When did California use tax apply to promotional pieces printed outside the state and mailed to recipients inside and outside California?

Plain-English summary

The opinion compared three ways an out-of-state printer could produce and distribute free promotional pieces.

• When the printer placed direct-mail pieces into the mail in Pennsylvania, title passed and the customer's use occurred outside California. California use tax did not apply, even to pieces ultimately received here.
• When catalog inserts were shipped to a California bindery or mailing house chosen by the customer, the customer used them in California. Use tax applied to all pieces, including those later mailed outside the state, regardless of whether the customer otherwise had California nexus.
• Shipping pieces to a California post office for mailing produced the same result as the bindery scenario.

Regulation 1541.5 could separately exempt printed sales messages specially ordered by the purchaser, mailed or delivered through the specified seller or mailing channels, and received free by another person who became their owner. The writer told the requester to determine whether the pieces met that test.

Each case had two customer-nexus variants. Case I assumed printer and customer nexus, then removed customer nexus; Cases II and III did the same. Counsel treated customer nexus as immaterial to the location of use in the California-intermediary cases.

The request, contracts, title terms, mailing lists, invoices, carrier and postal records, quantities, prices, actual exemption determination, and enclosed Regulation 1541.5 are absent. The live annotation accurately summarizes the patterns but does not convert counsel's requested self-review into an applied exemption finding.

Common questions

Why did Pennsylvania mailing avoid California use tax?

The Board's stated position was that depositing the material in the mail outside California passed title there. Customer A's use therefore occurred outside the state even for pieces addressed to California recipients.

Why were all catalog inserts taxed when sent to a California mailing house?

Customer A selected the California bindery or mailing house and used the pieces here by having them inserted and sent from California. Counsel included pieces later mailed outside the state as well as those sent to California recipients.

Did customer nexus change the result?

No for the described cases. Counsel gave the same answers whether Customer A had California nexus or not, while the printer or printer-mailer did.

Was a California post office different from a California bindery?

No under the response. Case III's common-carrier shipment to a California post office received the same answer as Case II's shipment to the bindery or mailing house.

Did the letter find the printed-sales-message exemption satisfied?

No. It listed three conditions from Regulation 1541.5 and suggested the requester review the materials. The regulation copy, pieces, orders, mailing arrangements, and ownership evidence are absent.

Is there an actual tax amount or audit result?

No. The source supplies no quantities, prices, tax calculation, return, audit, assessment, claim, appeal, or later outcome.

Citations and references

• California Revenue and Taxation Code section 6201 — cited for California use tax and applied by locating customer use; complete authority, definitions, exceptions, procedures, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1541.5 — described for a possible printed-sales-message exemption; missing enclosure, complete authority, every condition, procedures, amendments, later history, and current law not supplied
• August 29 request and November 21 response — no request, enclosure, contracts, mailing or exemption records, tax calculation, audit, assessment, claim, appeal, or later outcome supplied
• Official Annotation 325.0090's historical patterns and date — omits provenance, hypothetical and conditional posture, missing enclosure and records, later outcome, and reliance status and supplies no additional mailing record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/325-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0090.pdf

Original ruling text

325.0090

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

November 21, 1991

Mr. A--- S. W--XXX --- --- Avenue
---, NJ XXXXX
Dear Mr. W---:
This is reply to your August 29, 1991 letter regarding the application of sales and use tax to sales by your client under the cases you described as follows: “Case I A)

A printer/mailer produces and mails in Pennsylvania direct mail promotional material pieces for Customer A based on Customer A’s mailing list at no cost to the ultimate recipients. Printer/mailer and Customer A both have nexus in your state. Does the printer/mailer have to charge Customer A tax on the pieces mailed to recipients within your state?

B)

Same facts as above except:
Customer A does not have Nexus in your state but printer/mailer does. Does the printer/mailer have to charge Customer A tax on the pieces mailed to recipients within your state?

Revenue and Taxation Code section 6201 imposes the California use tax on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. Under the facts of this case, the printer places the promotional material in the mail outside California. We have taken the position that the depositing of promotional material in the mail out-of-state passes title at that time. Therefore, under the facts you provide here, the use of the property by Customer A occurs outside the state, and the California use tax does not apply to the use.

Mr. A--- S. W---

-2-

November 21, 1991
325.0090

“Case II
A)

A printer produces catalog insert pieces in Pennsylvania for Customer A and drop ships them via common carrier to a bindery/mailing house in your state contracted by Customer A. Printer has Nexus in your state. The printed pieces will be incorporated into a catalog by the bindery/mailing house and will be mailed based on Customer A’s mailing list at no cost to the ultimate recipients. Some pieces will be mailed to recipients within your state; other pieces will be mailed to recipients out of your state. Customer A has Nexus in your state. Does the printer have to charge Customer A tax on the entire drop shipment in your state? Does the printer have to charge Customer A tax only on the pieces which will be mailed to recipients within your state?

B)

Same facts as above except:
Customer A does not have Nexus in your state but printer does. Does the printer have to charge Customer A tax on the entire drop shipment in your state? Does the printer have to charge Customer A tax only on the pieces which will be mailed to recipients within your state?”

Under the facts of this case, Customer A makes the use of the catalog insert pieces in this state by sending the printed materials to the recipients from this state. Use tax applies to such use of the property including the materials which are shipped outside California by Customer A or Customer A’s agent. Such is the case whether or not Customer A is engaged in business in this state or whether or not Customer A has any other nexus within this state. However, we are sending a copy of Sales and Use Tax Regulation 1541.5, Printed Sales Messages, which provides an exemption from sales and use tax for the sale or use of printed sales messages which are: (1)

Printed to the special order of the purchaser;

(2)

Mailed or delivered by the seller, the seller’s agent or a mailing house acting as the agent for the purchaser, through the United States Postal Service or by common carrier;

(3)

Received by any other person at no cost to that person who becomes the owner of the printed material.

We suggest that you review the regulation to determine whether the printed materials qualify as printed sales messages as defined.

Mr. A--- S. W---

-3-

November 21, 1991
325.0090

“Case III
A)

A printer/ mailer produces in Pennsylvania direct mail promotional material pieces for Customer A and ships the pieces via common carrier to a post office in your state for mailing to recipients both within your state and out of your state at no cost to the ultimate recipients. Printer/mailer has Nexus in your state. Customer A has Nexus in your state. Does the printer/mailer have to charge Customer A tax on all the pieces mailed from your state? Does the printer/mailer have to charge Customer A tax only on the pieces mailed to recipients within your state?

B)

Same facts as above except:
Customer A does not have Nexus in your state but printer/mailer does. Does the printer/mailer have to charge Customer A tax on all the pieces mailed from your state? Does the printer/mailer have to charge Customer A tax only on the pieces mailed to recipients within your state?” Our answer is the same as in response to Case II.

We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr