Was a contractor-group membership exempt when its primary benefit was a mailed weekly construction-bid publication and its only other benefit was bidding-room access?

Plain-English summary

Fisher's redacted one-year group membership provided only two benefits. First, a weekly booklet listed area construction projects accepting bids, bids made, successful bids and bidders, and winning amounts. Counsel assumed delivery by mail or common carrier.

Second, a bidding room stored plans for construction projects on which members might bid. Membership did not permit purchases of building materials or other tangible personal property.

Sections 6051 and 6012 taxed California retail sales of tangible property on total sale price, including services forming part of the sale. Sections 6362.7(b) and (c) and Regulation 1590 exempted a qualifying subscription periodical delivered by mail or common carrier. The periodical rules required four to 60 issues yearly, news or information of general or group interest, continuity or similar subject matter, article connections, similar style and format, and no disqualifying advertising share over 90 percent in more than half a 12-month period.

Because the publication was the membership's primary benefit, California treated the transaction as its retail sale and the organization as retailer under Annotation 385.0980. Bidding-room access was incidental. If the publication were taxable, the service charge would enter gross receipts; if the publication were exempt, tax would not apply to the bidding-room charge.

Counsel said the weekly bid publication seemed likely to qualify on the telephone description but could not decide conclusively without reviewing at least three consecutive issues. If all content, frequency, advertising and delivery conditions were met, the subscription through membership and incidental bidding-room service were exempt.

Source and live-annotation limits

The official PDF does not include the December 28, 1994 request, April 14, 1995 telephone record, membership agreement or fee, organization records, weekly booklet or three consecutive issues, construction-project or bid lists, successful bidder or amount records, issue schedules, articles, format or advertising calculations, mail or carrier evidence, bidding-room plans or access records, building-material or other property offers, sales, invoices, returns, exemption claim, tax calculations or payments, audit, assessment, claim, appeal, or other outcome. The organization, publication, membership, location, projects, bidders, transactions, and recipients are redacted; “Fisher” appears once without further identification.

The live annotation accurately preserves the construction-bid publication, bidding room, primary-benefit analysis and conditional tax result. It states the entire fee is taxable if the publication fails exemption; the source says bidding-room service charges enter the publication sale's gross receipts when that sale is taxable. The live entry omits the request, call and delay, booklet format, assumed delivery, no-building-material benefit, sections 6012 and 6051, full periodical criteria, Annotation 385.0980, organization-as-retailer conclusion, need for three consecutive issues, merely likely status, missing records, redactions, and outcome limits.

What this means for you

Membership organizations and tax professionals

Identify the membership's primary benefit and preserve agreements, fees, at least three consecutive issues, schedules, articles, formats, advertising calculations, delivery evidence, service records, every other benefit, sales, returns, tax calculations, and agency review.

Common questions

Q: Was the membership treated as a service sale?

A: No. Its primary benefit was the publication.

Q: Did the opinion conclusively grant exemption?

A: No. It said exemption was likely if all periodical tests were met.

Q: Did bidding-room access create separate tax?

A: No, if the publication sale itself was exempt.

Q: What happened if the publication sale was taxable?

A: Charges attributable to the incidental bidding-room service were included in the publication sale's gross receipts.

Citations and references

• California Revenue and Taxation Code §§ 6012(a), 6012(b)(3), 6051, 6362.7(b), and 6362.7(c)
• California Sales and Use Tax Regulation 1590(a)(2) and (b)(3)
• California Business Taxes Law Guide Annotation 385.0980 (April 7, 1967)
• December 28, 1994 request, April 14, 1995 call, membership and publication records, three consecutive issues, delivery and bidding-room records, sales and tax records, and outcomes — described or implicated but not documented

Verbatim support

From the official Staff Counsel letter:

The primary benefit of ---'s purchase of a one-year Group membership is a subscription to the --- News.

While we cannot conclusively state that the --- News is an exempt periodical unless we have the opportunity to review at least three consecutive issues of the publication, based upon the description which you provided in our telephone conversation, it seems likely that the --- News would meet the statutory requirements to qualify as an exempt periodical, as discussed below.

