Were company newsletters exempt periodicals when they described the company, products, and services and went to clients and prospects rather than only employees?

Plain-English summary

A redacted publisher's May 21, 1989 letter said it produced regular newsletters for companies and associations at least quarterly. It claimed the publications were not advertising and went to employees, clients, and other interested parties. It had charged clients sales tax except when a newsletter qualified as a printed sales message under Regulation 1541.5, in which case it obtained and retained the required form.

The publisher asked whether qualifying Regulation 1590(a)(2) periodicals required sales-tax charges and whether the contract's identification of the publisher versus vendor mattered. It submitted no representative issues, so Senior Tax Counsel John Abbott could not decide any particular newsletter and supplied only general guidelines.

Regulation 1590(a)(2) excluded publications whose advertising, including product publicity, exceeded 90 percent of the issue's printed area in more than half the issues during a 12-month period. Under Abbott's hypothetical, a newsletter about a company, its products, or services that went to clients and prospects was company-publicity advertising, not an exempt periodical. It still could qualify as a printed sales message under Regulation 1541.5 if delivered free and every condition was met.

By contrast, a company newsletter published for and about employees, distributed exclusively to them, and containing news or information of general employee interest could qualify under the historical periodical rule.

For a qualifying employee newsletter, the printer could accept the Regulation 1590(c) exemption certificate and omit sales or use tax on printing. Contract wording identifying the printer or client as publisher did not change treatment. Counsel invited submission of a representative copy to the San Jose office or legal staff for a specific opinion.

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 1989 letter supplies no later-law delivery or exemption analysis.

The official 385.1116 PDF does not include the May 21 request, any newsletter or representative sample, issue or publication schedule, company or association, employees, clients, prospects or other recipients, content or advertising records, printed-area calculations, contracts, publisher or vendor performance, charges or invoices, delivery records, Regulation 1541.5 forms, Regulation 1590(c) certificate, returns, tax calculations or payments, later sample submission or opinion, audit, assessment, claim, appeal, or outcome. The publisher, clients, publications, recipients, transactions, and amounts are redacted or unidentified.

The source prints “but are, distributed,” “If does not matter,” and redacts the verb in “you --- send.” The original-text section preserves those forms rather than silently correcting the official record.

The live annotation preserves the client-facing company/product/service content, client and prospect distribution, company-publicity analysis, nonperiodical result, and conditional printed-message alternative. It adds the categorical sentence that “The newsletter is not an employee newsletter distributed only to employees,” although the source made no specific publication decision and framed both cases as hypotheticals. It omits the requester's claims and tax/form practice, two questions, absent-sample limit, 90-percent/more-than-half/12-month formula, employee-newsletter elements and exemption certificate, contract-label analysis, invitation to submit a sample, later 2002 warning, missing records, redactions, source forms, and absent outcome.

What this means for you

Newsletter publishers and tax professionals

Classify content and recipients issue by issue. Preserve representative copies, schedules, recipient and delivery records, printed-area and publicity calculations, contracts, publisher/vendor roles, certificates and forms, invoices, returns, tax calculations, payments, and current exemption analysis.

Common questions

Q: Was a client-facing company newsletter an exempt periodical?

A: Generally no. It was company publicity.

Q: Could an employee-only newsletter qualify?

A: Yes, if it met the periodical requirements.

Q: Did the contract's publisher label control?

A: No.

Q: Did counsel decide that any newsletter actually qualified?

A: No. No sample was submitted; the letter gave only general hypotheticals and invited a later specific submission.

Q: What certificate did the 1989 letter require for qualifying employee newsletters?

A: The exemption certificate in Regulation 1590(c).

