Were experiment kits and worksheet-review services exempt when bundled for one price with a monthly children's educational magazine?

Plain-English summary

Counsel for a redacted publisher asked about a monthly education magazine for students in grades four through six. It taught math, reading, social studies, science, problem solving, and other academic skills. Each issue included an experiment, a physical kit, study worksheets, an experiment report returned by the subscriber, and publisher review and comments for one subscription price.

The proposed kits included plastic test tubes, racks, tiny aquariums, stands, droppers, magnifying glasses, and seeds or eggs. The request cited an Exhibit A kit description and sample-magazine pages 32 through 44, neither published with the letter.

California agreed that the magazine qualified under former section 6362 and Regulation 1590(a)(2): it was monthly, had general-interest educational information, and continued its subject matter between issues. The requester compared it to Bible study guides in Annotation 385.1350.

The worksheet and experiment-report review also was exempt because it was integral to the exempt magazine sale and available only to magazine purchasers. Counsel expressly did not rely on the requester's Regulation 1501 theory. If the magazine had been taxable—for example, if published only three times per year—the service would have entered the taxable sale price under former section 6012(b)(1).

The experiment kit was not a periodical component like paper, ink, or staples. Items such as an aquarium, eggs, food, magnifying glass, thermometer, and dropper retained uses apart from reading the magazine.

Tax therefore applied to the portion of the combined charge attributable to the experiment kit's value.

Source and live-annotation limits

The official PDF does not include the April 20, 1989 request, Exhibit A kit description, sample magazine or pages 32 through 44, November 1988 issue, other issues, articles, experiments, kits, study worksheets, experiment reports, subscriber comments, subscription terms or price, contracts, invoices, returns, audit or assessment, cited Annotation 385.1350, or later outcome. The client, magazine, letter recipient, and several service references are redacted. The letter decides legal treatment on the described facts but supplies no allocation method or amount for the kit.

The live annotation summarizes the magazine, kit, report-review process, component analysis, and taxable kit allocation. It omits the April 20 request and exhibits, detailed periodical elements, Annotation 385.1350 comparison, review service's exempt treatment and rejected Regulation 1501 rationale, three-issue taxable hypothetical, specific November 1988 aquarium-set facts, redactions, missing allocation amount, and source and outcome limits.

What this means for you

Educational publishers and tax professionals

Separate physical kits from actual publication components, document whether related services are available only through the subscription, and preserve the publication, kit, service, cost, value, and pricing records needed to allocate the bundle to taxable reusable property.

Common questions

Q: Was the monthly magazine exempt?

A: Yes, under the former periodical rules.

Q: Was the review service exempt?

A: Yes, because it was integral to the exempt magazine sale.

Q: Was the experiment kit a component part?

A: No.

Q: What amount was taxable?

A: The portion of the total charge attributable to the kit's value.

Q: Did counsel specify the kit's dollar value or allocation method?

A: No.

Citations and references

• Former California Revenue and Taxation Code §§ 6012(b)(1) and 6362
• California Sales and Use Tax Regulation 1501 — requester's proposed basis rejected
• California Sales and Use Tax Regulation 1590(a)(2)
• California Sales and Use Tax Annotation 385.1350 — cited by requester but not included
• April 20, 1989 request, exhibits, magazine issues, kits, services, pricing and tax records, and outcomes — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel letter:

Component parts of periodicals refer to such items as paper, ink, staples, etc., and not to other types of tangible property which may be packaged with or sold together with the periodical itself.

Our opinion is that tax applies to that portion of ' is entire charge for the magazine, the review services, and the experiment kit, which is attributable to the value of the experiment kit itself.