However, if, as previously discussed, the sale of the --- News is statutorily exempt, tax does not apply to any charges attributable to the bidding room service.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0536
• Original supporting opinion: 385.0536 PDF

Original ruling text

385.0536

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION – MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 324-2634
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

April 24, 1995

Re: ---

Dear --This is in response to your letter dated December 28, 1994 concerning the application of sales tax to the purchase by --- of a one-year membership in the ---. As I indicated when we spoke on the telephone on April 14, 1995, we apologize for the delay in responding to your letter. From our telephone conversation I understand that --- membership in the --- provides --with two things. First, as a --- member, --- receives a subscription to a weekly publication, the ----- --- --- (--- News). The --- News is published in a booklet format. The contents of the publication are lists of construction projects in the --- area which are currently accepting construction bids, and lists of construction project bids made, the successful bids, the names of the successful bidders and the amounts of the successful bids. For purposes of this opinion, I assume this publication is delivered to --- by mail or common carrier. Second, membership in the
--- gives --- access to a "bidding room" which is a repository of plans for various construction projects on which --- members may wish to make construction bids. You indicated that these two things are the only benefits of membership in the --- and that membership does not entitle the member to make any purchases of building materials or any other tangible personal property. I will first discuss the Sales and Use Tax Law in general, as it applies to Fisher. I will then specifically address the issue of ---'s purchase of a one-year membership in the --Discussion Retail sales of tangible personal property in California are subject to sales tax measured by the gross receipts from the sale. (Rev. & Tax. Code § 6051.) Gross receipts mean the total

amount of the retail sale price for which the property is sold. (Rev. & Tax. Code § 6012(a).) The sale price includes any services which are a part of the sale. (Rev. & Tax. Code § 6012(b)(3).) Statutory exemptions from imposition of tax apply to certain sales of tangible personal property. One such exemption applies to periodicals regularly issued at average intervals not exceeding three months which are sold by subscription and delivered by mail or common carrier. (Rev. & Tax. Code § 6362 . 7 (b); Reg. 1590 (b) (3).) "Periodical" is defined as any publication which appears at stated intervals at least four times per year, but no 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 in the series in the nature of the articles appearing in them. Each issue also must 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. (Rev. & Tax. Code § 6362.7(c); Reg. 1590 (a) (2) .) The Sale of a One-Year Group Membership The primary benefit of ---'s purchase of a one-year Group membership is a subscription to the --- News. When the primary benefit of the purchase of a membership in an organization is the receipt of a publication, we view the transaction as the sale of tangible personal property (the publication), and .consider the membership and any services which members receive as incidental to the sale of the publication. In such a situation, the organization is the retailer of the publication. (See BTLG, Annot. 385.0980 (4/7/67).) Sales tax applies to the organization's sale of the publication unless the publication is classified as an exempt periodical under the provisions of Revenue and Taxation Code section 6362.7. If the --- News is a periodical as defined by Revenue and Taxation Code section 6362.7, and is delivered by mail or common carrier, its sale by subscription is exempt from tax. While we cannot conclusively state that the --- News is an exempt periodical unless we have the opportunity to review at least three consecutive issues of the publication, based upon the description which you provided in our telephone conversation, it seems likely that the --- News would meet the statutory requirements to qualify as an exempt periodical, as discussed below. If, as you stated, the --- News is issued weekly, it meets the requirement of appearing at stated intervals at least four times a year, but not more often than 60 times per year. If each issue of the --- News also contains information of general interest to a particular group of persons, bears a relationship to prior and subsequent issues with respect to similarity of subject matter, has a connection between the different issues of the series in the nature of the articles appearing in them, and each issue is sufficiently similar in style and format to make it evident that it is one of a series, then those requirements for the publication to qualify as a periodical are met. A final requirement to qualify as a periodical is that the advertising portion (if any) of the --- News may not exceed 90 percent of the printed area of the entire issue in more than one-half of the issues during any 12-month period. If the --- News meets all of the above criteria, and is delivered by

mail or common carrier, a sale of a subscription to it via the purchase of a membership in the --is exempt from tax. The only other benefit of joining the --- is access to the bidding room. Access to the bidding room is a service which is incidental to the sale of tangible personal property (the --News). As such, charges attributable to this service would be included in the gross receipts of the retail sale of the --- News if the sale of the --- News was subject to tax. However, if, as previously discussed, the sale of the --- News is statutorily exempt, tax does not apply to any charges attributable to the bidding room service. I hope this information is of assistance. Please write again if we may be of further aid.

Sincerely,

Sharon Jarvis
Staff Counsel

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