Did a section 501(c)(3) organization's no-advertising periodicals regain exemption after California's 1991 repeal?

Plain-English summary

A redacted section 501(c)(3) organization's November 8, 1991 request asked whether it should continue charging sales tax on publication subscriptions after new legislation. It submitted samples of six publications and represented that none accepted commercial advertising.

California explained that the broad newspaper and periodical exemption ended July 15, 1991. Senate Bill 89 and Assembly Bill 23 added sections 6362.7 and 6362.8, restoring narrower exemptions. The opinion quotes section 6362.8 as covering publications of section 501(c)(3) organizations distributed to members for membership fees or to contributors, or receiving no revenue from and accepting no commercial advertising. It also quoted a separate nonprofit-member rule requiring printing costs below 10 percent of the attributable membership fee.

All six samples met proposed Regulation 1590's periodical definition, including stated intervals, general-interest information for an audience, continuity among issues, similar series format, and no disqualifying advertising percentage. Because they accepted no commercial advertising, counsel treated them as exempt under section 6362.8.

The letter nevertheless identified July 15 through October 31, 1991 as a no-exemption window and treated the organization as consumer of its periodicals during that period. It states that printer charges were taxable, but also says no publication-cost tax was owed if no subscriptions were entered during the window.

The organization was also to be added to a list of parties interested in public-hearing notices for proposed Regulation 1590 revisions.

Source and live-annotation limits

The official PDF does not include the November 8 request, any sample publication or issue, publication titles, articles or authors, issue or delivery schedules, organization, members, contributors or subscribers, section 501(c)(3) documentation, membership-fee or contribution records, commercial-advertising records, subscription agreements or dates, proposed Regulation 1590 enclosure, printer identity or charges, publication-cost records, prices or invoices, sales or uses, returns, exemption documentation, tax calculations or payments, audit, assessment, claim, appeal, hearing notice, or later outcome. The organization, publications, recipients, printer, transactions, and amounts are redacted or unidentified.

The source prints 50 I (c) (3), section 6362.8(1) (B), F or, and malformed quotation/redaction punctuation in the six-title list. The original-text section preserves those forms rather than silently repairing the official record.

The live annotation supplies six titles: California Business Law Practitioner, Real Property Law Reporter, Estate Planning/California Probate Reporter, Civil Litigation Reporter, California Business Law Reporter, and Land Use Forum. It says all newspapers and periodicals were exempt before July 15, 1991 and that these publications “would be exempt during that period.” The source instead addresses their treatment under the newly restored narrower exemption, says they were currently exempt because they accepted no commercial advertising, and identifies the July 15–October 31 window. The live entry omits the request, organization and section 501(c)(3) status, subscriptions, bills and statutory text, proposed Regulation 1590 test, submitted samples, no-advertising fact, current section 6362.8 conclusion, window consumer/printer treatment, no-window-subscription qualification, hearing-notice list, missing records, redactions, source forms, and absent outcome.

What this means for you

Nonprofit publishers and tax professionals

Test organization status, advertising, distribution, issue continuity, subscription dates, and publication costs separately. Preserve every issue and sample, organization and membership records, advertising records, subscriptions and dates, printer contracts and charges, invoices and sales, returns, exemption documents, tax calculations, and payments. A restored exemption may leave a transition period requiring transaction-specific analysis.

Common questions

Q: Why did the submitted publications qualify after the transition?

A: The organization was section 501(c)(3), the publications met the proposed periodical definition, and they accepted no commercial advertising.

Q: What was the no-exemption window?

A: July 15 through October 31, 1991.

Q: Are the six publication titles available in the supporting PDF?

A: No. They are redacted there, but the live annotation supplies them.

Q: What did the opinion say if no subscriptions began during the window?

A: No tax was owed on publication costs, according to the source.

Q: Does the live annotation describe the post-window exemption?

A: No. It lists the titles under a statement about the period before July 15, while the source explains both the taxable window and the later narrow exemption.

Citations and references

• California Revenue and Taxation Code §§ 6362.7 and 6362.8
• Internal Revenue Code § 501(c)(3)
• Proposed California Sales and Use Tax Regulation 1590
• California Senate Bill 89 and Assembly Bill 23
• November 8 request, six publications and issues, subscriptions, advertising, printer charges, publication costs, tax records, and outcome — described or implicated but not documented

Verbatim support

From the official Tax Counsel opinion:

Under section 6362.8(1) (B) any periodicals or newspapers sold by --- would be tax exempt since none of the publications accept commercial advertising.

All of the publications for which you enclosed samples, qualify as tax exempt periodicals under the above definition.

Please note that even though --- periodicals are now tax exempt, there was no exemption from July 15 through October 31, 1991.

However, if no subscriptions were entered during the window period then there is no tax owed on costs associated with publication.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.1783
• Original supporting opinion: 385.1783 PDF

Original ruling text

385.1783

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 327-3400

January 29, 1992

Dear Mr. ---:
I am writing in response to your November 8, 1991 request for legal advice regarding the application of tax to sales of publication by the --- --- --- --- --- (---). --- qualifies for tax exempt status under section 50 I (c) (3) of the Internal Revenue Code. --- has been charging sales tax on its subscriptions. You ask whether tax is still applicable under the new legislation. Prior to July 15, 1991, all newspapers and periodicals were exempt from sales and use tax. These exemptions were repealed by the Legislature. However, under very recent legislation, a tax exemption has been reinstated for a narrow class of newspapers and periodicals. Specifically, under SB No. 89 and AB No. 23, sections 6362.7 and 6362.8 are added to the Revenue and Taxation Code to read as follows: "6362.7. 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." "6362.8. (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. "(b) This section shall apply only with respect to any of the following: "(1) Any newspaper or periodical published or purchased by an organization that qualifies for tax-exempt status under section 501(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." Under section 6362.8(1) (B) any periodicals or newspapers sold by --- would be tax exempt since none of the publications accept commercial advertising. Proposed Sales and Use Tax Regulation Section 1590 defines "periodicals" as: " ... those publications which appear at stated intervals, each issue of which contains news or information of general interest to the public, or to some particular organization or group of persons. Each issue must bear a relationship to prior or subsequent issues in respect to continuity of literary character or similarity of subject matter and there must be some connection between the different issues of the series in the nature of the articles appearing in them. Each issue must be sufficiently similar in style and format to make it evident that it is one of a series ..." The term "periodical" does not include 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." All of the publications for which you enclosed samples, qualify as tax exempt periodicals under the above definition. These are, "--- ---- --- ---", "--- --- --- ---", "--- ----- --- ---", --- --- ---", "--- --- ---", and "--- --- ---." Please note that even though --- periodicals are now tax exempt, there was no exemption from July 15 through October 31, 1991. F or sales and use tax purposes, we consider --- to have been the consumer of its periodicals during this window period. This means that the charges made by the printer were taxable. However, if no subscriptions were entered during the window period then there is no tax owed on costs associated with publication. I am enclosing a copy of the proposed revisions to Regulation 1590. By copy of this letter we will request that your name be placed on the list of parties interested in receiving notice of public hearings on the proposed regulations.

Sincerely,

Stella Levy
Tax Counsel

SCL:es 42731 Enclosure
cc:
Ms. Janice Masterton