New York ~ Sales and Use Tax: Deliveries of Telephone Directories Did Not Qualify for Common Carrier Exemption

CCH Tax Day Report

A taxpayer’s expenses incurred in printing telephone directories that there delivered within New York by two companies were subject to sales tax because they did not constitute being mailed or shipped by means of a common carrier or like delivery service within the common carrier exemption under Tax Law §1115(n)(4). It was undisputed that the taxpayer caused its telephone directories to be mailed or shipped by the U.S. Postal Service, Federal Express, Product Development Corporation (PDC), and Directory Distributing Associates, Inc. (DDA), to its customers and prospective customers without charge to those customers or prospective customers. The only issue in this case was whether PDC and DDA qualified as common carriers or like delivery services such that the subject purchases were exempt from tax. There was no dispute that Federal Express was a common carrier within the meaning of the statute. The taxpayer asserted that both PDC and DDA were common carriers similar to the U.S. Postal Service and Federal Express. However, this argument was rejected. The taxpayer entered into contracts with both PDC and DDA. PDC’s primary business was the delivery of promotional and advertising materials which included the directories. DDA’s primary business was the door-to-door distribution of telephone directories. Thus, these companies were providing a service for a specific type of customer, i.e., the distribution of promotional and advertising materials such as the telephone directories. These deliveries were a major and ongoing part of the taxpayer’s business as opposed to an occasional occurrence from time to time as the need arose. Unlike a common carrier, such as the U.S. Postal Service or Federal Express, the facts showed that these companies’ deliveries were not completed by its own employees, but by independent contractors who used their own vehicles.

The contract with DDA resulted from a request for proposal made by the taxpayer. The contract sets forth the specific services to be performed, including standards for delivery times, packaging and reporting requirements and, further, allowed for such other services as the parties agreed upon. The contract with PDC included the same provisions concerning the detailed list of required services as the contract between the taxpayer and DDA, including the taxpayer’s right to specify further services (work orders), the taxpayer’s right to submit change orders, procedures for handling complaints, protection of confidential and proprietary information and certain insurance requirements. This contract also set forth the required manner and method of delivery, the authority to provide additional copies of directories, the maintenance of detailed delivery records, provisions for address corrections, verification of deliveries and for quality checks. Therefore, PDC and DDA were not acting as common carriers in their delivery of the directories, but were acting as contract carriers. Since PDC and DDA were not acting as common carriers in delivering the taxpayer’s directories, the taxpayer had to establish that the directories were delivered by means of a “like delivery service” within the meaning of Tax Law §1115(n)(4) in order to qualify for the exemption. “Like delivery service” is part of a list with “common carrier” and “United States Postal Service.” Accordingly, a “like delivery service” for purposes of the exemption statute must include elements common to these other methods of delivery. Common carrier services feature service to the general public at set fees. The taxpayer’s use of the U.S. Postal Service also featured such arrangements. Neither common carrier services nor U.S. Postal Service services featured negotiated contracts, customized services and an ongoing relationship as demonstrated by the relationship between the taxpayer and both PDC and DDA. Thus, the term “like delivery service” as used in the exemption set forth in the statute did not include contract carriers which provided delivery services under the terms and conditions of these contracts as discussed herein.

Supermedia LLC, New York Division of Tax Appeals, Administrative Law Judge Unit, DTA No. 826264, May 25, 2017, ¶409-042



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