Did advertising brochures qualify when a publisher used its own printing or mailing divisions, and would separate corporate entities change the result?

Plain-English summary

A publisher marketed products to nurses and other health professionals with advertising brochures. Its printing, mailing, and publishing divisions operated inside the same corporation and at the same location. It sometimes printed brochures itself and sometimes received brochures from outside printers through its in-house mailing division.

When the company printed and mailed its own brochures, the Board found no sale between the internal divisions. Without a sale under section 6006, the section 6379.5 sales exemption was unavailable.

When an outside printer made the brochures but delivered them to the publisher's in-house mailing division, the exemption also failed. The Board treated the mailing division as the purchaser itself, not the purchaser's separate agent, so the seller had delivered the brochures to the purchaser.

The answer could change if the publishing, printing, and mailing operations were separate and distinct corporations. In that structure, the brochure sale could be exempt if every other section 6379.5 condition was met.

What this means for you

Publishers, affiliated printers, fulfillment operations, and tax professionals

Map the actual legal entities, not just operational department names. Confirm that a sale exists and that the printer delivers through a legally distinct qualifying agent or mailing house rather than to the purchaser's own division.

Common questions

Q: Did self-printing create an exempt sale?

A: No. The opinion found no sale between divisions of the same corporation.

Q: Was the in-house mailing division the publisher's agent for exemption purposes?

A: No. The Board treated delivery to that division as delivery to the purchaser.

Q: Would separate corporations automatically qualify?

A: No. Separate corporate status could remove these two defects, but every other printed-message condition still had to be met.

Citations and references

• California Revenue and Taxation Code §§ 6006(a), 6051, and 6379.5
• Mapo, Inc. v. State Board of Equalization, 53 Cal.App.3d 245

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 432.0001
• Original supporting opinion: 432.0001 PDF

Original ruling text

432.0001

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 322-3684

April 21, 1988

Mr. R--- D. A---, President
R--- D. A--- Publishing Co.
P. O. Box XXXXX
---, CA XXXXX
SR -- XX-XXXXXX
Dear Mr. A---:
Your February 3, 1988 letter requesting our opinion concerning the correct application of tax to a described transaction has been referred to me for a reply. As I understand the fact, R--- D. A--- Publishing Company (A---) is a corporation that markets its products by mailing advertising brochures to nurses and other health professionals. A--has an in-house printing and mailing division at the same location as the publishing division. A--prints some of its advertising brochures and then mails the brochures from its mailing house division to persons who become the owners of the brochures at not cost. In addition, some brochures printed by printers other than A--- are delivered to and distributed by A---’s in-house mailing division. You request our opinion concerning the correct application of sales tax to such a transaction and how the tax would apply if the printing and mailing divisions were set up as separate corporations. California Sales and Use Tax Law imposes sales tax on retailers based on gross receipts from the sale of tangible personal property in this state unless such sale is otherwise specifically excluded or exempted from taxation by statute (Rev. & Tax. Code § 6051). Revenue and Taxation Code Section 6006(a) defines a sale to mean and include a transfer of title or possession of tangible personal property for a consideration. Section 6379.5 exempts “printed sales messages for goods and services printed to the special order of the purchaser” from sales tax. Specifically, Section 6379.5 provides as follows:

Mr. R--- D. A---

-2-

April 21, 1988
432.0001

“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 catalogs, letters, circulars, brochures, and pamphlets consisting substantially of printed sales messages for goods and services printed to the special order of the purchaser and 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 to any other person at no cost to that person who becomes the owner thereof.” Applying the above criteria, it is our opinion that there has not been a sale of brochures in the described transaction where A--- prints and mails the brochures from its own in-house printing and mailing divisions, since such a transaction between related entities does not constitute a sale pursuant to Section 6006 of the Revenue and Taxation Code (Mapo, Inc. v. State Board of Equalization, 53 Cal.App.3d 245). Accordingly, since there has not been a sale of brochures, the exemption provided for in Section 6379.5 is not available to A---. Further, it is our opinion that the exemption in Section 6379.5 is not available where an outside printer (seller) prints the brochures to A---’s special order but then delivers the brochures to A---’s in-house mailing division for distribution, since we view the in-house mailing division as the same business entity as A--- and not A---’s agent. Therefore, since the brochures are delivered to the purchaser (A---), the exemption in Section 6379.5 is not available to the seller. We note, however, that if the printing and mailing divisions were separate and distinct corporate entities from A---, then the sale of such described advertising brochures to A--- would be exempt from tax, assuming the other requirements of Section 6379.5 are met. I hope the above information is helpful. Enclosed for your review and reference is a copy of Sales and Use Tax Regulation 1541.5 (Printed Sales Messages) which interprets and applies the Code. Very truly yours,

Robert J. Stipe
Tax Counsel
RJS:sr
Enc.
cc:
Mr. Glenn A. Bystrom
Principal Tax Auditor
Mr. Leon Adams
--- District – Auditing