Citations and references

• California Sales and Use Tax Regulations 1541.5 and 1590(a)(2) and (c)
• California Revenue and Taxation Code § 6362.7 and Regulation 1590 — discussed in the February 5, 2002 staff email published with Annotation 385.0920
• May 21 request, newsletters and samples, contracts, content and distribution records, certificates, invoices, returns, tax records, and outcomes — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel letter:

Since you did not enclose with your letter representative sample copies of the newsletters you publish, we cannot give you a definite opinion about whether any of those newsletters will or will not qualify as nontaxable periodicals.

if a company publishes and distributes to its clients and prospective clients a newsletter of information about the company, its products or services, such a publication is not an exempt periodical within the meaning of Regulation 1590(a)(2) because the publication constitutes advertising in the form of publicity for the company.

If does not matter whether your contract states that you publish the newsletter for your client or that your client publishes the newsletter and you act as the vendor.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.1116
• Original supporting opinion: 385.1116 PDF

Original ruling text

385.1116

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-6493

August 8, 1989

Mr. H--- R--R--- & Associates
XXX --- --- Drive, Suite XXX
---, CA XXXXX
R--- & Associates – SR -- XX-XXXXXX
Periodicals – advertising and product publicity
Dear Mr. R---:
In your May 21, 1989 letter to the Board, which was referred to the legal staff for response, you write in summary that you currently charge tax to your clients for whom you publish regular newsletters. You believe the newsletters you publish on a quarterly and more frequent basis qualify as periodicals exempt from sales or use tax under the Board’s Regulation 1590(a)(2). You write: “None of [the newsletters] are themselves advertising, but are, distributed to employees, clients and other interested parties who wish to read about the particular company or association in question. They are seemingly consistent with the spirit of 1590(a)(2). “I have charged sales tax to these clients in the past, unless they qualified as a printed sales message under Regulation 1541.5, in which case I have requested, received and have on file the proper form.” Your questions are as follows: (1) If the newsletters you publish qualify under Regulation 1590(a)(2) as nontaxable periodicals, do you have to charge your clients sales tax? (2) Does it make any difference whether your contract states that you publish the newsletter for your client or that the client publishes the newsletter and you act as the vendor. Since you did not enclose with your letter representative sample copies of the newsletters you publish, we cannot give you a definite opinion about whether any of those newsletters will or will not qualify as nontaxable periodicals. However, we can give you some general guidelines

Mr. H--- R---

-2-

August 8, 1989
385.1116

regarding the Board staff’s interpretation of Regulation 1590(a)(2), and these guidelines should assist you in determining whether or not you are publishing nontaxable periodicals for your clients. Regulation 1590(a)(2) provided in part: “Neither does [the term ‘periodical’] include 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.” (Emphasis added.) Our view is that if a company publishes and distributes to its clients and prospective clients a newsletter of information about the company, its products or services, such a publication is not an exempt periodical within the meaning of Regulation 1590(a)(2) because the publication constitutes advertising in the form of publicity for the company. Of course, as you are aware, the newsletter may qualify as a nontaxable printed sales message under Regulation 1541.5, if delivered to recipients at no charge in accordance with the conditions of that exemption. On the other hand, if a publication is published by a company for and about its employees, is distributed exclusively to those employees, and consists of news or information of a general interest to its employees, such an employees newsletter may qualify as a nontaxable periodical under Regulation 1590(a)(2). If you print an employee newsletter which qualifies as a nontaxable periodical, and you obtain from the company an exemption certificate in the form set out in Regulation 1590(c), then you should not charge your client sales or use tax on the printing of the publication. If does not matter whether your contract states that you publish the newsletter for your client or that your client publishes the newsletter and you act as the vendor. If the newsletter is exempt from tax as a periodical, then your charges to your client for printing the newsletter are nontaxable. If you wish to obtain an opinion regarding the taxability of a specific newsletter which you print for a client, you --- send a representative copy to the Board’s San Jose office at 100 Paseo de San Antonio, Room 307, San Jose, Ca 95113-1477, or to the Board’s legal staff at the address shown above. Please feel free to contact me if you have any further questions or comments about this letter. Sincerely,

John Abbott
Senior Tax Counsel

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