Did buying two physical copies of the same mailing list qualify for one-time-use treatment when each copy was used once and copying was prohibited?

Plain-English summary

A corporation sold office equipment through catalogs and maintained no retail stores. It mailed catalogs at least four times yearly, using its own list for previous customers and selected lists bought from out-of-state suppliers for other recipients. The purchased lists arrived as computer printouts whose names were cut apart and pasted onto the catalogs.

The supplier contracts prohibited copying. Sometimes the seller bought an original list and a carbon copy for two mailings, and the supplier's charge depended on whether it furnished one or two copies. The seller argued that each physical copy was used only once.

The hearing officer explained that Regulation 1504(a)(3) treated a contractually limited single use as a nontaxable compilation service. But two copies of the same list were equivalent to one list usable twice. In that situation, the charge could no longer be treated as solely for compilation; it was for the physical copy as tangible personal property taxable under the sales-and-use-tax provisions.

The hearing officer recommended redetermination without adjustment. The audit covered January 1, 1977 through September 30, 1979; a deficiency determination issued February 20, 1980; and the protested tax measure was $32,952. The PDF does not supply the tax amount calculated from that measure.

Audit and publication limits

The recommendation says the seller's last prior audit ran through March 31, 1967, but neither that audit nor the new audit's workpapers are reproduced. The supplier contracts, list copies, charges, deficiency determination, testimony, invoices, catalogs, and payment or final-order records also are absent. The blank signature-date lines do not establish when the hearing officer or reviewer approved the recommendation.

The live annotation compresses the result to a buyer, no-copy contracts, occasional duplicate lists, and the taxable repeat-use conclusion. It omits the seller's catalog business, no-store model, customer list, out-of-state suppliers, printout-and-paste process, carbon-copy detail, supplier pricing, audit dates and amount, deficiency date, prior audit, hearing, recommendation posture, and blank dates. It also adds a subsequent-statutory-change note naming section 6379.8 that does not appear in the supporting PDF.

What this means for you

Mailing-list buyers, sellers, and tax professionals

Document both contractual use rights and the number of physical copies delivered. Here, a no-copy clause did not establish nontaxable one-time use when the supplier furnished two copies for two mailings. The live annotation's later-law warning makes a current-law check especially important.

Common questions

Did using each physical copy once qualify for nontaxable treatment?

No.

Why did two copies change the result?

The hearing officer treated them like one list usable twice, so the charge represented the physical copy rather than only compilation services.

Was the audit adjusted?

No. The recommendation was to redetermine without adjustment.

Citations and references

• California Revenue and Taxation Code sections 6051 and 6201
• California Sales and Use Tax Regulation 1504(a)(2) and (a)(3)
• California Revenue and Taxation Code section 6379.8 — cited only in the live annotation's subsequent-statutory-change note
• Supplier contracts, mailing lists, charges, audit records, February 20, 1980 deficiency determination, and prior-audit records — described but not included

Verbatim support

From the official supporting recommendation:

I regard the transfer of two copies of the same list the same as the transfer of one list which may be used twice because it can no longer be concluded that the charge is for compilation services.

Redetermine without adjustment.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/340-0000-all.html
• Original supporting recommendation: https://cdtfa.ca.gov/lawguides/annotations/340-0125.pdf

Original ruling text

STATE OF CALIFORNIA
BOARD OF EQUALIZATION

In the Matter of the Petition
for Redetermination of State
and Local Sales and Use Taxes
Petitioner

340.0125

)
) DECISION AND RECOMMENDATION
)
)
)

The above-entitled matter came on regularly for hearing on November 24, 1980 in San Jose, California, before H. L. Cohen, Hearing Officer.

Appearing for Petitioner:

Appearing for the Board:

Observer:

Protest
Petitioner protests the assertion of tax on the use of mailing lists in California. Tax was asserted based on an audit covering -the period from January 1, 1977 through September 30, 1979. A deficiency determination was issued February 20, 1980. The amount upon which the protested tax is based is $32,952. Contention Petitioner contends that its uses of mailing lists are one time uses not subject to tax. Summary

1. Petitioner is a corporation engaged in sales of office equipment through catalogs. It
   maintains no retail stores. The last previous audit was for the period through March 31, 1967.
2. Petitioner mails catalogs to customers and others four times or more per year. Catalogs
   are sent to all previous customers from petitioner's own mailing list. Petitioner also

purchases selected mailing lists from suppliers located outside the state. The lists come in the form of computer printouts which are cut up and pasted onto the catalogs. Occasionally petitioner purchases two copies, of a list for use on two mailings. The second list is a carbon copy of the original list. The contracts which petitioner signs with the list suppliers prohibit petitioner from copying the lists. The charges made by the list suppliers depend upon whether one or two copies of the list are furnished to petitioner.

3. The auditor regarded petitioner as having made more than one use of a list if petitioner
   bought two copies of the same list. Because Sales and Use Tax Regulation 1504 (a) (3) exempts. from tax only those transfers of mailing' lists which are for one time use only the auditor asserted tax on those purchases of multiple copies of lists. Analysis and Conclusions
4. Regulation 1504 provides in Subdivision (a) (2) that in general tax applies to transfers
   of mailing lists. Subdivision (a) (3) an exception to the rule in Subdivision (a) (2), provides that tax does not apply to transfers or uses of mailing lists, use of which is limited by contract for one time only. The question here is whether for purposes of the tax the purchase of two copies of a list constitutes a purchase of two lists which are each used once or purchase of one list which is used more than once. To arrive at a conclusion it is necessary to examine the basis for the rule.
5. Section 6051 of the Revenue and Taxation Code applies tax to sales of tangible
   personal property; Section 6201 applies tax to uses of tangible personal property. Neither sales nor use tax applies to sales of services. Subdivision (a) (3) of the regulation states that charges for single uses of mailing lists are regarded to be for the service of compiling the list. That is the basis for not applying tax in that situation. Where a list is used more than once, then it can no longer be concluded that the charges are for the compilation services; rather, the charges are for the physical copy of the list itself, which is tangible personal property. I regard the transfer of two copies of the same list the same as the transfer of one list which may be used twice because it can no longer be concluded that the charge is for compilation services. The tax asserted by the auditor is therefore correct. Recommendation Redetermine without adjustment.

H. L. Cohen, Hearing Officer

Date

Reviewed By:

Principal Tax Auditor

Date