Were a foundation's annual report and twice-yearly newsletter exempt as printed sales messages or nonprofit periodicals, and did the historical period matter?

Plain-English summary

A redacted section 501(c)(3) foundation's Awards and Communications contact asked how sales tax applied to printing its annual report and newsletter. The January 7, 1993 answer relied on an absent November 3, 1992 letter and December 17 telephone discussion.

The foundation published the annual report once yearly and newsletter twice yearly. They served as public records of its work and as “sales” pieces encouraging prospective donors and grantees to use its services.

The mailing lists included current donors; donor prospects; foundation friends such as former trustees and staff; attorneys, accountants, bank trust officers, and other professional advisers; current and prospective grantees; and selected members of the public, including public officials and press media.

The publications did not qualify as printed sales messages under section 6379.5 because Regulation 1541.5(a)(1) excluded fundraising materials.

From November 1, 1992, sections 6362.7 and 6362.8 both limited the relevant newspaper and periodical exemptions to publications issued at average intervals no longer than three months. Section 6362.7 applied to property becoming an ingredient or component of a free publication and defined periodicals as appearing four to 60 times yearly, with general-interest information, literary and format continuity, and an advertising-area restriction. Section 6362.8 addressed qualifying 501(c)(3) publications distributed to members for a fee or contributors, or published without commercial-advertising revenue. The foundation's annual and twice-yearly issues failed both statutes' frequency condition.

Between November 1, 1991 and October 31, 1992, however, the quoted section 6362.8 version had no three-month frequency requirement. Based on the supplied facts, Senior Tax Counsel Ronald L. Dick concluded that printing sales for both publications during that window were exempt.

The foundation could ask its retailer to claim a refund of sales tax paid for that period. The Board would pay the retailer only if the retailer then returned the tax reimbursement to the foundation. No claim, refund, repayment, amount, or outcome appears.

Source and live-annotation limits

The official PDF does not include the November 3 request, December 17 call record, annual reports or newsletters, publication or delivery records, mailing lists, membership or contribution terms, commercial-advertising records, printing agreement, printer or retailer identity, charges, invoices, sales, returns, tax calculations or payments, retailer refund claim, reimbursement repayment, audit, assessment, claim decision, appeal, or outcome. The foundation, contact, publications, donors, advisers, grantees, public recipients, retailer, transactions, and amounts are redacted or unidentified.

The quoted 1991–1992 section 6362.8 text says a qualifying publication “does receive revenue from, or accept, any commercial advertising.” This page preserves that official quotation and does not infer whether the conclusion rested on that clause or the separately quoted member/contributor clause.

The source prints “fund-raising materials, However” and “sale of printing.” The original-text section preserves those forms rather than silently correcting the official record.

The live annotation preserves the publication frequencies, dual public-record and prospective-donor/grantee purposes, six mailing-list groups, fundraising exclusion, and post-October 1992 frequency failure. It broadens “selected members” to “the general public,” prints “therefor,” and says “regularly issued at regular intervals” where the letter says average intervals. It omits the request and telephone call, 501(c)(3) status, sections 6379.5, 6362.7, and 6362.8, Regulation 1541.5(a)(1), quoted statutory elements, the November 1991–October 1992 exemption, retailer-mediated refund, missing records, redactions, and absent outcome.

What this means for you

Nonprofit publishers and tax professionals

Match each issue and printing transaction to the law then effective. Preserve all publications, issue and delivery schedules, fundraising and advertising content, recipient lists, membership and contribution terms, printer contracts, invoices, returns, tax payments, retailer claims, and reimbursement repayments.

Common questions

Q: Were the publications printed sales messages?

A: No. They were fundraising materials.

Q: Did annual and twice-yearly publication meet the post-October 1992 frequency rule?

A: No.

Q: Were qualifying printing sales from November 1991 through October 1992 exempt?

A: Yes, under the statutory version then in effect.

Q: Could the foundation claim the refund directly from the Board?

A: The letter told it to ask the retailer to claim; Board payment was conditioned on the retailer returning reimbursement to the foundation.

Citations and references

• California Revenue and Taxation Code §§ 6362.7, 6362.8, and 6379.5
• California Sales and Use Tax Regulation 1541.5(a)(1)
• Internal Revenue Code § 501(c)(3)
• November 3 request, December 17 call, publications, mailing lists, printing transactions, invoices, tax payment, refund records, and outcome — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel letter:

the term "printed sales messages" does not include fund-raising materials

prior to November 1, 1992 there was no requirement that the organization issue the newspaper or periodical at average intervals not exceeding three months.

