Was a ticket broker's event schedule an exempt periodical or printed sales message, and did the printer's delivery method change the result?

Plain-English summary

A redacted commercial printer petitioned after an audit for April 1, 1988 through March 31, 1991. Claimed exempt sales under $10,000 were disallowed from a sample with a $273,544 measure; sales over $10,000 were disallowed individually with a $364,010 measure, totaling $637,554. The prior Board audit had run only through September 30, 1974.

H. L. Cohen held an Appeals conference on September 9 of a redacted year in Van Nuys. The petitioner waived appearance; Supervising Tax Auditor H. Murray and Tax Auditor T. Pistoni appeared for the Department.

The printer sold a publication called The Guide to a redacted ticket broker. One version went to paid subscribers and another was given away at music stores. It was printed on both sides of one sheet, folded into twelfths so 24 panels each resembled a complete page, and combined event schedules with advertisements. The auditor treated only one panel as nonadvertising.

Under section 6362, Regulation 1590, and prior Annotation 385.1580, information about a product counted as advertising when its primary purpose was creating purchase interest. The schedules were intended to induce recipients to buy tickets from the broker. Their classification apparently determined whether advertising exceeded 90 percent, so The Guide did not qualify as an exempt periodical.

The publication was the type of printed sales message covered by section 6379.5. That statute required a specially ordered catalog, letter, circular, brochure, or pamphlet substantially containing printed sales messages to be mailed or delivered through the Postal Service or common carrier by the seller, its agent, or the purchaser's mailing-house agent, free to another person who became owner.

Delivery controlled. The essential element was that neither buyer nor buyer's employees took possession. Delivery to an independent advertising distributor or mailing agent could qualify even when the buyer hired that distributor, despite the usual rule equating buyer-agent delivery with buyer delivery.

The available evidence did not clearly show who received the printed material. The recommendation ordered a reaudit removing sales delivered to independent distributors or mailing agents from the taxable measure. Its signature date, reaudit, final liability, and outcome are absent.

Source and live-annotation limits

The official PDF does not include the petition, audit or workpapers, sampled or actual-basis transactions, The Guide or either version, any schedule or advertisement, ticket-broker records, subscriptions, music-store distribution, panel or advertising-area calculations, printer delivery records, buyers or employees, independent distributors or mailing agents, contracts, prices, invoices, sales, returns, tax calculations or payments, reaudit, redetermination, final liability, claim, appeal, signed recommendation date, or later outcome. The petitioner, ticket broker, events, buyers, recipients, distributors, transactions, and tax details beyond stated measures are mostly redacted or unidentified.

The live annotation preserves the schedule, two-version, ticket-broker, advertising, periodical, printed-sales-message, third-party free-delivery, and exemption results. It omits the conference and participants, audit period and prior audit, $273,544/$364,010/$637,554 measures and methods, The Guide name and physical format, 24 panels and auditor's one-panel view, sections 6362 and 6379.5's full conditions, Regulation 1590, Annotation 385.1580, buyer/employee possession rule, independent-distributor nuance, unclear evidence, reaudit recommendation, blank date, missing records, redactions, and outcome limits.

What this means for you

Printers, advertisers, and tax professionals

Classify promotional schedules by purpose, preserve every publication and schedule, calculate advertising area, and retain contracts and delivery proof showing whether the buyer, employees, or independent distributor took possession. Keep invoices, returns, exemption support, and audit records.

Common questions

Q: Was the event schedule treated as information or advertising?

A: Advertising, because it was intended to induce ticket sales.

Q: Did The Guide qualify as an exempt periodical?

A: No.

Q: Could printed-sales-message exemption still apply?

A: Yes, for qualifying delivery to an independent distributor or mailing agent, but not delivery to the buyer.

Q: What was the protested tax measure?

A: $637,554: $273,544 from sampled claimed-exempt sales under $10,000 and $364,010 from actual review of larger sales.

Q: Did the recommendation decide the final liability?

A: No. It ordered a reaudit, and the resulting liability is absent.

Citations and references

• California Revenue and Taxation Code §§ 6362 and 6379.5
• California Sales and Use Tax Regulation 1590
• California Sales and Use Tax Annotation 385.1580 (December 19, 1966)
• Petition, audit, The Guide issues and schedules, advertising calculations, delivery evidence, transactions, tax records, and reaudit outcome — described or implicated but not documented

Verbatim support

From the official Appeals recommendation:

Here the schedules are intended to induce recipients of "The Guide" to purchase tickets from T--- M---. Accordingly, the scheduled information is regarded as advertising.

The essential element of the exemption is that the printed sales message does not come into the possession of the purchaser or the purchaser’s employees.

