Were free-distribution newsletters exempt periodicals, and were mailing lists used for several issues eligible for one-time-use treatment?

Plain-English summary

A publisher answered a January 21, 1997 request about yearly customer contracts for between two and 12 newsletter issues, with four issues being typical. The newsletters contained general-interest or client-group information; issues were related, and design and layout usually remained the same. California assumed the clients distributed them without charge.

Section 6362.7 could exempt a qualifying periodical and property becoming its ingredient or component part when the periodical was distributed free and regularly issued at average intervals no longer than three months. Subdivision (c) described a periodical as a related series issued at stated intervals four to 60 times yearly, containing qualifying news or information, with continuity of literary character or subject and sufficiently similar style and format. It excluded printed sales messages, shopping guides, and publications whose advertising and product-publicity portion exceeded 90 percent of the printed area in more than half the issues during a 12-month period.

On the supplied facts, newsletters issued at least four but no more than 60 times yearly could be exempt if they otherwise qualified. Newsletters issued only twice yearly were not exempt. The opinion requested three consecutive issues plus distribution and charge information for a more definitive periodical determination.

The publisher also printed labels. A client either supplied a new list for each issue or supplied one list for the entire contract; when the publisher bought a list for the client, it usually bought it for the contract term. Mailing-list transfers generally were taxable under Regulation 1504(a)(2). The one-time-use exception did not appear to apply where the transfer contract did not restrict the publisher to one use. Sales tax appeared to apply to a California sale of the list, or use tax to the publisher's California use.

Source and publication limits

The letter gives no final classification for a particular newsletter and no definitive mailing-list answer beyond what “appears” from the supplied facts. It requested three consecutive issues, distribution and reader-charge information, and a description of the mailing-list transfer. None is included. The PDF also does not reproduce the January 21 request, annual contracts, newsletters, lists, labels, invoices, tax reporting, audit or assessment records, or the enclosed regulations.

The live annotation preserves only the publisher's multissue contracts, purchased mailing list, contract-long use, missing one-use limit, and taxable transfer. It omits the client-supplied-list alternatives, sales-versus-use-tax wording, incomplete-transfer warning, entire periodical analysis, free-distribution assumption, sample request, January 21 request provenance, and missing records.

What this means for you

Newsletter publishers and printers

Document issue frequency, continuity, content, format, advertising percentage, free distribution, list ownership, contract duration, and explicit use restrictions.

Accountants and tax professionals

The newsletter and the mailing list require separate analyses; an exempt publication does not by itself establish a one-time-use mailing-list transfer.

Common questions

Could a free newsletter qualify as an exempt periodical?

Yes, if it met the source's frequency, continuity, format, content, and distribution requirements.

Did a newsletter issued twice yearly qualify?

No.

Did a list used for several issues qualify as one-time use?

Not on the stated facts; the transfer contract did not appear to restrict use to one time.

Citations and references

• California Revenue and Taxation Code section 6362.7 and subdivision (c)
• California Sales and Use Tax Regulation 1504 and subdivision (a)(2)
• California Sales and Use Tax Regulation 1590
• January 21, 1997 request, sample newsletters, mailing-list transfer records, and enclosed Regulations 1504 and 1590 — referenced but not included

Verbatim support

From the official May 20, 1997 letter:

Tax does not apply to charges for the transfer of a mailing list where the contract restricts the transferee to use the mailing list for only one time.

Based on the facts you provided, it does not appear that the contract to transfer a mailing list to you restricts your use of the mailing list one time only.

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 opinion: https://cdtfa.ca.gov/lawguides/annotations/340-0146.pdf

Original ruling text

340.0146

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 445-6450
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego

May 20, 1997

KATHLEEN CONNELL
Controller, Sacramento
_______
JOHN CHIANG
Acting Member
Fourth District, Los Angeles

Mr. W--- L--Senior Accountant
F--- M--- Company
XXX --- Drive
--- ---, --- XXXXX

_______
E. L. SORENSEN, JR.
Executive Director

Account No. SC --- XX-XXXXXX
Dear Mr. L---:
This is in reply to your January 21, 1997 letter regarding the application of California sales and use tax to sales of newsletters by F--- M--- Company. You note F--- M--- Company is a newsletter publisher. You sign a contract with your customers on a yearly basis to produce newsletters for the customers. We understand some of your contracts are for as many as 12 issues and some as few as two, but the average contract is for four issues. The newsletters contain information of general interest to the public or specific organization depending on the client. All of the issues bear a relationship to each other. The design and layout of the newsletter usually remains the same from issue to issue. We assume that you sell newsletters to customers who distribute the newsletters without charge to the readers. Revenue and Taxation Code section 6362.7 provides an exemption from sales and use tax for the sale and use of tangible personal property which becomes an ingredient or component part of any periodical that is distributed without charge and regularly issued at average intervals not exceeding three months, and any such periodical. Subdivision (c) of section 6362.7 defines periodical: “For purposes of this section,‘periodical’ means any publication that appears at stated inervals at least four times per year, but not more than 60 times per year, each issue of which contains news or information of general interest to the public, or to some particular organization or group of persons. Each issue must bear a relationship to prior or subsequent issues with respect to continuity of literary character or similarity of subject matter, and there must be some connection between the different issues of the series in the nature of the articles appearing in them. Each issue must be sufficiently similar in style and format to make it evident that it is one of a series. The term does not include printed sales messages, shopping guides, or other publications of which the advertising

Mr. W--- L---

-2-

May 20, 1997
340.0146

portion, including product publicity, exceeds 90 percent of the printed area of the entire issue in more than one-half of the issues during any 12month period.” Enclosed is a copy of Sales and Use Tax Regulation 1590, Newspapers and Periodicals, for your further information. Based on the information you provided, if the newsletters you publish and sell qualify as periodicals as defined above, your sale of the newsletters which are issued at least four times each year, but not more than 60 times each year, are exempt from sales and use tax. Your sales of the newsletters that are issued two times a year are not exempt from tax. If you wish our opinion as to whether a newsletter qualifies as a periodical, please send copies of three consecutive issues for our review. Please also explain the manner of distribution and whether or not your client makes a charge to the distributees for the newsletters. You also note you use mailing lists to print mailing labels for your clients. The client provides the list to you, or you purchase the lists for the client to print the mailing labels for the client’s newsletters. If the client supplies the mailing list, it supplies a new list for every issue which you use only for that issue, or the client supplies a list for the entire term of the contract. When you purchase the list, it is usually only for the term of the contract. Enclosed is a copy of Regulation 1504, Mailing Lists and Services. As provided in subdivision (a)(2) of the regulation, sales or use tax generally applies to the sale or use of mailing lists. Tax does not apply to charges for the transfer of a mailing list where the contract restricts the transferee to use the mailing list for only one time. Based on the facts you provided, it does not appear that the contract to transfer a mailing list to you restricts your use of the mailing list one time only. Under the circumstances, it appears sales tax properly applies to the sale of a mailing list to you in California or use tax applies to your use of a mailing for use in this state. In order for us to give you a more definitive answer, we will need a description of the transfer of a mailing list to you for your use. If you have any further questions, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:sr
Enc.
cc: -- District Administrator