Were a printer's sales of advertising inserts exempt when the retail-business customer—not the printer—contracted with newspapers for insertion and distribution?

Plain-English summary

A redacted California printing-company president wrote twice, on August 12 and 29, 1991. In every transaction, the printer contracted with and billed the retail business for producing and printing inserts. The printer never contracted with the newspaper; the retailer separately contracted with and paid the newspaper for insertion and distribution.

The requester asked about inserts in newspapers sold at newsracks or by subscription after the July 15, 1991 newspaper-and-periodical exemption repeal. Proposed Regulation 1590(b)(1) treated property bought for incorporation into a sold newspaper or periodical as nontaxable even when the purchaser was not the finished publication's seller. The printer therefore could accept a resale certificate from the retailer.

An insert in a free newspaper was not bought for resale. Newly added section 6362.7 instead exempted property becoming an ingredient or component of a free newspaper or periodical regularly issued at average intervals no longer than three months. The rule began October 2, 1991; those advertising-supplement sales remained taxable from July 15 through October 1. The source visibly prints “Jul7y.”

Regulation 1541.5 separately exempted a qualifying printed sales message when it was specially ordered, mailed or delivered by the seller, its agent, or the purchaser's mailing-house agent through the Postal Service or common carrier, and received free by another person who became its owner. A common carrier had to participate at some delivery stage. Direct delivery to the printer's customer, rather than common-carrier shipment to the newspaper publisher for distribution, did not qualify.

Source and live-annotation limits

The official PDF does not include the August 12 or August 29, 1991 letters, inserts, printing agreements, retailer-newspaper insertion and distribution contracts, newsrack or subscription newspapers, free newspapers, publication schedules, resale certificate, printed-message content, special-order evidence, postal or carrier records, recipient ownership, prices, invoices, sales, returns, tax calculations or payments, audit, assessment, claim, appeal, later regulation text or adoption, or outcome. The printer, retailers, newspapers, carriers, recipients, transactions, and amounts are redacted or unidentified.

The source prints “Sales and use Tax” twice and “Jul7y.” The original-text section preserves those forms rather than silently correcting the official record.

The live annotation preserves the contract separation, sold-newspaper resale rule, purchaser-need-not-sell point, free-newspaper insert exemption, section 6362.7, and October 2, 1991 effective date. It omits the two August requests, July 15 repeal and July 15–October 1 taxable gap, proposed status of Regulation 1590(b)(1), printed-sales-message question, Regulation 1541.5's three conditions, common-carrier-stage requirement, direct-to-customer taxable result, missing records, redactions, and outcome limits.

What this means for you

Printers, retailers, and tax professionals

Document the finished newspaper's sale or free distribution, obtain the correct timely certificate, apply the law effective on the transaction date, and preserve the insert, both contracts, publication schedule, full delivery chain, invoices, returns, and tax calculations.

Common questions

Q: Did the insert buyer have to be the newspaper seller?

A: No.

Q: When did the free-newspaper component exemption begin?

A: October 2, 1991.

Q: Did direct delivery to the printer's retail customer satisfy the printed-sales-message rule?

A: No.

Citations and references

• California Revenue and Taxation Code § 6362.7
• California Sales and Use Tax Regulation 1541.5
• Proposed California Sales and Use Tax Regulation 1590(b)(1)
• August 12 and August 29, 1991 requests, inserts, contracts, certificates, delivery, transaction, and tax records — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel letter:

Accordingly, when you sell a newspaper insert to a customer for insertion in a newspaper that will be sold, you may accept a resale certificate from the customer.

Your sale of such advertising supplements is subject to tax for the period Jul7y 15, 1991 through October 1, 1991.

If you deliver the inserts to your customer rather than ship them by common carrier to the newspaper publisher for distribution, your sale is subject to sales tax, and the exemption is not applicable.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0795
• Original supporting opinion: 385.0795 PDF

Original ruling text

385.0795

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6450

October 23, 1991

Mr. S--- F. C---, President
A--- L--- P--XXXX --- Road
---, CA XXXXX
SR -- XX-XXXXXX
Dear Mr. C---:
This is in reply to your August 12 and August 29, 1991 letters regarding the application of sales tax to charges by A--- L--- P--- for printing newspaper inserts. You note that in all instances, you contract for the production and printing of the inserts with the retail businessperson whom you bill direct. Your contract is never with the newspaper itself. The newspaper contracts with the retail businessperson and bills that person for inserting and distributing the inserts. Given the repeal of the exemption from sales tax for the sale of newspapers and periodicals effective July 15, 1991, you asked whether your charges are subject to tax when you sell a newspaper insert which is inserted into a newspaper that is sold at a newsrack or by subscription. The State Board of Equalization has proposed amendments to Sales and use Tax Regulation 1590, Newspapers and Periodicals. Subdivision (b)(1) of the proposed regulation provides that 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. Accordingly, when you sell a newspaper insert to a customer for insertion in a newspaper that will be sold, you may accept a resale certificate from the customer. You also asked whether tax would apply to your sale of such a newspaper insert which is inserted into a free newspaper. When you sell an insert which will be inserted into a newspaper that will be distributed free of charge, your sale of the insert cannot be considered a sale for resale. However, effective October 2, 1991, section 6362.7 was added to the Revenue and

Mr. S--- F. C---

-2-

October 23, 1991
385.0795

Taxation Code to exempt from sales and use tax the sale and use of tangible personal property which becomes an ingredient or component part of any newspaper or periodical that is distributed without charge and regularly issued at average intervals not exceeding three months, and any such newspaper or periodical. Effective October 2, 1991, your sale of advertising supplements for insertion into such newspapers and periodicals distributed free of charge is exempt from tax. Your sale of such advertising supplements is subject to tax for the period Jul7y 15, 1991 through October 1, 1991. Finally, you asked whether your sale of such an insert would be exempt from tax as a sale of a printed sales message if the insert were inserted into a free newspaper that is delivered direct to the U. S. Post Office for the purpose of mailing and would be received free by the postal patron. Sales and use Tax Regulation 1541.5 provides that tax does not apply to the sale or use of printed sales messages which are: (1)

Printed to the special order of the purchaser;

(2)

Mailed or delivered by the seller, the seller’s agent or a mailing house acting as the agent for the purchaser, through the United States Postal Service or by common carrier;

(3)

Received by any other person at no cost to that person who becomes the owner of the printed material.

If the newspaper advertising inserts you sell qualify as “printed sales messages” as defined in subdivision (a)(1) of Regulation 1541.5, and your sale and delivery of the inserts is in accordance with the criteria noted above, your sale is exempt from tax. To satisfy the common carrier requirement of the regulation, it is necessary that a common carrier be involved in some stage of the delivery. If you deliver the inserts to your customer rather than ship them by common carrier to the newspaper publisher for distribution, your sale is subject to sales tax, and the exemption is not applicable. We hope this answers your question; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:sr