Reaudit to remove from the amount subject to tax sales in which delivery was made to an independent distributor or mailing agent.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0812
• Original supporting opinion: 385.0812 PDF

Original ruling text

STATE OF CALIFORNIA

385.0812
BOARD OF EQUALIZATION
BUSINESS TAXES APPEALS REVIEW SECTION
In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law of:
THE T--- P---, INC.

Petitioner

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DECISION AND RECOMMENDATION

No. SR AS 11-630637-010

The Appeals conference in the above-referenced matter was held by H. L. Cohen on September 9, 19XX in Van Nuys, California.

Appearing for Petitioner:

Appearance Waived

Appearing for the
Sales and Use Tax Department:

Mr. H. Murray
Supervising Tax Auditor
Ms. T. Pistoni
Tax Auditor
Protested Items

The protested tax liability for the period April 1, 1988 through March 31, 1991 is measured by: Items

A.

B.

State, Local
and County

Claimed exempt sales under $10,000
Disallowed based on a sample

$273,544

Claimed exempt sales over $10,000
Disallowed on an actual basis

364,010

Total

$637,554

THE T--- P---, INC.
SR -- XX-XXXXXX-010

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December 23, 1993
385.0812

Contentions
Petitioner contends that:

1. The publication "The Guide" is an exempt periodical sale of which is not taxable.
2. Sales of printed matter are exempt because the printed matter constitutes printed sales
   messages.
   Summary
   Petitioner is a corporation which is engaged in printing. The last Board audit was for the period through September 30, 1974. The auditor examined petitioner's records of sales claimed to be exempt. Sales of a publication entitled "The Guide" to T--- M--- were claimed by petitioner to be sales of exempt periodicals. The auditor concluded that the publication contained primarily advertising material and thus did not qualify as an exempt periodical. T--- M--- is a --- broker which sells tickets to various performances and events. "The Guide" contains a schedule of events and also advertisements. Two versions are published, one is for paid subscribers, and the other is given away free at music stores. "The Guide" is printed on both sides of a single sheet of paper. It is folded into twelfths with each of 24 panels having the appearance and format of a single complete page. The auditor regarded only one of the 24 panels as not being advertising. Petitioner contends that the schedules which form a major part of the publication are not advertising. The auditor also disallowed exemption claims of printed matter claimed to be sales of printed sales messages. Petitioner contends that the sales to T--- M--- also qualify for this exemption. The auditor disallowed the exemption on the basis that petitioner delivered the printed products directly to the purchasers rather than to a mailer or distributor. Analysis and Conclusions Section 6362 of the Revenue and Taxation Code exempts from tax the sale and use of any periodical regularly issued at average intervals not exceeding three months. Sales and Use Tax Regulation 1590 provides that the term "periodical" does not include a publication of which the advertising portion including product publicity exceeds 90% of the printed area of the entire issue. At issue here is whether or not the schedule of events in "The Guide" constitutes advertising. There is apparently no question that the classification of the schedule information will determine whether or not the advertising exceeds 90% of the total area. We have previously concluded that where information is provided about a product but the primary purpose of providing the information is to create interest for the purpose of the sale of the product, the

THE T--- P---, INC.
SR -- XX-XXXXXX-010

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December 23, 1993
385.0812

information is regarded as advertising (see Business Taxes Law Guide Annotation 385.1580, December 19, 1966). Here the schedules are intended to induce recipients of "The Guide" to purchase tickets from T--- M---. Accordingly, the scheduled information is regarded as advertising. The publication, therefore, does not qualify as an exempt periodical. Section 6379.5 provides: "There are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption in this state of catalogs, letters, circulars, brochures, and pamphlets consisting substantially of printed sales messages for goods and services printed to the special order of the purchaser and 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 to any other person at no cost to that person who becomes the owner thereof." While we agree that the printed matter in question is the type of printed sales messages specified in the statute it is necessary for the printed sales message be delivered to a person other than the buyer. The essential element of the exemption is that the printed sales message does not come into the possession of the purchaser or the purchaser’s employees. In many circumstances under Sales and Use Tax Law delivery to the agent of the buyer is regarded the same as delivery to the buyer. This exemption, however, specifically distinguishes between delivery to an agent of the buyer who was hired to distribute the printed sales messages and delivered to the buyer or an employee of the buyer. It is not clear from the evidence available to whom petitioner delivered the printed sales messages. If delivery was to the buyer, the exemption does not apply. If delivery was to an independent person who was in the business of delivering advertising, the sales are exempt even if the person was hired by the buyer. Recommendation Reaudit to remove from the amount subject to tax sales in which delivery was made to an independent distributor or mailing agent.

H. L. Cohen, Senior Staff Counsel

Date