Were a publisher's sales of customized-cover Dollar$ense issues exempt when financial institutions bought them for free distribution to customers?

Plain-English summary

The Audit Evaluation and Planning Unit referred a redacted publisher's October 21, 1991 letter to legal staff. Dollar$ense was a quarterly publication with articles helping the general public manage money. After reviewing one submitted sample issue, counsel classified it as a periodical under proposed amendments to Regulation 1590.

The publisher produced identical interior issues for multiple financial institutions but customized the cover for each institution. The institutions distributed the issues to their customers without charge.

The publisher asked whether its sales qualified under recently enacted Assembly Bill 23X, which added section 6362.7. The opinion quotes the exemption for component materials and for a newspaper or periodical itself when distributed without charge and regularly issued at average intervals no longer than three months.

Counsel rejected a reading that would limit the exemption to free distribution directly by the publisher. Because the statute also covered “any such newspaper or periodical,” sales of Dollar$ense issues to financial institutions for their later free distribution were exempt.

A post-signature note to the District Administrator and Audit Evaluation and Planning Unit records a concern from Mr. Hirsig and Mr. Hendricks: someone might try to buy a copy of The Sacramento Bee exempt and then give it away. Staff identified a factual difference. Dollar$ense was published to be distributed without charge, while The Sacramento Bee was distributed for a charge; a later free giveaway did not change the Bee's character.

Source and live-annotation limits

The official PDF does not include the October 21 request, sample issue, any other issue or article, proposed Regulation 1590 amendments, publication or delivery schedule, publisher or institution identity, customized cover, interior comparison, customer or recipient, free-distribution records, contracts, prices or invoices, sales or uses, returns, exemption documentation, tax calculations or payments, audit, assessment, claim, appeal, further correspondence, or later outcome. The publisher, institutions, customers, transactions, and amounts are redacted or unidentified.

The source prints “Assembly sill 23X” and “The issue that arises·” and uses Dollar$ense. The original-text section preserves those forms. The live annotation uses “DollarSense” without a dollar sign and preserves the quarterly financial-information publication, institution-specific covers, free customer distribution, sample review, Regulation 1590 classification, section 6362.7, and exempt publisher-to-institution sale. It omits the request and referral, proposed-amendment and bill context, quoted statute, intermediary-distribution reasoning, district note, named staff and Sacramento Bee comparison, missing records, redactions, source forms, and absent outcome.

What this means for you

Publishers, financial institutions, and tax professionals

Document that the publication is produced for free distribution. Retain every issue and article, publication schedule, institution-specific covers and identical interiors, downstream distribution records, contracts, invoices and sales, returns, exemption documents, tax calculations, and payments.

Common questions

Q: Did customized covers prevent periodical treatment?

A: No.

Q: Did the publisher itself have to distribute every copy free?

A: No.

Q: Would buying an ordinarily paid newspaper and giving it away create the same exemption?

A: No, under the distinction stated in the opinion.

Q: Why did the institution's later distribution count?

A: Section 6362.7 covered the qualifying newspaper or periodical itself, not only materials used by a publisher that distributed it directly.

Q: What concern did the district note raise?

A: That a buyer might claim exemption for an ordinarily paid newspaper merely by giving it away. Counsel distinguished that from a publication designed for free distribution.

Q: Did the live entry preserve the title's dollar sign?

A: No. The source says Dollar$ense; the live annotation says DollarSense.

Citations and references

• California Revenue and Taxation Code § 6362.7
• Proposed California Sales and Use Tax Regulation 1590
• 1991 California Assembly Bill 23X
• October 21 request, sample issue, customized covers, institution distribution, contracts, sales, tax records, and outcome — described or implicated but not documented

Verbatim support

From the official Senior Tax Counsel opinion and district note:

Given that section 6362.7 provides that the exemption also applies to the sale and use of “any such newspaper or periodical,” we believe that the exemption applies to your sale of the issues of Dollar$ense to the financial institutions which will distribute them without charge.

Dollar$ense is published to be a “periodical that is distributed without charge.” The Sacramento Bee is a newspaper or periodical that is distributed for a charge.

A person's buying copies of The Sacramento Bee to distribute without charge does not qualify The Sacramento Bee as a “newspaper or periodical that is distributed without charge.”

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.1532
• Original supporting opinion: 385.1532 PDF

Original ruling text

385.1532

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-6450

February 7, 1992

Dear Mr.
As you know, your October 21, 1991 letter to the State Board of Equalization Audit Evaluation and Planning Unit has been referred to the legal staff for reply. You publish Dollar$ense, a quarterly publication which provides articles containing information to help the general public manage money. After reviewing the sample issue you sent for our review, we conclude that Dollar$ense qualifies as a “periodical” as defined in proposed amendments to Sales and Use Tax Regulation 1590, Newspapers and Periodicals. We understand that you publish Dollar$ense in a form which allows you to sell issues to a number of financial institutions. The periodicals you sell to the institutions are identical, but the cover is custom made for each institution. The institutions distribute the periodicals to their customers without charge. Given this information, you asked whether your sale of the periodicals qualifies for exemption under recently enacted Assembly sill 23X which added section 6362.7 to the Revenue and Taxation Code to provide: “There are exempted from the taxes imposed by this part, the gross receipts from the sale of, and the storage, use, or other consumption in this state, of tangible personal property which becomes an ingredient or component part of any newspaper or periodical that is distributed without charge and regularly issued at average intervals not exceeding three months, and any such newspaper or periodical.” The issue that arises· from the facts you provide is whether your sales of Dollar$ense qualify for exemption from tax as sales of a “newspaper or periodical that is distributed without charge” when you sell issues to financial institutions. Interpreting section 6362.7 to not apply to your sales would limit the exemption solely to distributions of newspapers or periodicals by the

publisher. We would so construe the exemption if the exemption only applied to the sale or use of tangible personal property which becomes an ingredient of such newspaper or periodical. Given that section 6362.7 provides that the exemption also applies to the sale and use of “any such newspaper or periodical,” we believe that the exemption applies to your sale of the issues of Dollar$ense to the financial institutions which will distribute them without charge. We hope this answers your questions; however, if you need further information, feel free to write directly to this office.

Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD: sr

District Administrator
Audit Evaluation and Planning Unit - Ms. Patricia L. Parker You noted that Mr. Hirsig and Mr. Hendricks are concerned that granting the exemption in this case could lead to situations where a person may attempt to purchase as exempt a copy of a newspaper such as The Sacramento Bee and distribute the copy free of charge. We see a factual difference here. Dollar$ense is published to be a “periodical that is distributed without charge.” The Sacramento Bee is a newspaper or periodical that is distributed for a charge. A person's buying copies of The Sacramento Bee to distribute without charge does not qualify The Sacramento Bee as a “newspaper or periodical that is distributed without charge.”