The Board would pay the refund to the retailer on condition that the retailer, in turn, refund the tax reimbursement to the F---.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0975
• Original supporting opinion: 385.0975 PDF

Original ruling text

385.0975

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

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

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

January 7, 1993

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. L--- G--Awards and Communications
The S--- F--- F--XXX --- Street, Suite XXX
--- ---, CA XXXXX
Dear Ms. G---:
This is in reply to your November 3, 1992 letter regarding the application of sales tax to charges to The S--- F--- F--- for the printing of its annual report and newsletter. Based on the information in your letter and our telephone discussion, we understand the following facts: S--- F--- F--- is an organization which qualifies for tax-exempt status under Internal Revenue Code section 501(c)(3). The F--- publishes the Annual Report once a year and the newsletter twice a year. Your letter notes that the publications serve both as a public record of the work of the F--- and as 'sales' pieces to encourage prospective donors and prospective grantees to take advantage of the services provided by the F---. Your mailing lists for the publications consists of: 1) current donors, 2) donor prospects, 3) foundation friends, e.g., past trustees and past staff, 4) professional advisors, such as attorneys, accountants, and bank trust officers, 5) current and prospective grantees and, 6) selected members of the general public, including public officials and press media.

Ms. L--- G---

-2-

January 7, 1993
385.0975

Given this information, you asked for the application of sales tax to the sale of the publications to the F---. We first note that we do not believe that the sale of the publications qualifies for exemption under Revenue and Taxation Code section 6379.5 as a sale of printed sales messages. As provided at subdivision (a)(1) of Sales and Use Tax Regulation 1541.5, Printed Sales Messages, the term "printed sales messages" does not include fund-raising materials, However, as we discussed during our December 17 telephone conversation, effective November 1, 1992, Revenue and Taxation Code section 6362.7 provides in relevant part as follows: "(a) 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 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.... "(c) For purposes of this section, 'periodical' means any publication that appears at stated intervals at least four times per year, but not 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 of the series in the nature of the articles appearing in them. Each issue must be sufficiently similar in style and format to make it evident that it is one of a series. The term 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." Effective November 1, 1992, Revenue and Taxation Code section 6362.8 provides in relevant part: "(a) 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 tangible personal property that becomes an ingredient or component part of any newspaper or periodical regularly issued at average intervals not exceeding three months, or any such newspaper or periodical.

Ms. L--- G---

-3-

January 7, 1993
385.0975

"(b) This section shall apply only with respect to any of the following: "(1) Any newspaper or periodical that is published or purchased by an organization that qualifies for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and is distributed to the members of the organization in consideration of payment of the organization's membership fee, or to the organization's contributors. "(2) Any newspaper or periodical that is published by an organization that qualifies for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and does not receive revenue from, or accept, any commercial advertising...." Given that under both statutes the exemption is limited to the sale of newspapers and periodicals which are “regularly issued at average intervals not exceeding three months,” sales of the Annual Report and newsletter to the F--- do not qualify for the exemptions for sales of newspapers or periodicals. The F--- does not issue the publications with the required frequency.

On the other hand, between the dates November 1, 1991 and October 31, 1992, section 6362.8 provided in relevant part: "(a) 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 tangible personal property that becomes an ingredient or component part of any newspaper or periodical, or any such newspaper or periodical. "(b) This section shall apply only with respect to any of the following: "(1) Any newspaper or periodical published or purchased by an organization that qualifies for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, and to which any of the following apply: "(A) Distribution is to the members of the organization in consideration of payment of the organization's membership fee, or to the organization's contributors. "(B) The publication does receive revenue from, or accept, any commercial advertising...."

Ms. L--- G---

-4-

January 7, 1993
385.0975

In short, prior to November 1, 1992 there was no requirement that the organization issue the newspaper or periodical at average intervals not exceeding three months. Therefore, we believe that, based on the facts you provided, the sale of printing of the newsletter and the Annual Report to the F--- between November 1, 1991 and October 31, 1992 was exempt from tax. The F--- may request the retailer to claim a refund of the sales tax paid for that period. The Board would pay the refund to the retailer on condition that the retailer, in turn, refund the tax reimbursement to the F---. We hope this answers your questions; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr