Lewis, Carton and Mintz. The opinion of the court was delivered by Carton, J.A.D.
This is an appeal from a judgment of the Division of Tax Appeals holding the New Jersey Sales and Use Tax, N.J.S.A. 54:32B-1 et seq. , applicable to a portion of the appellants' business, which involves activities commonly known as "direct mailing services."
Such services include the maintenance of mailing lists of members of various occupations such as physicians, attorneys, teachers, etc., and institutions such as hospitals and schools. Upon direction of its customers, appellants Fisher-Stevens, Inc. and Merit Mailers, Inc. utilize these mailing lists to prepare mailing labels in order to send advertising material, supplied by the customers, to the individual persons on the mailing lists. In addition to keeping their mailing lists current and preparing the mailing labels, appellants fold and insert into mailing envelopes the advertising material supplied by their customers. In accordance with postal regulations, they also sort the envelopes by geographic areas and bag and tie them before the envelopes are placed into the United States mail.
All of the direct mailing services performed by appellants which are involved in this case take place at New Jersey locations. At the hearing in the Division, Robert J. Atkins, president of Fisher-Stevens, estimated that approximately 45% of a typical billing charge is allocated to selecting a mailing list and printing and applying the mailing labels.
Approximately 30% is devoted to folding and inserting the advertising material into envelopes. The remaining 25% pertains to the sorting, typing and bagging of the envelopes.
Of the volume of mail processed by Fisher-Stevens, an estimated total of 96% is for delivery to addresses outside of New Jersey. About 85% of its business is on order of customers outside the State of New Jersey.
Warren Grover of Merit Mailers described his organization's business practices as substantially the same as those of Fisher-Stevens. Merit Mailers, however, sends only about 40% of its mailings out-of-state.
In 1970, the Sales and Use Tax Act was amended. A new section was added, applying the Sales and Use Tax to an additional service heretofore not taxed:
Sec. 3. * * * there shall be paid a tax of 5% upon:
(b) The receipts from every sale, except for resale, of the following services:
(5) Advertising services except advertising services for use directly and primarily for publication in newspapers and magazines * * *. [ N.J.S.A. 54:32B-3(b)(5)]
The State Division of Taxation has maintained, since the passage of this amendment, that mailing services such as are performed by the appellants are subject to the cited portion of the act as "advertising services." By a letter of September 11, 1971 it gave Fisher-Stevens notice that this interpretation was final.
Fisher-Stevens and five other direct mailing organizations filed petitions of appeal with the Division of Tax Appeals, which, after a hearing, approved the agency's ruling except as to appellants' "sort-tie-bag" services on mail to out-of-state addresses. These services were held not liable to the tax.
The Division of Tax Appeals concluded that appellants' activities were subject to the tax as "advertising services" under section 3(b)(5) of the statute and as "processing" under section 3(b)(1). Appellants argue that their activities are neither advertising services nor processing.
Direct mailing services were clearly intended by the Legislature to be included in the term "advertising services." This is apparent from the legislative history of the amendment and the ...