However, our reason is not because the service is exempt under Regulation 1501. Rather, our opinion is that --- s performing a service which is an integral part of the sale of the magazine since the student may obtain --- review of the study worksheets and experiment reports only if the student purchases the magazine.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0238
• Original supporting opinion: 385.0238 PDF

Original ruling text

(9J.6) 445-6493

385.0238

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-6493

June 2, 1989

Periodicals --- --- magazine experiment kits
Dear ---In your April 20, 1989 letter to Mr. Gary Jugum, Assistant Chief Counsel, you request a legal opinion from the Board regarding the taxability of experiment kits sold' as a part of a monthly science magazine. You relate that your client, ---, will publish a monthly education magazine, --- for students in grades 4 through 6. The magazine will have articles about math, reading, social studies, science, and other features designed to educate children in problem solving and other academic skills. You write in part: “4. Each issue will include an experiment to be completed and a kit with the materials necessary to complete the experiments. The experiment kits will include such items as plastic test tubes, racks, tiny aquariums, stands, droppers, magnifying glasses and seeds or eggs. See Exhibit A for a description of one kit. The magazine and experiment kit will be sent to the, subscriber in one package. After completing the experiment, the subscribers will complete an experiment report and mail it back to ---. "5. --- --- --- review the study worksheets and experiment, reports and send comments back to the subscribers.

“7. The magazine, the experiment of the study worksheets and experiment reports will all be included in one subscription price.” You ask that we agree with the following conclusions:

"1. The magazine is exempt from sales and use tax as a periodical under Section 6362. It meets the requirements of Regulation 1590 in that: "a. It will be published at stated intervals averaging less than three months. (Monthly) "b. Each issue will contain information of general interest. (Math, Reading, Social Studies and Science) "c. There will be a continuity of subject matter from one issue to the next. However, specific articles will probably not be repeated. "d. While the periodical deals with educational subjects, it is similar to bible study guides which qualify as exempt periodicals under Sales and Use Tax Annotation 385.1350. "2. The review of the experiment reports by Synken, Inc. is a service which is exempt from sales and use tax under Regulation 1501. "3. The experiment kit is a component part of the periodical. The experiments are explained in the magazine (see pages 32 to 44 in the enclosed sample magazine). The experiment kits are manufactured to meet the requirements of a specific set of experiments and have no market value or other use. As a component part of an exempt periodical, the experiment kit is exempt from sales and use tax under Section 6362." Opinion We agree with your conclusions numbers 1 and 2 above. --- magazine meets the criteria for exemption from sales and use tax as a periodical under the tests set out in Regulation l590 (a)(2). We also agree with your conclusion that --- reviews of the experiment reports and study worksheets is a service exempt from sales and use tax. However, our reason is not because the service is exempt under Regulation 1501. Rather, our opinion is that --- s performing a service which is an integral part of the sale of the magazine since the student may obtain --- review of the study worksheets and experiment reports only if the student purchases the magazine. Since the magazine is exempt from sales and use tax, so is the service provided by ---. However, our view would be different if the magazine were taxable under other circumstances, for example, if the magazine were published only three times a year. In that case, these services would be taxable as part of the sale of tangible property. (Revenue and Taxation Code Section 60l2(b) (l)). We cannot agree with your conclusion number 3 above, that the experiment kit is exempt from tax as a component part of the periodical. Component parts of periodicals refer to such items as paper, ink, staples, etc., and not to other types of tangible property which may be packaged with or sold together with the periodical itself. We also cannot agree with your statement that the experiment kits have no other use than for the reader to perform a specific set of experiments. For example, in the November 1988 issue of --- the science equipment package

sold together with the magazine includes an aquarium, brine shrimp eggs, food, a food container, a magnifying glass, a thermometer, and a dropper, all of which would be useful· to the purchaser as an aquarium set for home use regardless of· whether or not the reader performed the experiments described in this issue. Our opinion is that tax applies to that portion of ' is entire charge for the magazine, the review services, and the experiment kit, which is attributable to the value of the experiment kit itself. Please feel free to contact me if you have any further questions or comments about this letter.

Sincerely,

John Abbott
Senior Tax Counsel

JA:jb