Did free technology publications qualify as periodicals or printed sales messages, and how did California measure their advertising content?

Plain-English summary

A redacted publisher's September 13, 1993 letter submitted three publications and asked whether they qualified as printed sales messages or periodicals. 3Tech was a quarterly journal sent free to subscribers, Net Age a bimonthly newsletter sent free to subscribers, and 3Seller a publication counsel assumed was free to subscribers. No frequency was supplied for 3Seller.

Section 6379.5 and Regulation 1541.5 required a qualifying printed sales message to be specially ordered, mailed or delivered by the seller or specified agents through the Postal Service or common carrier, and received at no cost by another person who became its owner. Its principal purpose also had to be advertising or promoting goods or services—more than 50 percent.

Counsel classified a mixed page or article by whether more than half served advertising rather than information. Net Age had 19 page equivalents: 16 pages plus a four-page insert equaling three full pages. Pages 1, 2, 3, 4, 5, 9, 14, and 15 counted as eight nonadvertising pages under the detailed principal-purpose analysis. Two half pages in the insert counted as one advertising page; the insert's pages 3 and 4 were not advertising. Nine of 19 pages were advertising, so Net Age was not a printed sales message. The publisher was told to apply that analysis to 3Tech, 3Seller, and future publications; the opinion does not decide their printed-sales-message status.

For periodical treatment, Net Age and 3Tech met the four-to-60-times-yearly rule, and counsel assumed 3Seller did too. Net Age targeted data-network professionals, 3Tech was a technical journal, and 3Seller targeted resellers; counsel assumed the information was of interest to each group. Counsel also assumed issue-to-issue subject or literary continuity and sufficiently similar style and format.

The free-distribution periodical exemption applied on those facts and assumptions as long as advertising, including product publicity, did not exceed 90 percent of the printed area in more than half the issues during a 12-month period.

Source and live-annotation limits

The official PDF does not include the September 13 request, any of the three publications or issues, Net Age insert, articles or page images, publication or delivery schedules, publisher, subscribers or other recipients, free-distribution proof, special-order or mailing agreements, Postal Service or common-carrier records, page and article classifications, advertising or product-publicity calculations for a full 12-month period, Regulation 1541.5 or proposed Regulation 1590 enclosures, prices or invoices, sales or uses, returns, exemption documentation, tax calculations or payments, audit, assessment, claim, appeal, or later outcome. The publisher, products, subscribers, transactions, and amounts are redacted or unidentified.

The source prints purpose ofadvertising, goods or -services, printed sales messages once for a singular publication, assumptions-made, and says exemption under section 6362.7(c) even though its own quoted subsection (a) contains the exemption and subsection (c) supplies the definition. The original-text section preserves those forms.

The live annotation covers only Net Age and 3 Tech. It preserves their frequency qualification, free-subscriber distribution, section 6362.7(c), and 90-percent/12-month condition. It omits the request, 3Seller, all assumptions, targeted audiences and continuity/format tests, section 6362.7(a) and (b), section 6379.5, Regulation 1541.5 and the printed-sales-message delivery test, Net Age page and insert analysis and negative result, instructions for other publications, enclosures, missing records, redactions, source forms, and absent outcome.

What this means for you

Technology publishers and tax professionals

Retain publication calendars and every consecutive issue and insert, classify mixed pages and articles by principal purpose, calculate both the printed-sales-message majority test and periodical 90-percent limit, and document special ordering, free distribution, delivery agents and carriers. Keep contracts, invoices and sales, returns, exemption documents, tax calculations, and payments.

Common questions

Q: Was Net Age a printed sales message?

A: No. Only nine of its 19 page equivalents were advertising.

Q: Did the periodical exemption apply to the three publications?

A: Yes, on the stated facts and assumptions and subject to the 90 percent advertising limit.

Q: Was 3Seller's frequency established?

A: No. Counsel assumed it appeared between four and 60 times per year.

Q: Did counsel decide whether 3Tech and 3Seller were printed sales messages?

A: No. The opinion gave the Net Age analysis for the publisher to apply to the other publications.

Q: What reader groups did counsel identify?

A: Data-network professionals for Net Age, technical-journal readers for 3Tech, and resellers for 3Seller.

Citations and references

• California Revenue and Taxation Code §§ 6362.7(a), 6362.7(c), and 6379.5
• California Sales and Use Tax Regulation 1541.5(a)(1) and (b)
• Proposed California Sales and Use Tax Regulation 1590(a)(2)
• September 13 request, publications and issues, Net Age insert, distribution and delivery, advertising calculations, sales, tax records, and outcome — described or implicated but not documented

Verbatim support

From the official Staff Counsel opinion:

Thus, nine of nineteen pages of Net Age are for advertising, or less than 50 percent. Net Age therefore does not qualify as a printed sales message.

Two of the publications, Net Age and 3Tech, satisfy this requirement and we assume the newsletter 3Seller is published at least four times per year and not more than 60.

Based on the facts and assumptions set forth herein, the periodical exemption applies provided the advertisement portion for each publication does not exceed 90 percent in more than one-half of the issues within a 12-month period.

Please note that if any of the assumptions-made herein are incorrect, the conclusion may be different.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 385.1788
• Original supporting opinion: 385.1788 PDF

Original ruling text

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District, Kentfield

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

December 29, 1993

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Re: ---

Dear --This is in response to your letter dated September 13, 1993. You enclosed three publications and you ask whether they qualify as either printed sales messages or periodicals. Revenue and Taxation Code section 6379.5 provides an exemption for certain sales of brochures, circulars, catalogs, and pamphlets consisting substantially of printed sales messages. If your publications are printed sales messages, certain requirements must be satisfied in order for the printed sales message exemption to apply. Those requirements are explained in Regulation 1541.5(b) as follows: “[T]ax does not apply to the sale of printed sales messages which are: “(1) Printed to the special order of the purchaser; “(2) Mailed or delivered by the seller, the seller's agent or a mailing house acting as the agent for the purchaser, through the United States Postal Service or by common carrier; “(3) Received by any other person at no cost to that person who becomes the owner of the printed material.” In order for the publications to qualify as a printed sales message, they must be for the principal purpose ofadvertising or promoting goods or services. (Reg. 1541.5 (a) (1).) In other words, more than 50 percent must be for the purpose of advertising or promoting goods or -services. You sent us copies of the following publications: (1) a journal, entitled “3Tech” which is published quarterly and sent free to its subscribers; (2) a bimonthly newsletter entitled "Net Age" which is sent free to its subscribers; and (3) a publication entitled "3Seller" which we assume is free to its subscribers. We did not receive any information on the frequency of the printing of 3Seller. In determining whether a publication qualifies as a printed sales messages, we use the following analysis. If there is a mixture of advertising and promotional material on a page or in an article, the principal purpose (over 50 percent) of the page or article determines whether its principal purpose is for providing information or advertising goods and services. “Net Age” has a total of 19 full pages, 16 pages plus an insert equal to three pages (pages 1 and 2 of the insert are each one-half page, and pages three and four are full pages for a total of three full pages). If ten pages or more are advertising, then Net Age qualifies as a printed sales message, but if ten pages or more are informational or for other non advertising purposes, then it does not qualify.

Some of the articles in Net Age are for the principal purpose of informing its readers of current technology and other information, and not for the principal purpose of advertising specific goods and services. These are: the article on pages 1, 3, 4, and 5, and the articles on pages 2, 9, and 14. Page 15 includes general information, for a total of 8 non advertising pages (although there is some advertising on page 5, most of the page consists of the informational article so the principal purpose of that page is non advertising). With respect to the insert, the two half pages, 1 and 2, are for advertising and equal one page of advertising. Neither page 3 nor page 4 of the insert is advertising. Thus, nine of nineteen pages of Net Age are for advertising, or less than 50 percent. Net Age therefore does not qualify as a printed sales message. Based on the analysis we have provided in regard to Net Age, you can determine, by using the same analysis, if the other two publications, or future publications, qualify as printed sales messages. You also ask if your journal or newsletters qualify as periodicals. Revenue and Taxation Code section 6362.7 discusses the periodical exemption: “(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 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.” “Periodical” does not include printed sales messages, shopping guides, or other publications of which the advertising portion exceeds 90 percent of the printed area of the entire issue in more than one-half of the issues during any 12-month period, including product publicity. (Rev. & Tax. Code § 6362.7 (b), Reg. 1590 (a) (2).) In order for the sale of the publication to be exempt under section 6362.7(c), the publication must qualify as a periodical. For purposes of that section, “periodical” is further defined as a publication that appears at stated intervals at least four times per year but not more than 60 times per year. (Rev. & Tax. Code § 6362.7(c).) Two of the publications, Net Age and 3Tech, satisfy this requirement and we assume the newsletter 3Seller is published at least four times per year and not more than 60. Another requirement is that each issue must contain information or news of general interest to the public or to some particular group of persons or organization. Net Age is for the data network professional, 3Tech is a technical journal and 3Seller is a newsletter for resellers, and we assume the information is of general interest to the targeted group. Thus, all three satisfy this requirement. Also, there must be a relationship to prior or subsequent issues with respect to similarity of subject matter or continuity of literary character and there must be some connection between the different issues of the series in the nature of the articles appearing in them. We assume that this is the case with each publication. Another requirement is that each issue must be sufficiently similar in style and format to make it evident that it is one of a series. We assume that this requirement is also satisfied with regard to each publication. Based on the facts and assumptions set forth herein, the periodical exemption applies provided the advertisement portion for each publication does not exceed 90 percent in more than one-half of the issues within a 12-month period. Please note that if any of the assumptions-made herein are incorrect, the conclusion may be different. We are enclosing copies of Regulation 1541.5 and proposed Regulation 1590 for your information. If we can be of further assistance, please feel free to write again.

Sincerely

Rachel M. Aragon
Staff Counsel
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Enclosures
bc: District Administrator (GH)