Were advertising coupons nontaxable when the printer sent them to a binder for physical attachment to a newspaper publication and the advertiser never received them?

Plain-English summary

A redacted cleaning-services company's chief financial officer asked whether sales and use tax applied to coupons advertising carpet and upholstery cleaning. The request went to Board Member Ernest Dronenburg and was referred to Legal. It said the company used a redacted trade name and enclosed a coupon.

The commercial printer sent the coupons directly to a binding company. The binder attached them to a publication represented by an attached photocopy, then sent the bound publication to a redacted newspaper company for delivery to the final recipient. The advertiser never received any printed material. The live annotation names the publication as TV Week; the letter calls it T--- W--- and says it was part of the redacted newspaper.

Section 6051 generally taxed retailers based on gross receipts from California retail sales. But Regulation 1590(b)(1) excluded property bought for incorporation as a sold newspaper or periodical component even when the purchaser did not sell the finished publication. Regulation 1590(a)(3) limited components to physically incorporated items rather than publication-production consumables and included attached or inserted handbills, circulars, flyers, and similar matter.

California treated the coupons as newspaper components because they were attached and distributed with the newspaper. The printer's coupon sale therefore was nontaxable.

The purchaser had to provide the seller a timely written certificate stating the exempt newspaper-component use. The source identified Certificate A in its enclosed Regulation 1590 copy, but neither the regulation enclosure nor a completed certificate appears in the official PDF.

Source and live-annotation limits

The official PDF does not include the December 8, 1995 request, enclosed coupon, attached photocopy of the publication, TV Week or newspaper issue, printing or binding agreement, printer-to-binder delivery, physical attachment evidence, newspaper-company delivery, recipient record, price, invoice, sale, gross receipts, return, exemption certificate, tax calculation or payment, audit, assessment, claim, appeal, enclosed Regulation 1590 copy, Certificate A form, or later outcome. The company, trade name, publication, newspaper, printer, binder, recipient, transactions, amounts, and copied officials are mostly redacted or unidentified.

The live annotation preserves the coupon purpose, printer-binder-newspaper chain, TV Week name, advertiser nonreceipt, component result, and timely-certificate rule. It omits the December request and Dronenburg referral, chief financial officer and redacted trade name, enclosed coupon and attached Xerox copy, section 6051 and gross-receipts rule, purchaser-need-not-sell condition, production-consumable distinction, Certificate A and missing Regulation 1590 enclosure, missing records, redactions, and outcome limits.

What this means for you

Advertisers, printers, and tax professionals

Document direct shipment to the binder, physical attachment and distribution with the newspaper, and a timely completed exemption certificate. Preserve the coupon, publication issue, printing and binding agreements, deliveries, invoices, returns, and certificate acceptance.

Common questions

Q: Were the coupons taxable?

A: No.

Q: Why did they qualify?

A: They became physically incorporated component parts of a newspaper.

Q: Was documentation required?

A: Yes. The purchaser had to give the seller a timely written certificate.

Citations and references

• California Revenue and Taxation Code § 6051
• California Sales and Use Tax Regulation 1590(a)(3), (b)(1), and (c)
• Regulation 1590 Certificate A — described in an enclosure not included
• December 8, 1995 request, coupon, publication copy, agreements, delivery, certificate, transaction, and tax records — described or implicated but not documented

Verbatim support

From the official Staff Counsel letter:

Tax does not apply to sales of tangible personal property to persons who purchase the property for incorporation as a component part of a newspaper or periodical which will be sold notwithstanding that the purchaser is not the seller of the newspaper or periodical.

The sale of the coupon, since it is attached to the newspaper and becomes a component part of a newspaper, is not subject to sales tax.

You should provide a timely certificate in writing to the seller that the property will be used in a manner or for a purpose entitling the seller to regard the gross receipts from the sale to be nontaxable.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0771
• Original supporting opinion: 385.0771 PDF

Original ruling text

385.0771

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
LEGAL DIVISION - MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0082)
TELEPHONE: (916) 324-2655
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

January 9, 1996

Mr. M--- G--Chief Financial Officer
C--- S---, Inc.
XXXX --- Street
--- ---, CA XXXXX
Re:

Sales and Use Tax Regulation 1590
SR -- XX-XXXXXX

Dear Mr. G---:
This is in reply to your December 8, 1995, letter directed to Mr. Dronenburg. You inquired as to the application of sales tax to your purchases of certain printed materials in accordance with Sales and Use Tax Regulation 1590 and requested a written response to the following: “Does C--- S---, Inc. (dba S--- S--- C--- C---) have to pay Sales and Use Tax on coupons we had printed.

• C--- S--- had a commercial printer print coupons (enclosed). The purpose of these coupons was to advertise carpet and upholstery cleaning services.
• Once printed, the commercial printer delivered the coupons to the binding company for attachment to the publication ‘T--- W---’ (xerox copy attached).
• Once bound, the publication was sent to the newspaper company (--- --- ---) for delivery to the end recipient. “At no point in the process was any of the printed material sent to C--- S---. Does Regulation 1590 apply to our situation? And if so, how would we implement it?”

Mr. M--- G---

-2-

January 9, 1996
385.0771

Section 6051 of the Revenue and Taxation Code imposes the sales tax on retailers for the privilege of selling tangible personal property at retail in this state. The measure of tax is based on gross receipts from the retail sales in the state of tangible personal property. Tax does not apply to sales of tangible personal property to persons who purchase the property for incorporation as a component part of a newspaper or periodical which will be sold notwithstanding that the purchaser is not the seller of the newspaper or periodical. (Sales and Use Tax Reg. 1590(b)(1).) The term “component part of a newspaper” includes only those items that become physically incorporated into the publication and not those which are merely consumed or used in the production of the publication. Handbills, circulars and flyers or the like are considered as component parts of a newspaper when attached to or inserted in and distributed with the newspaper. (Sales and Use Tax Reg. 1590(a)(3).) We understand that “T--- W---” is part of the --- --- --- newspaper. The sale of the coupon, since it is attached to the newspaper and becomes a component part of a newspaper, is not subject to sales tax. You should provide a timely certificate in writing to the seller that the property will be used in a manner or for a purpose entitling the seller to regard the gross receipts from the sale to be nontaxable. (Sales and Use Tax Reg. 1590 (c).) The form of the certificate required for this type of transaction is included in Sales and Use Tax Regulation 1590 (copy enclosed) as “Certificate A.” If you have any further questions in regard to these matters, please do not hesitate to write us directly. Yours very truly,

Anthony I. Picciano
Staff Counsel

AIP:cl
Enclosure (Reg. 1590)
cc:

Ms. A--- M. L--Technical Advisor to Mr. Dronenburg
--- --- District Administrator