary to complete a sale. That means postage and other delivery costs, but it 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 say that this measures constitutes a tax on postage.
"It’s hard to justify paying tax on postage, but it has withstood court challenges in the state," 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 on Monday, 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 the Congress—in other words, a bill that would mandate interstate tax collection."
