Were mats supplying news, comics, features, and advertisements to newspaper publishers taxable sales of tangible property?

Plain-English summary

Fresno auditing staff referred a January 10, 1955 field audit report and a February 1 memorandum to Sales Tax Counsel. The source describes a newspaper publisher acquiring mats from two redacted providers. One charged a weekly lump sum for comics, crossword and information features, and news service. The other charged monthly for a service consisting of mats from which the local newspaper cast advertisements.

California acknowledged that the mats did not become ingredients or components of the newspaper. Even so, it treated both arrangements as services to publishers rather than sales of tangible personal property.

The audit was returned for revision to reflect that conclusion.

Source and live-annotation limits

The official PDF does not include the January 10 field audit report, February 1 Fresno memorandum, taxpayer or account, newspapers, mats, news or features, advertisements, provider agreements, weekly or monthly charges, invoices, returns, audit workpapers or measure, revised audit, assessment, appeal, or later outcome. It identifies the providers only as “A” and “B” and cites no statute, regulation, case, or prior opinion.

The live annotation accurately condenses the service conclusion and expressly says it is not subject to tax. It omits the two separate provider arrangements, recurring charge structures, local newspaper's casting of advertisements, component-part concession, field audit and transmittal, requested audit revision, missing authority, and source and outcome limits.

What this means for you

Newspaper publishers, content services, and tax professionals

Component-part analysis was not the only issue. This historical memorandum focused on the transaction's service character, including lump-sum recurring charges and information or advertising content delivered through the mats. Preserve the transferred materials, agreements, deliverables, charges, and actual newspaper use under current law.

Common questions

Q: What content did the mats provide?

A: News, comics, crossword and information features, and advertisements.

Q: Did the mats become part of the newspaper?

A: No.

Q: Why did California still find the arrangements nontaxable?

A: Counsel treated the providers as furnishing services rather than selling tangible personal property.

Citations and references

• January 10, 1955 field audit report — described but not included
• February 1 Fresno Auditing memorandum — described but not included; its year is not printed
• Mats, provider agreements, charges, newspaper records, tax records, revised audit, and outcomes — described or implicated but not documented

Verbatim support

From the official Sales Tax Counsel memorandum:

We have long been of the opinion that the furnishing of a news service, comics, and features in mat form is the rendition of a service and not the sale of tangible personal property.

The auditor was quite correct in taking the position that the mats do not become an ingredient or component part of a publication, but our position is based upon the theory that the furnisher of the mats is not furnishing tangible personal property but is furnishing essentially a service to publishers.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0300
• Original supporting opinion: 385.0300 PDF

Original ruling text

385.0300

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

February 10, 1955

To:

Fresno - Auditing (JRC)

From: Headquarters - Sales Tax Counsel

Your report of field audit dated January 10, 1955, of the above has been referred to me along with your memo of February 1. We have given considerable thought recently to the proper application of the sales tax and use tax with respect to mats furnished to newspaper publishers. You state that the mats in question are acquired from "A" and "B". "A" provides for a weekly lump-sum price, mats for comics, crossword and information features, as well as news service. "B" makes a monthly charge for a service consisting of mats from which advertisements are cast by the local newspaper. We have long been of the opinion that the furnishing of a news service, comics, and features in mat form is the rendition of a service and not the sale of tangible personal property. We have recently reached the conclusion that the same rule should apply with respect to mats which are used to furnish advertisements to publishers. The auditor was quite correct in taking the position that the mats do not become an ingredient or component part of a publication, but our position is based upon the theory that the furnisher of the mats is not furnishing tangible personal property but is furnishing essentially a service to publishers. We are, accordingly, returning the audit and request that you revise it in accordance with the views expressed herein.

E. H. Stetson

EHS:ph