Did approximately biweekly technology research notes and periodic analysis reports meet California's regular and stated interval requirements?

Plain-English summary

An adviser had previously described Corporation A's subscription service. Research Sets offered detailed five-year forecasts of key issues and strategic-planning assumptions for information-technology segments. Approximately every two weeks, customers received Research Notes consisting of four to seven one-page, two-sided documents; periodic Analysis Reports gave deeper treatment of Note topics.

California's July 8, 1992 letter had treated the Notes and Analysis Reports as taxable tangible property. After section 6362.7 created a periodical exemption, the requester said the Research Sets met the content test, appeared four to 60 times yearly, arrived by mail at average intervals no longer than three months, but did not follow exact intervals.

Counsel could not decide whether the reports were regularly issued at stated intervals. Weekly, biweekly, monthly and quarterly schedules qualified, as could a regular pattern alternating nine and 12 days or every month except identified months such as July and August. As-needed releases or issues published only after enough information accumulated were not regular. Subscribers had to be told the specific schedule or intervals.

The requester also left unclear whether Research Sets meant only Notes and Analysis Reports or included a book or loose-leaf volume. Under Annotation 385.1100, qualifying supplements could be exempt while initial and annual replacement volumes remained taxable. A lump-sum allocation could use the publisher's charge to replace a lost or destroyed volume.

If the Research Sets qualified, none of the annual subscription-service fee was taxable on the assumptions that conference-material costs were not separately stated and online access transferred no tangible property. If the Sets remained taxable, Corporation A could collect and remit tax on their fair retail selling price even when that value was lumped with services and omitted as a separate invoice line.

Section 6596 supplied the only relief for reliance on incorrect Board written advice. It required a written request disclosing all relevant facts and the taxpayer's identity. Because the client and facts were incomplete, this letter was only general advice on hypothetical facts.

Source and live-annotation limits

The official PDF does not include the February 11, 1993 or prior requests, July 8, 1992 letter, Research Sets, five-year forecasts, Research Notes, Analysis Reports, any issue or packet, release schedule, subscriber notices, mail records, content evidence, initial book or loose-leaf volume, supplements or replacement volumes, lost-volume price, subscription agreement or annual fee, conference or materials, online access, tangible-property transfer evidence, invoices, fair retail value, service charges, sales, returns, tax calculations or payments, written-advice-relief claim, audit, assessment, claim, appeal, or other outcome. Corporation A, the client, products, subscribers, conferences, services, transactions, amounts, and recipient are redacted or unidentified.

The live annotation preserves only the regular-and-stated-interval rule and specifically scheduled versus as-needed distinction. It omits the two requests and July 1992 ruling, research-product facts, four-to-sixty and mail conditions, detailed schedule examples, unresolved package contents and periodical status, Annotation 385.1100 and allocation, annual service-fee assumptions and result, fair-retail-value measure, bundled service treatment, section 6596 reliance denial, missing records, redactions, and outcome limits.

What this means for you

Research publishers and tax professionals

Publish and disclose a fixed schedule; preserve subscriber notices, every issue and delivery, package components, books and supplements, conference and online-access terms, standalone and fair retail values, invoices, returns and tax records. Identify the taxpayer and all relevant facts when requesting written-advice protection.

Common questions

Q: Did "approximately every two weeks" prove stated intervals?

A: Not on the incomplete facts provided.

Q: Could as-needed reports qualify?

A: No.

Q: Could taxable reports be allocated from a lump-sum service fee?

A: Yes, at their fair retail selling price on these facts.

Q: Did the opinion provide section 6596 reliance relief?

A: No.

Q: Could a regular but uneven release pattern qualify?

A: Yes. The letter gave alternating nine- and 12-day intervals as an example.

Q: What assumptions made the annual service fee nontaxable if the Research Sets qualified?

A: Conference materials were not separately priced, and online access transferred no tangible property.

Citations and references

• California Revenue and Taxation Code §§ 6362.7 and 6596
• California Sales and Use Tax Annotation 385.1100
• February 11, 1993 and prior requests, July 8, 1992 letter, research materials and schedules, package components, conference materials, online access, sales and tax records, and outcomes — described or implicated but not documented

Verbatim support

From the official Tax Counsel letter:

But published materials issued on an "as needed" basis or only when a certain amount of information has been accumulated are not issued regularly.

Assuming that the cost of the materials at the conferences is not stated separately and that on-line access to information does not include transfers of tangible personal property, no part of the "subscription service" fees would be taxable.

