Beware of Taxation of Advertising Inserts

During the last legislative session in Maine, the legislature approved, and Governor Lepage signed, a bill to eliminate the exemption from the sales tax for publications. L.D. 1509, 126^th Legs., Part P, (Me. 2013). This law went into effect yesterday. The law now requires the taxation of magazines and newspapers. The sleeping dog, however, is the taxation of advertising flyers and other free publications.

Taxation of free advertising materials has become a “hot button” issue in Maine. In an Informational Notice dated September 27, 2013, Maine Revenue Services stated that the costs of printing advertising flyers, including those inserted in newspapers, are now subject to the sales tax if those materials are distributed in Maine. In other words, the publisher will be required to pay a use tax, either to its printer or directly to the state, on the printing charges for advertising flyers.

This caught the Governor and members of the legislature by surprise.  In a recent press release, the Governor announced that he, together with legislative leaders, will be introducing legislation in the next legislative session to exempt retroactively the printing costs of free publications and advertising flyers. Please note the next legislative session begins in January 2014. Such legislation may face a rough road ahead, given the State’s fiscal issues, so that whether the exemption is adopted, and its scope and effective date, are up in the air.

In the interim, advertisers should consider their options. Maine Revenue Services’ September 27 Notice does not mean that after October 1 advertisers must pay the sales tax on printing costs of advertising flyers included in newspapers and other advertisements distributed in Maine. Advertisers should consider the availability of other exemptions. For example, in its September 27 Notice, Maine Revenue Services notes that the sales tax will not apply if the advertisers purchase the flyers for resale. Thus, if the advertiser were selling the flyers to newspapers or others, it might be able to argue for exclusion by virtue of the sale for resale exemption. Another potential argument is, if an advertiser used an out-of-state printer, it might assert that it did not make a taxable use of the flyers. The point is that advertisers should carefully weigh their alternatives regarding advertising flyers and other advertising materials circulated in the State of Maine.