Was the sale of an annual report to a section 501(c)(3) foundation exempt even though it was issued only annually?

Plain-English summary

A redacted publisher's president asked how sales tax applied to the sale of an annual report. Her March 31, 1992 letter to Stella Levy and a submitted sample are absent.

The publisher produced annual reports for a redacted section 501(c)(3) foundation. The submitted 1990–1991 Financial Report contained articles about the foundation's yearly accomplishments and its financial statements. The foundation distributed the publication periodically at regular intervals, without charge, and it carried no commercial advertising.

Section 6362.7 required free periodicals to be issued at average intervals no longer than three months. The then-effective section 6362.8 had no comparable frequency limit. Its quoted subsection (1) covered qualifying 501(c)(3) publications distributed to members for a membership fee or to contributors, or publications without commercial-advertising revenue. A second path covered nonprofit member distributions when printing cost was below 10 percent of the membership fee for the relevant period.

Based on the supplied facts, Senior Tax Counsel Ronald L. Dick concluded that the annual-report sale to the nonprofit for distribution qualified under section 6362.8. The foundation had to give the vendor a Regulation 1667 exemption certificate before the vendor treated the sale as exempt.

Later amendment and source limits

The live annotation says the relied-on section 6362.8 version operated from November 1, 1991 through October 31, 1992. Its note says an amendment operative November 1, 1992 required issuance every three months for exemption. The supporting letter predates that amendment and does not establish treatment outside the stated historical window.

The official PDF does not include the March 31 request, submitted 1990–1991 report, accomplishment articles or financial statements, publication or delivery schedules, foundation qualification records, members or contributors, distribution records, membership fees or printing costs, commercial-advertising records, publisher or vendor agreement, charges or invoices, exemption certificate, sale, return, tax calculation or payment, audit, assessment, claim, appeal, or outcome. The publisher, foundation, recipients, vendor, transactions, and amounts are redacted or unidentified.

The source prints section 50l(c)(3) and subsection (l) with lowercase L characters. The original-text section preserves those forms rather than silently correcting the official record.

The live annotation preserves the foundation's 501(c)(3) status, annual reports, regular free distribution, accomplishment and financial-statement content, no-advertising fact, section 6362.8 exemption, and date. It adds the November 1991–October 1992 operative window and later three-month amendment. It omits the request and publisher, named sample report, section 6362.7 comparison, complete quoted alternatives including contributor/member and printing-cost tests, Regulation 1667 certificate, missing records, redactions, source forms, and absent outcome.

What this means for you

Nonprofit foundations, report publishers, printers, and tax professionals

Identify the precise exemption and effective date. Preserve the organization qualification, every publication and issue, content, schedule and delivery records, members and contributors, membership fees and printing cost, advertising, printing contract and invoice, certificate, returns, tax calculations, and payments.

Common questions

Q: What did the annual report contain?

A: Articles describing the foundation's accomplishments and its financial statements.

Q: Did annual issuance defeat exemption?

A: No, because section 6362.8 did not impose section 6362.7's three-month limit.

Q: What documentation did the foundation need?

A: An exemption certificate in the form prescribed by Regulation 1667.

Q: How long did the relied-on statute remain operative?

A: The live annotation says November 1, 1991 through October 31, 1992; its note says a three-month frequency requirement applied from November 1, 1992.

Citations and references

• California Revenue and Taxation Code §§ 6362.7 and 6362.8
• Internal Revenue Code § 501(c)(3)
• California Sales and Use Tax Regulation 1667
• March 31 request, sample report, foundation and recipient records, distribution and advertising, printing transaction, exemption certificate, tax records, and outcome — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel letter:

The report contains articles which describe the Foundation's accomplishments during the year and the Foundation's financial statements.

We believe that, under the facts you provided, the sale of the annual report to the nonprofit organization for distribution qualifies for exemption from tax under section 6362.8.

The Foundation should issue an exemption certificate in the form prescribed by Sales and Use Tax Regulation 1667, Exemption Certificates, in order for the vendor to consider the sale as exempt.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.1145
• Original supporting opinion: 385.1145 PDF

Original ruling text

385.1145

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

June 25, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. S--- K. T--President
S--- P--- and G--XXXX E. XXth Street
--- ---, CA XXXXX-XXXX
Dear Ms. T---:
Your March 31, 1992 letter to Ms. Stella Levy regarding the application of sales tax to the sale of an annual report has been referred to me for reply. As you noted, Revenue and Taxation Code section 6362.7 which provides an exemption from tax for the sale of periodicals without charge requires that the periodical be regularly issued at average intervals not exceeding three months. However, there is no such requirement in Revenue and Taxation Code section 6362.8 which provides an exemption for sales under certain circumstances of periodicals for distribution by nonprofit organizations. Specifically, you publish annual reports for a nonprofit foundation which qualifies for tax-exempt status under section 50l(c)(3) of the Internal Revenue Code. You sent a sample copy of the 1990-1991 Financial Report of F--- Foundation. The report contains articles which describe the Foundation's accomplishments during the year and the Foundation's financial statements. You note that the publication is distributed periodically at regular intervals by the Foundation at no charge. The publication contains no commercial advertising. Given this information, you asked whether the sale of the publication would be exempt from tax pursuant to section 6362.8 which provides: "(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.

Ms. S--- K. T---

-2-

June 25, 1992
385.1145

(b) This section shall apply only with respect to any of the following: (l) Any newspaper or periodical published or purchased by an organization that qualifies for tax-exempt status under Section 50l(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 not receive revenue from, or accept, any commercial advertising. (2) Any newspaper or periodical distributed by a nonprofit organization for which both of the following apply: (A) Distribution is to any member of the nonprofit organization in consideration, in whole or in part, of payment of the organization's membership fee. (B) The amount paid or incurred by the nonprofit organization for the cost of printing the newspaper or periodical is less than 10 percent of the membership fee attributable to the period for which the newspaper or periodical is distributed." We believe that, under the facts you provided, the sale of the annual report to the nonprofit organization for distribution qualifies for exemption from tax under section 6362.8. The Foundation should issue an exemption certificate in the form prescribed by Sales and Use Tax Regulation 1667, Exemption Certificates, in order for the vendor to consider the sale as exempt. We hope this answers your question; however, if you need further information, feel free to write again. Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr