When were National Geographic subscriptions taxable during California's 1991 newspaper and periodical exemption changes?

Plain-English summary

A redacted subscriber's attached November 16, 1991 letter to Governor Pete Wilson asked whether $1.73 tax now applied to a $21 “tax subscription” to the educational magazine National Geographic. Legislative Counsel responded after the letter was referred to the Board.

The National Geographic Society was a section 501(c)(3) nonprofit that distributed its monthly magazine to members in consideration of membership fees.

California described three periods. Before July 15, 1991, both the cost and selling price were exempt. Assembly Bill 2181 and Senate Bill 179 repealed the broader exemption effective July 15. From July 15 through October 31, sales were taxable unless they arose from a subscription entered into and paid before July 15.

Beginning November 1, 1991, the magazine qualified again after Senate Bill 89 exempted qualifying section 501(c)(3) newspapers and periodicals distributed for membership fees or to contributors, or containing no commercial advertising.

For a subscription entered during the taxable window, only the fee portion allocable to July 15 through October 31 deliveries remained taxable. The subscriber could seek a refund from the National Geographic Society for tax allocable to deliveries after that window.

Source and live-annotation limits

The official 385.1785 PDF does not include the subscriber's subscription agreement, entry or payment date, invoice or receipt, issue or delivery records, membership records, National Geographic Society organization documents, advertising records, tax collection or remittance records, allocation calculation, refund request or payment, Regulation 1590 enclosure, audit, assessment, claim, appeal, or later outcome. The subscriber and transaction details beyond the attached letter's stated amounts are redacted or undocumented.

The source prints 50l(c) (3), calls the $21 charge a “tax subscription,” and lists Matthew K. Fong as “Forth District Member.” The original-text section preserves those forms. The live annotation identifies section 6362.8 and preserves the Society, section 501(c)(3) status, membership-fee distribution, three-part timeline, prepaid exception, subscription allocation, and post-window exemption. It omits the subscriber's letter and amounts, Governor Wilson referral, monthly and educational-magazine descriptions, bills, alternative contributor/no-advertising criteria, refund direction to the Society, Regulation 1590 and missing enclosure, copied officials and staff, missing records, redactions, source forms, and absent outcome.

What this means for you

Nonprofit publishers, membership organizations, subscribers, and tax professionals

Map tax treatment to delivery dates, subscription execution and payment dates, organization status, membership consideration, and content conditions. Preserve the subscription agreement, invoice and payment, every delivery, membership and advertising records, tax collection and remittance, allocation, and refund correspondence. A mid-subscription law change may require allocation rather than all-or-nothing treatment.

Common questions

Q: Was National Geographic exempt before July 15, 1991?

A: Yes, both its cost and selling price were exempt.

Q: When was it generally taxable?

A: July 15 through October 31, 1991, subject to the prepaid pre-July 15 subscription exception.

Q: When did it become exempt again?

A: November 1, 1991.

Q: How was a subscription spanning the change treated?

A: Only the portion allocable to deliveries during the taxable window remained taxable; the Society could refund tax for later deliveries.

Q: What amounts did the subscriber report?

A: $1.73 tax on a $21 subscription.

Q: From whom did counsel say to obtain the post-window refund?

A: The National Geographic Society.

Citations and references

• Internal Revenue Code § 501(c)(3)
• California Assembly Bill 2181
• California Senate Bills 179 and 89
• California Sales and Use Tax Regulation 1590
• California Revenue and Taxation Code § 6362.8 — identified by the live annotation
• Subscription, payment, delivery, membership, advertising, allocation, tax and refund records, Regulation 1590 enclosure, and outcome — described or implicated but not documented

Verbatim support

From the official Legislative Counsel response:

From July 15, 1991 to October 31, 1991, any sales of National Geographic would be subject to tax, unless the sales resulted from a subscription that was entered into and paid prior to July 15, 1991.

Beginning November 1, 1991, National Geographic again qualifies for exemption since the National Geographic Society is covered by Internal Revenue Code Section 501(c)(3) and meets the stated criteria.

The remaining subscription fees applicable to deliveries made beyond the July 15, 1991 through October 31, 1991 time frame are exempt from the tax and you are entitled to a refund for that portion of the tax from the National Geographic Society.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.1785
• Original supporting opinion: 385.1785 PDF

Original ruling text

385.1785

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM K. 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

March 10, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Dear
Your letter of November 16, 1991 addressed to Governor Wilson has been referred to me for response. In your letter, you asked if it is true that tax now applies on subscriptions to the educational magazine National Geographic. The National Geographic Society is a non-profit organization under Section 50l(c) (3) of the Internal Revenue Code which distributes periodicals to members in consideration of the organization's membership fee. The periodical which is distributed monthly by the organization is the National Geographic magazine. Effective July 15, 1991, with the passage of Assembly Bill 2181 and Senate Bill 179, several exemptions in the California Sales and Use Tax Law were repealed including the exemption previously enjoyed by newspapers and periodicals. In October 1991, the Governor signed Senate Bill 89 which provides that tax does not apply to the sale or use of any newspaper or periodical distributed by an organization that qualifies for tax exempt status under section 501 (c) (3) of the Internal Revenue Code. To qualify, the publication must either: (1) be distributed to members in consideration of their membership fees or to contributors to the organization or (2) not contain commercial advertising. The exemption is effective November 1, 1991. Following is a chronology of the application of sales tax to National Geographic:

1. Prior to July 15, 1991, both the cost and selling price of National Geographic were
   exempt from tax.
2. From July 15, 1991 to October 31, 1991, any sales of National Geographic would be
   subject to tax, unless the sales resulted from a subscription that was entered into and paid prior to July 15, 1991.

3. Beginning November 1, 1991, National Geographic again qualifies for exemption since the National Geographic Society is covered by Internal Revenue Code Section 501(c)(3) and meets the stated criteria. If your subscription was entered into during the time frame of July 15, 1991 through October 31, 1991, the National Geographic Society was correct in applying tax on your subscription fee for National Geographic. However, due to the change in the law effective November 1, 1991 which again resulted in National Geographic qualifying as exempt from the tax, only that portion of the subscription fee applicable to publications delivered from July 15, 1991 through October 31, 1991 are subject to tax. The remaining subscription fees applicable to deliveries made beyond the July 15, 1991 through October 31, 1991 time frame are exempt from the tax and you are entitled to a refund for that portion of the tax from the National Geographic Society. For your information, I have enclosed a copy of Regulation 1590, “Newspapers and Periodicals” which explains the tax application to periodicals. I hope this information has been helpful.

Sincerely,

Margaret S. Shedd
Legislative Counsel

MSSP: smp
B-A363
Enclosure
cc:

Honorable Pete Wilson
Honorable Brad Sherman, Chairman
Honorable Matthew K. Fong, Forth District Member
Mr. Burton W. Oliver, Executive Director

bc:

Downey District Administrator
Mr. E. L. Sorensen, Jr.
Mr. Glenn A. Bystrom
Mr. Stephen Rudd

Attached Letter.
November 16, 1991

To Gov Pete Wilson
State Capitol
Sacramento California

Dear Governor
Is it true that we now are forced to pay $1.73 tax on our $21.00 tax subscription to the educational magazine, National Geographic? It’s enough to make me want to move to Fiji!