FACTS:

A Company, which is organized under the laws of the State of Connecticut and has a business office located in Connecticut, sells cooperative direct mail advertising as a franchisee of a publisher of advertising materials. The Company has described the services that it provides as follows: an advertising method whereby several different businesses can arrange through the Company to have printed advertisements, coupons, flyers, and similar advertising material sent in a single envelope, together with the advertising of other businesses, to households in a certain geographic area.  The households that receive the direct mailing will be furnished with an envelope full of advertising materials that advertise a number of businesses participating in the mailing. 

As a franchisee of a publisher of advertising materials, the Company’s franchise agreement with said publisher grants the Company a certain territory within Connecticut.  The Company approaches businesses within its territory and offers to advertise the businesses’ products or services in a mailing.  The Company’s territory is divided into neighborhood trade areas (“NTAs”) that are distinguished by demographic data such as geographic area and family income; every household in an NTA receives the Company’s envelope. After businesses (customers) agree to purchase the Company’s services, these customers select the most suitable NTAs. The Company often assists its customers in designing and selecting content for the customers’ advertising materials to be included in the envelopes. The Company then place these orders with its franchiser, which is located outside Connecticut, to have the advertising materials printed, and the franchiser places the materials in the addressed envelopes along with the materials for other customers of the Company and of the franchiser to be disseminated in the same NTA and mails the envelopes.

ISSUE:

Whether the services provided by the Company are cooperative direct mail advertising services and, if so, are the Company’s sales of such cooperative direct mail advertising services excludible from sales and use tax under Conn. Gen. Stat. §12-407(a)(37)(U).

RULING:

The services provided by the Company are cooperative direct mail advertising services and, as such, are excluded from sales and use tax under Conn. Gen. Stat. §12-407(a)(37)(U).

DISCUSSION:

Pursuant to Conn. Gen. Stat. §4-176(a), any person may petition an agency for a declaratory ruling as to the applicability to specified circumstances of a provision of the general statutes, a regulation, or a final decision on a matter within the jurisdiction of the agency. Therefore, applying Conn. Gen. Stat. §4-176(a) to this pending request, the Department  must determine whether the services performed by the Company are cooperative direct mail advertising services in order to determine whether such services fall within the exclusion from taxable advertising services contained in Conn. Gen. Stat. §12-407(a)(37)(U).  The Department has determined that the services provided by the Company are cooperative direct mail advertising services.  Therefore, these services fall within the exclusion contained in Conn. Gen. Stat. §12-407(a)(37)(U).  

The starting point for this determination is Conn. Gen. Stat. §12-407(a)(37)(U), which imposes sales and use tax on advertising or public relations services.  This statute, however, excludes “cooperative direct mail advertising” from the scope of advertising services.   In Special Notice 2003(6), Media Advertising and Cooperative Direct Mail Advertising, the Department has defined cooperative direct mail advertising to mean the preparation and dissemination of advertisements or coupons for more than one business mailed in a single package or bundle to potential customers. The services provided by the Company described herein come within the Department’s definition of cooperative direct mail advertising.  As the Company arranges to have printed advertisements, coupons, flyers and similar printed advertising materials sent in a single envelope, containing similar advertising materials from other businesses, to households within a certain geographic area, the description of the Company’s services matches the definition of cooperative direct mail advertising contained in Special Notice 2003(6).

Based on the above, the Company does not have to charge sales and use tax on its cooperative direct mail advertising services provided that it separately states such charges for these services on its customers’ bills.  

In addition to excluding cooperative direct mail advertising from the scope of taxable advertising services, the General Assembly has also excluded media advertising.  Conn. Gen. Stat. §12-407(a)(37)(U) specifically excludes both “media advertising or cooperative direct mail advertising” from the scope of taxable advertising services. Conn. Gen. Stat. §12-407(a)(37)(U) (emphasis added).  According to the Connecticut Supreme Court, where, as is the situation here, “two types of laws are placed in the disjunctive, and, absent any indication that one is subordinate to the other or that one is meant to define the other, each phrase must be given equal weight as an independent limitation.”  Leonard v. Commissioner of Revenue Services, 264 Conn. 286, 300, 822 A2d 1184 (2003) (internal citation omitted).   Applying this analysis to Conn. Gen. Stat. §12-407(a)(37)(U), it is clear that the General Assembly considered media advertising and cooperative direct mail advertising to be separate and distinct forms of advertising services.  Thus, because the Company’s services are cooperative direct mail advertising services, such services cannot be media advertising. 1

Pamela Law
Commissioner

April 16, 2004

1 This ruling request did not ask the Department to rule on the taxability of any tangible personal property sold, purchased, used or otherwise consumed by the Company in connection with its provision of cooperative direct mail advertising.  Therefore, this ruling neither addresses nor applies to the taxability of tangible personal property sold purchased, used or otherwise consumed by the Company in providing its cooperative direct mail advertising services.