Was an organization a consumer or retailer when it furnished publications as part of a lump-sum membership, and were its mailing containers taxable?

Plain-English summary

California Tax Counsel distinguished a publication incidental to membership from membership incidental to a magazine subscription.

When an organization furnished a publication as one privilege covered by a lump-sum membership payment, the publication appeared to be an incidental benefit consumed by the organization rather than resold. By contrast, some organizations sold magazine subscriptions that automatically conferred membership. If membership was incidental to the subscription, the publication was sold. Counsel thought redacted organization N fit that second pattern.

Based on incomplete submitted information, counsel tentatively concluded that redacted organization L's publications were incidental to membership. L therefore consumed the publications and their mailing containers. Container sales to L were taxable because the containers were not ingredients or component parts of the publication. The memo cited California Tax Service paragraph 1595.99.

A July 22, 1992 editorial note by D. H. L. says proposed Regulation 1590 set out a more specific test that controlled over the annotation. The note does not quote the test or apply it to N or L.

Source and live-annotation limits

The official PDF does not include the materials submitted by the Los Angeles auditor, organizations N or L, membership agreements or privileges, dues or lump-sum payments, subscription agreements or prices, publications or issues, publication or delivery schedules, mailing containers, invoices, purchases or sales, returns, tax calculations or payments, audit, assessment, claim, appeal, the California Tax Service text, proposed Regulation 1590 text, later analysis, or outcome. The organizations, members, subscribers, publishers, transactions, and amounts are redacted or unidentified.

The PDF metadata labels the document 385.0908, while the official letter body, live page, source URL, and annotation number say 385.0980. This page follows the body and official publication identity without altering the metadata conflict.

The live annotation preserves the membership-versus-subscription distinction, consumer/retailer classifications, and container treatment. It adds that the organization is “normally” the consumer, that containers in the subscription-primary case must be nonreturnable, and that they “could properly be purchased ex-tax”; those statements do not appear in the supporting memo or editorial note. It omits N and L, incomplete-information and tentative-opinion limits, the specific taxable sale to L, ingredient/component reasoning, California Tax Service paragraph 1595.99, the 1992 controlling-test note, PDF metadata conflict, missing records, redactions, and absent outcome.

What this means for you

Membership organizations, publishers, and tax professionals

Identify what the member is primarily buying. Preserve membership and subscription agreements, privileges, payments and prices, every publication, issue and delivery schedules, container specifications and returnability, invoices, purchases, sales, returns, tax calculations, payments, and current regulatory analysis.

Common questions

Q: When was the organization treated as the consumer?

A: When the publication was incidental to a lump-sum membership.

Q: When was the publication treated as sold?

A: When the subscription was primary and membership was merely incidental.

Q: Were mailing containers treated as part of the publication?

A: No. Under the tentative conclusion, their sale to the organization was taxable.

Q: Is the 1967 test controlling today?

A: The source itself says a more specific proposed Regulation 1590 test controls over the annotation.

Q: Does the 1967 memo say nonreturnable containers could be bought tax-free in the subscription-primary case?

A: No. That statement appears in the live annotation, not in the memo or 1992 note.

Citations and references

• California Tax Service ¶ 1595.99
• Proposed California Sales and Use Tax Regulation 1590, identified as controlling in the source's July 22, 1992 note
• Submitted materials, memberships, subscriptions, publications, containers, transactions, tax records, and outcome — described or implicated but not documented

Verbatim support

From the official Tax Counsel memorandum and editorial note:

If membership is incidental to the subscription, we would have a sale of the publication. When the publication is incidental to membership, we would regard the organization as the consumer of the publication and, of course, the containers in which the publications are mailed to members.

Although more information may be required to reach a definite decision, it appears from what was submitted by you that in the case of "L" the publications are incidental to membership and not vice versa.

Proposed Regulation 1590 sets forth a more specific test, and that test is controlling over this annotation.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.0980
• Original supporting opinion: 385.0980 PDF

Original ruling text

385.0980

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 7, 1967

To:

Los Angeles Dist. Prin. Auditor (JTQ)

From: Tax Counsel (EHS)

When a publication is furnished by an organization to members as one of the privileges of membership for which a lump-sum payment is made, it would appear that the publication is an incidental benefit and should be regarded as consumed by the organization rather than resold. On the other hand, some organizations sell subscriptions to a magazine and the subscribers automatically become members of the organization. I think the “N” is of this type. If membership is incidental to the subscription, we would have a sale of the publication. When the publication is incidental to membership, we would regard the organization as the consumer of the publication and, of course, the containers in which the publications are mailed to members. Although more information may be required to reach a definite decision, it appears from what was submitted by you that in the case of "L" the publications are incidental to membership and not vice versa. Therefore, I would say at this time that the sale of the containers to “L” is taxable. The containers are not regarded as ingredient or component parts of the publication. See paragraph 1595.99, California Tax Service.

EHS:fb [lb]

Proposed Regulation 1590 sets
forth a more specific test, and that
test is controlling over this
annotation.
D. H. L.
7/22/92