Were Consumer Reports, Zillions, Travel Letter, and Consumer Reports on Health exempt when published by a section 501(c)(3) organization without commercial advertising?

Plain-English summary

A section 501(c)(3) organization published Consumer Reports, Zillions, Travel Letter, and Consumer Reports on Health. The publisher and its products accepted no commercial advertising revenue.

The letter quoted historical section 6362.8(a), which exempted receipts from sales and the storage, use, or other consumption of a newspaper or periodical and tangible personal property incorporated into one. Subdivision (b)(1) limited that treatment to a publication published or purchased by a section 501(c)(3) organization when one listed condition applied, including distribution to members for membership fees or contributors, or the absence of commercial advertising revenue and acceptance.

California said the sale or use of the four publications was exempt on the stated no-commercial-advertising facts if each qualified as a periodical.

Counsel did not receive copies of any publication and therefore assumed, rather than verified, that each met proposed Regulation 1590(a)(2)'s periodical definition.

Source and live-annotation limits

The official PDF does not include the April 6, 1992 request, any publication copy, the publisher's federal exemption records, advertising records, membership or contributor information, circulation or distribution records, sales, purchases, component materials, invoices, returns, audit or assessment, or later outcome. The publisher's identity is redacted. The letter ends “Enc.” but does not identify or include the enclosure. Its answer rests on the requester's stated facts and an express periodical assumption.

The live annotation repeats the federal-status, no-commercial-advertising, assumed-periodical, and conditional exemption points. Its heading omits Zillions, which the linked letter expressly names. The live entry omits the April 6 request, quoted section 6362.8 language and alternatives, absence of publication copies, proposed-regulation citation, redaction, unidentified enclosure, and source and outcome limits.

What this means for you

Nonprofit publishers and tax professionals

Document section 501(c)(3) status and the absence of commercial advertising, and retain enough consecutive issues to establish periodical status rather than relying on an assumption. Preserve membership, contributor, circulation, advertising, and transaction records supporting the exemption claimed.

Common questions

Q: Did the four publications qualify for exemption?

A: Yes, on the stated nonprofit and no-advertising facts and the periodical assumption.

Q: Did counsel inspect the publications?

A: No.

Q: Was periodical status conclusively determined?

A: No. It was expressly assumed.

Q: Did the source document how the publications were distributed?

A: No. The letter quoted a membership-or-contributor alternative but applied the separate no-commercial-advertising condition.

Citations and references

• California Revenue and Taxation Code § 6362.8(a), (b)(1)(A)-(B) — quoted in part
• Proposed California Sales and Use Tax Regulation 1590(a)(2)
• Internal Revenue Code § 501(c)(3)
• April 6, 1992 request — described but not included
• Publications, exemption records, advertising records, distribution records, transactions, tax records, unidentified enclosure, and outcomes — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel letter:

--- and its products, maintains federal tax-exempt status under section 501(c) (3) of the Internal Revenue Code and does not receive revenue from, or accept, any commercial advertising.

You did not provide a copy of the publications; therefore, we will assume that each of thee publications qualifies as a "periodical" as defined in proposed Sales and Use Tax Regulation 1590 at subdivision (a) (2).

In such case, we believe that the sale or use of the publications is exempt from California sales and use tax.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0169
• Original supporting opinion: 385.0169 PDF

Original ruling text

385.0169

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM K. BENNETT
First District, Kentfield

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

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

July 27, 1992

BURTON W. OLIVER
Executive Director

This is in reply to your April 6, 1992 letter regarding the application of California sales and use tax to sales of publications by ---. You explained that --- publishes Consumer Reports, Zillions, Travel Letter, and Consumer Reports on Health. --- and its products, maintains federal tax-exempt status under section 501(c) (3) of the Internal Revenue Code and does not receive revenue from, or accept, any commercial advertising. Given this information, you ask that we confirm that the sale or use of the publications is exempt from California sales and use tax pursuant to Revenue and Taxation Code section 6362.8, which provides, in relevant part: "(a) There are exempted from the taxes imposed by this part, the gross receipts from the sale of, and the storage, use, or other consumption in this state, of tangible personal property that becomes an ingredient or component part of any newspaper or periodical, or any such newspaper or periodical. (b) This section shall apply only with respect to any of the following: (1) Any newspaper or periodical published or purchased by an organization that qualifies for tax-exempt status under Section 501(c) (3) of the Internal Revenue Code, and to which any of the following apply: (A) Distribution is to the members of the organization in consideration of payment of the organization's membership fee, or to the organization's contributors. (B) The publication does not receive revenue from, or accept, any commercial advertising.... " You did not provide a copy of the publications; therefore, we will assume that each of thee publications qualifies as a "periodical" as defined in proposed Sales and Use Tax Regulation

1590 at subdivision (a) (2). In such case, we believe that the sale or use of the publications is exempt from California sales and use tax. 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
Enc.