How did California tax free copies, paid California subscriptions, and out-of-state shipments of a monthly cartoon-news publication?

Plain-English summary

A redacted publisher said some publications were distributed free from racks inside stores or vendor boxes outside them, while other copies were distributed by subscription. No publication copy was provided. From the publisher's letterhead and “1 year/12 issues” subscription statement, counsel inferred cartoon-form news and monthly issuance.

California said that if the publication qualified as a newspaper or periodical, the printer's sale and the publisher's use of copies actually distributed without charge were exempt. The publisher did not need to print the word "free" on those copies.

Counsel could not conclusively determine periodical status without reviewing several issues. The monthly schedule and cartoon news satisfied frequency and group-interest elements, but the publisher still had to establish continuity, connection between issues, similar style and format, and compliance with the advertising limit.

Paid California copies were taxable unless sold by subscription and delivered by mail or common carrier. Without regard to newspaper or periodical status, the printer's sale was a nontaxable sale for resale when the publisher sold copies by subscription and gave the printer a resale certificate.

Sales required by contract to be shipped outside California also could be exempt when the publisher used its own facilities or delivered the property to a qualifying carrier, customs broker, or forwarding agent for out-of-state shipment. Applying that rule, the letter specifically addressed a contract requiring shipment by common carrier and actual shipment that way.

Source and live-annotation limits

The official PDF does not include the request received July 20, 1994, publication copies, letterhead, subscription offer, news cartoons, articles, advertising, consecutive issues, printer contract, printing or paper purchases, rack or box distribution records, subscriber or mailing records, resale certificate, out-of-state sales contracts, shipment records, invoices, returns, audit or assessment, or later outcome. The publisher, recipient, publication, address, and copied district administrator are redacted. Regulation 1590 is identified as an enclosure but is not included.

The live annotation summarizes free, subscription, and out-of-state treatment. It omits the received-date request, absence of publication copies, inferred cartoon-news and monthly facts, four undetermined periodical elements, “free” label answer, section 6007 resale rule, full section 6362.7 definition, Regulation 1543, detailed Regulation 1620 shipment methods and definitions, missing enclosure, redactions, and source and outcome limits.

What this means for you

Publishers and tax professionals

Separate free copies from paid subscriptions, retain consecutive issues supporting periodical status, document subscriber delivery and out-of-state contract and shipping terms, and give the printer the certificate appropriate to each transaction.

Common questions

Q: Did free copies need the word "free" printed on them?

A: No.

Q: Did counsel conclusively decide that the publication was a periodical?

A: No. Several issues were needed to test every element.

Q: Were paid California copies automatically exempt?

A: No. They had to be sold by subscription and delivered by mail or common carrier.

Q: Could out-of-state sales qualify for exemption?

A: Yes, if the contract and shipment met the interstate-commerce requirements described in Regulation 1620.

Q: Did counsel inspect the publication?

A: No. Cartoon-form news and monthly issuance were inferred from the letterhead and subscription statement, and three continuity and format elements remained undetermined.

Citations and references

• California Revenue and Taxation Code §§ 6007, 6051, 6362.7(a)-(c), and 6396
• California Sales and Use Tax Regulations 1543(b)(6) and 1620(a)(3)(B)
• California Sales and Use Tax Regulation 1590 — enclosed but absent
• Request received July 20, 1994, publications, subscriptions, distributions, shipments, certificates, tax records, and outcomes — described or implicated but not documented

Verbatim support

From the official Staff Counsel letter:

As long as the periodicals are in fact distributed free of charge, this exemption would apply without regard to whether the word "free" is printed on the cover of the periodical or elsewhere.

When you charge for the distribution, then your sales of the publication to California consumers are subject to sales tax unless they are sold by subscription and delivered by mail or common carrier.

Thus, if the contract of sale requires you to ship the publication outside California by common carrier, and you in fact do so, that sale is an exempt sale in interstate commerce for which you may issue a resale certificate to the printer.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0215
• Original supporting opinion: 385.0215 PDF

Original ruling text

385.0215

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 322-2976

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

August 30, 1994

────────
BURTON W. OLIVER
Executive Director

Mr. J--- I--C--- P--- News
P. O. Box XXXXXX
---, CA XXXXX
Dear Mr. I---:
This is in response to your letter received by us on July 20, 1994 regarding the application of sales tax to publications. You state that in some cases, you distribute the publications free of charge by placing them in racks inside stores or in vendor boxes outside the stores. In other cases, you distribute the publications by subscription. You have not provided us with copies of the publications, but it appears from your letterhead that the publications contain news information presented in cartoon form. Since you state that the subscriptions are "for 1 year/12 issues," I assume that the publications are issued monthly. Retail sales of tangible personal property in California are subject to sales tax, which is measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) A sale of printed literature by a publisher is subject to tax unless the sale is for resale or is specifically exempt by statute. (Reg. 1543(b)(6).) The sale and use of newspapers and of periodicals are exempt from tax under certain circumstances, discussed below. One exemption relevant to newspapers and periodicals is set forth in Revenue and Taxation Code section 6362.7, which provides: "Newspapers and periodicals distributed without charge; periodicals. (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 which becomes an ingredient or component part of any

Mr. J---I---

-2-

August 30, 1994
385.0215

newspaper or periodical that is distributed without charge and regularly issued at average intervals not exceeding three months, and any such newspaper or periodical. "(b) 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 which becomes an ingredient or a component part of any periodical regularly issued at average intervals not exceeding three months, and any such periodical, that is sold by subscription and delivered by mail or common carrier." If your publication is a newspaper, your sales of it would not qualify for an exemption under section 6362.7; however, the sale to you of the publication (e.g., the printer's printing of it for you, or the sale of paper incorporated into it) or your use of it would be exempt with respect to those copies you distribute without charge. The definition of "newspaper" is set forth in Regulation 1590, a copy of which is enclosed. The remainder of this opinion is based on the assumption that the publication is not a newspaper. Thus, it must constitute a periodical to qualify for exemption under section 6362.7. Revenue and Taxation Code section 6362.7(c) provides that for purposes of this section, a periodical is any publication that appears at stated intervals at least four times per year but not more than 60 times per year, each issue of which must: (1) contain news or information of general interest to the public or to some particular organization or group of persons; (2) bear a relationship to prior or subsequent issues with respect to continuity of literary character or similarity of subject matter; (3) be connected to the other issues of the series in the nature of the articles appearing in them; and (4) be sufficiently similar in style and format to make it evident that it is one of a series. The term "periodical" does not include printed sales messages, shopping guides, or other publications of which the advertising 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 12-month period. Since your publication is issued monthly, it meets the requirement of being issued at least four times per year but not more than 60 times per year. The information the publication

Mr. J---I---

-3-

August 30, 1994
385.0215

presents, the news in cartoon form, is of general interest to the particular group of persons who enjoy reading the news in such a form. We cannot determine whether the publication meets the other three requirements without looking at several copies of it. If the publication satisfies the second, third, and fourth elements above, it qualifies as a periodical. If the publication qualifies as a periodical as defined in subdivision (c) of Revenue and Taxation Code section 6362.7, then when it is distributed without charge, both the printer's sale to you and your use of the publication are exempt from tax. As long as the periodicals are in fact distributed free of charge, this exemption would apply without regard to whether the word "free" is printed on the cover of the periodical or elsewhere. When you charge for the distribution, then your sales of the publication to California consumers are subject to sales tax unless they are sold by subscription and delivered by mail or common carrier. As mentioned above, a retail sale is a sale for any purpose other than resale. Without regard to whether your publication qualifies as a periodical or a newspaper, the printer's sales to you are nontaxable sales for resale in the situations in which you sell the publication by subscription. For such situations, you may issue a resale certificate to the printer. If your publication does not qualify as a periodical under section 6362.7, then sales to California consumers are subject to sales tax. Sales to out-of-state consumers, however, may be exempt under Revenue and Taxation Code section 6396, which provides an exemption for sales in interstate commerce. This exemption is explained in subdivision (a)(3)(B) of Sales and Use Tax Regulation 1620: "Shipments Outside the State--When Sales Tax Does Not Apply. Sales tax does not apply when the property pursuant to a contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer, by means of: "l. Facilities operated by the retailer or "2. Delivery by the retailer to a carrier, customs broker or forwarding agent whether hired by the purchaser or not, for shipment to such out-of-state point. As used herein the term 'carrier' means a person or firm regularly engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The term 'forwarding agent' means a person or firm regularly engaged in the business of preparing property for shipment or arranging for its shipment. An individual or firm not otherwise so engaged does not become a 'carrier' or 'forwarding agent' within the meaning of this regulation simply by being designated by a purchaser to receive and ship goods to a point outside this state ...."

Mr. J---I---

-4-

August 30, 1994
385.0215

Thus, if the contract of sale requires you to ship the publication outside California by common carrier, and you in fact do so, that sale is an exempt sale in interstate commerce for which you may issue a resale certificate to the printer. In summary, if your publication qualifies as a periodical under Revenue and Taxation Code section 6362.7 and is distributed free of charge, the sale to you and your use of that publication are exempt from tax. You are not required to include the word "free" anywhere in your publication in order for the publication to qualify under section 6362.7. When you charge for the distribution of the publication, your sales to California consumers are subject to sales tax unless they are sold by subscription and delivered by mail or common carrier. Sales of the publication shipped out-of-state are exempt from tax if they meet the requirements of Regulation 1620. If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel

KWC:cl

cc:

--- District Administrator