How did California tax lump-sum subscriptions for loose-leaf services containing initial volumes, periodic supplements, and annual replacement volumes?

Plain-English summary

An unnamed requester sought a ruling formalizing prior discussions and correspondence about publishers of loose-leaf reports on taxes, business, and other subjects.

The covered subscriptions began with one or more loose-leaf volumes and supplied periodic pages containing current information. Some renewals included annual replacement volumes. One lump-sum price ordinarily covered both volumes and supplements.

The subscription was a sale because section 6006 defined sale as transferring title to tangible personal property for consideration. Section 6362 exempted qualifying periodicals issued at average intervals no longer than three months. Former Ruling 50, then 18 California Administrative Code section 1990, excluded books complete in themselves even when issued at stated intervals.

The initial and annual replacement volumes were complete when issued and appeared at average intervals over three months, so they were not exempt periodicals.

Because the lump sum bundled volumes and supplements, the ruling allocated the taxable measure using the publisher's price to replace a lost or destroyed volume. Its first example used an eight-volume, $255 annual service: $8 for replacement contents plus $4 for a binder made $12 per volume, producing a $96 measure. Its $234 renewal example replaced four of eight volumes, producing a $48 measure.

The allocation measured tax only by the complete volumes, implicitly excluding the remaining supplement value. The live annotation makes that treatment explicit by calling regularly issued supplements exempt periodicals, but the source letter does not state their issue interval or use that exact conclusion.

The ruling applied from October 1, 1968 to publishers in the covered class who had not already reported and paid tax that way.

Later authority and source limits

A February 5, 2002 official staff email published with Annotation 385.0920 warns that, under then-current section 6362.7 and Regulation 1590, periodicals were no longer exempt unless sold by subscription and delivered by mail or common carrier, or covered by another exemption such as nonprofit distribution. The live 385.1100 annotation continues to call the supplements exempt. The sources do not establish current treatment or delivery facts.

The official 385.1100 PDF does not include the request, prior discussions or correspondence, any publication, volume, supplement or issue, publisher or subscriber identity, subscription or renewal agreement, actual issue schedule, title-transfer record, replacement-price schedule, lost or destroyed volume, binder, invoice, sale, return, allocation workpaper, tax calculation or payment, audit, assessment, claim, appeal, or outcome. The requester, publishers, subscribers, transactions, and amounts beyond the examples are redacted, unidentified, or hypothetical.

The live annotation preserves the loose-leaf volumes, supplements, annual replacements, lump-sum price, nonperiodical-volume conclusion, and lost-volume allocation. It adds average supplement intervals under three months and explicitly calls the supplements exempt periodicals. It omits the request and prior communications, class-wide scope, section 6006 sale definition, quoted section 6362, Ruling 50 and its codification, complete-book and over-three-month rationales, both numerical examples and contents/binder split, October 1 effective date and prior-reporting limitation, later 2002 warning, missing records, redactions or hypotheticals, and absent outcomes.

What this means for you

Subscription publishers and tax professionals

Separate complete volumes from recurring updates. Preserve every publication and issue, subscription and renewal agreement, title transfer, schedule, replacement-price record, binder and contents charges, invoices, allocations, sales, returns, delivery evidence, tax calculations, payments, and current exemption analysis.

Common questions

Q: Was the subscription a sale?

A: Yes. The ruling treated the transfer of the physical material for consideration as a sale.

Q: Why were initial and replacement volumes taxable?

A: They were books complete in themselves and were issued at intervals longer than three months.

Q: How was a lump-sum price allocated?

A: By the publisher's normal charge to replace lost or destroyed volumes.

Q: Did the source tax the entire subscription price?

A: No. Its examples allocated the taxable measure to the complete volumes.

Q: Did the source state how often supplements appeared?

A: No. The letter calls them periodic; the live annotation adds average intervals under three months and explicitly classifies them as exempt.

Q: Who did the October 1, 1968 method apply to?

A: Publishers in the covered class who had not previously reported and paid tax under that method.

Citations and references

• Former California Revenue and Taxation Code §§ 6006 and 6362
• Former California Sales and Use Taxes Ruling 50 (18 Cal. Admin. Code § 1990)
• California Revenue and Taxation Code § 6362.7 and Regulation 1590 — discussed in the February 5, 2002 staff email published with Annotation 385.0920
• Request, prior discussions and correspondence, publications, subscriptions, prices, invoices, allocations, returns, tax records, and outcomes — described or implicated but not documented

Verbatim support

From the official Tax Counsel class ruling:

The initial volumes of loose-leaf reports that are issued to a subscriber and the replacement volumes that are issued annually fall in the same class. These volumes are complete in themselves at the time they are issued. They are issued, moreover, at average intervals exceeding three months.

Such an allocation may properly be based upon the amount which the publisher charges to replace a lost or destroyed volume.

This ruling will be applied effective October 1, 1968, to those publishers in the class covered by this ruling who have not previously been reporting and paying tax as prescribed herein.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.1100
• Original supporting opinion: 385.1100 PDF

Original ruling text

385.1100

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 15, 1968

Dear Mr.
This letter is sent to you in response to your recent request for a ruling covering the points which we have touched in prior discussions and correspondence regarding the application of the California Sales and Use Tax Law to publishers of loose-leaf reports concerning taxes, business, and other subjects. The publishers with whom we are concerned typically offer a wide variety of publications. The publications which are the subject of this ruling are initially issued to a subscriber in the form of a loose-leaf volume or volumes and are periodically supplemented with pages containing current information. In some cases, a renewal of a subscription includes replacement volumes which are issued annually. A lump-sum price is ordinarily charged for both the volumes and the periodic supplements. A subscription of the type described above unquestionably results in a sale for purposes of the Sales and Use Tax Law. A "sale" is defined as a transfer of title of tangible personal property for a consideration. (Revenue and Taxation Code Section 6006.) The primary question to be considered is whether the initial volumes, the replacement volumes, or the supplements qualify as "periodicals" under Section 6362 of the Revenue and Taxation Code. Section 6362 provides as follows: "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 regularly issued at average intervals not exceeding three months and any such newspaper or periodical." Sales and use taxes Ruling 50 (18 Cal. Adm. Code, Section 1990) interprets Section 6362. The ruling provides in part that the term "periodical" does not include books complete in themselves, even those that are issued at stated intervals. The initial volumes of loose-leaf reports that are issued to a subscriber and the replacement volumes that are issued annually fall in the same class. These volumes are complete in themselves at the time they are issued. They are issued, moreover, at average intervals exceeding three months. Accordingly, they do not qualify as exempt periodicals.

Since the subscription price for the loose-leaf reports is in a lump-sum, an allocation of the price is required for tax purposes. Such an allocation may properly be based upon the amount which the publisher charges to replace a lost or destroyed volume. For example, a publisher may offer an eight-volume tax service for $255, a price which includes periodic supplements for one year. The publisher's normal charge for replacing lost or destroyed volumes is $8 for the contents plus $4 for the binder. Under these circumstances, the measure of tax would be $96 (8 x $12). As a further illustration, assume that the same service can be purchased on a renewal basis for $234. At the time of each renewal, 4 of the 8 volumes are replaced. The measure of tax on the renewal would be $48 (4 x
$12).
This ruling will be applied effective October 1, 1968, to those publishers in the class covered by this ruling who have not previously been reporting and paying tax as prescribed herein.

Very truly yours,

T. P. Putnam Tax Counsel

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