Since you have not identified your client or all of the relevant facts, this opinion does not come within the provisions of section 6596 but rather is simply general advice regarding a set of hypothetical facts.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0543
• Original supporting opinion: 385.0543 PDF

Original ruling text

385.0543
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

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

March 31, 1993

GRAY DAVIS
Controller, Sacramento
────────

Ms. D--- M. F--P--P. O. Box XXXX
---, CT XXXXX

BURTON W. OLIVER
Executive Director

Dear Ms. F---:
This is in response to your letter dated February 11, 1993. You had previously written to us, stating that Corporation A offers a "subscription service" which includes: Research sets which include a detailed five year forecast of key issues and strategic planning assumptions in particular segments of the information technology industry. Customers receive Research Notes approximately every two weeks which are a packet of 4 to 7 one page (two-sided) documents. In addition, customers receive Analysis Reports which are issued periodically and provide more in-depth analysis on particular topics that are included in the Research Notes. We concluded in our letter dated July 8, 1992 that the sale of the Research Notes and Analysis Reports were taxable sales of tangible personal property. Since we wrote that letter, the legislature enacted Revenue and Taxation Code section 6362.7 which exempts sales of certain periodicals. You ask whether the periodical exemption applies to Corporation A's Research Sets. According to your letter, the Research Sets meet the contents requirements of the exemption and are delivered by mail at average intervals not exceeding three months. Further, the publications appear at intervals at least four times a year but not more than 60 times per year. However, the Research Sets are not published at exact stated intervals. For example, the Research Notes are published approximately every two weeks but at average intervals not exceeding three months.

Ms. D--- M. F---

-2-

March 31, 1993
385.0543

The periodical exemption does not apply if the periodicals are not issued regularly. Examples of periodicals that are issued regularly are periodicals that are issued weekly, biweekly, monthly, and quarterly. Periodicals may be issued at different time intervals if there is a regular pattern, for example alternating between 9 days and 12 days. The Board also regards periodicals issued every month except for certain designated months of the year such as July and August as issued regularly if issued pursuant to a specific schedule. But published materials issued on an "as needed" basis or only when a certain amount of information has been accumulated are not issued regularly. Published materials which are not issued at stated intervals are not periodicals. The stated interval requirement is met if the subscriber is informed that he or she will be receiving the published materials pursuant to a specific schedule or at specific time intervals. We are not certain from the facts you gave in your letters if the Research Notes and Analysis reports are issued regularly and at stated intervals. In addition, we do not know if "Research Sets" refers only to Research Notes and Analysis Reports or if it also includes a book or loose leaf volume. If it includes a book or loose leaf volume and if the Research Notes and Analysis Reports meet the requirements for the periodical exemption, Sales and Use Tax Annotation 385.1100 applies. This annotation reads: "Loose-Leaf Services. Loose-leaf services or reports concerning taxes, business, and other subjects are issued to a subscriber initially in the form of a complete volume or volumes. Supplements containing current information on the subject are then regularly issued to the subscriber at average intervals of less than three months. Replacement volumes containing updated material are sometimes issued annually with the renewal of a subscription. The subscriber pays a lump-sum price for both the volume and the supplements. "On these facts, the supplements are exempt periodicals but the initial volumes and the replacement volumes are not. An allocation of the lump-sum price between the volumes and the supplements may properly be based upon the amount which the publisher charges to replace a lost or destroyed volume. 8/15/68."

You also ask whether the entire annual fee for "subscription services" would be nontaxable if the Research Sets are considered to be exempt periodicals. Assuming that the cost of the materials at the conferences is not stated separately and that on-line access to information does not include transfers of tangible personal property, no part of the "subscription service" fees would be taxable.

Ms. D--- M. F---

-3-

March 31, 1993
385.0543

In your last question you ask if the Research Sets are still considered to be taxable sales of tangible personal property, can Corporation A collect and remit the sales tax only on the fair retail selling price of the Research Sets, even if this amount is not separately stated on the sales invoice. The answer is yes. In this particular transaction, it is immaterial whether the charges for the Research Sets are separately stated or lumped together with charges for services. Revenue and Taxation Code section 6596 provides the only basis for relief from tax if a taxpayer relies on incorrect written advice from the board. The primary conditions to qualify are that the request for opinion must be in writing and must disclose all relevant facts, including the identity of the taxpayer. Since you have not identified your client or all of the relevant facts, this opinion does not come within the provisions of section 6596 but rather is simply general advice regarding a set of hypothetical facts. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again. Sincerely,

Elizabeth Abreu
Tax Counsel

EA:cl