Was a printer's sale of specially ordered coupon books exempt when the books were routed through a carrier and mailing house for free household delivery?
Apply this to your situation
This page answers the general question as of 1994. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A company designed and published coupon books for clients. Its printer prepared client-approved layouts, printed pages containing several clients' coupons, had another company assemble the booklets, and then gave the finished books to a carrier. The carrier took them to a mailing house, which addressed them and delivered them to the Postal Service for household delivery by ZIP code.
The printer was selling tangible personal property to the publisher, which did not resell the books. That sale was taxable unless a statutory exemption applied.
The Board concluded that coupon books were printed sales messages because their principal purpose was advertising or promoting goods or services. The books were also printed to the publisher's special order. If households received them free, the described carrier-to-mailing-house-to-Postal-Service chain met section 6379.5, making the printer's sale exempt.
The result was conditional. Failure of any element defeated the exemption, and the printer needed to retain supporting delivery evidence and an exemption certificate under Regulation 1541.5(c).
What this means for you
Coupon publishers, printers, mailing houses, and tax professionals
Document the entire order and delivery chain. The content, special-order design, free recipient transfer, carrier handling, mailing-house role, and retained exemption records all mattered.
Common questions
Q: Why were the books printed sales messages?
A: Regulation 1541.5 treated coupon books as materials printed principally to advertise or promote goods or services.
Q: Were the books printed to special order?
A: Yes. The printer prepared them according to the publisher's specific, client-approved layouts.
Q: Did the delivery chain qualify?
A: Yes, if the carrier took the books to the mailing house, the mailing house delivered them to the Postal Service, and households received them free.
Q: What records did the printer need?
A: Supporting evidence of delivery and the exemption certificate required by Regulation 1541.5(c).
Citations and references
- California Revenue and Taxation Code §§ 6007, 6051, and 6379.5
- California Sales and Use Tax Regulation 1541.5(a)(2) and (c)
Source
- Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
- Annotation page: Annotation 432.0023.700
- Original supporting opinion: 432.0023.700 PDF
Original ruling text
432.0023.700
STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 920 - 7445
MEMBER
First District
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
September 20, 1994
GRAY DAVIS
Controller, Sacramento
BURTON W. OLIVER
Executive Director
X----------------------------
Dear X------------------------,
This is in response to your letter dated June 29, 1994 regarding whether you have to pay sales tax (reimbursement) to your printer. You design and publish a book of coupons, "Super Value Coupons & Business Directory." You state that after receiving an order from a client for you to prepare a coupon, you make a rough layout of the coupon. You take the rough layout to your printer and ask the printer to prepare a layout of the coupon accordingly. Next, you take the printer's layout to your client for approval, corrections, and changes. We assume that the printer retains title to its layouts and that you obtain temporary possession merely for inspection and approval. The printer prints pages containing coupons from several clients, then takes the pages to another company which assembles the printed matter into coupon booklets. Later, the printer turns the finished products over to a carrier to be taken to a mailing house for addressing. The mailing house delivers the coupon books to the U.S. Postal Service for delivery to households by zip code. Retail sales of tangible personal property in California are subject to sales tax, which is measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) Since the printer is the seller and you are the purchaser of the coupon books, and since you do not resell the books, the printer's sale to you is subject to sales tax unless that sale is exempt by statute. An exemption which might be applicable to the printer's sales of the coupon book "is set forth in Revenue and Taxation Code section 6379.5, which provides: “Printed sales messages for goods and services printed to the special order of the purchaser. 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.” Regulation 1541.5 defines printed sales messages to include coupon books, because they are printed for the principal purpose of advertising or promoting goods or services. A printed sales message “printed to the special order” of the purchaser is one that is designed and prepared according to the specific request of the purchaser. (Reg. 1541.5(a) (2).) As described in your letter, the printer prints the coupon books to your special order. You state that the printer takes the finished coupon books to a carrier who then takes the books to a mailing house for addressing, and that the mailing house then takes the coupon books to the U. S. Postal Service. If the households receive the coupon books free of charge, all requirements of section 6379.5 have been met and the printer's sales of the coupon books are exempt from sales tax. The printer should obtain and retain supporting evidence of the delivery of the property and an exemption certificate as set forth in subdivision (c) of Regulation 1541.5. Of course, if anyone of the elements is not met, the exemption set forth in section 6379.5 will not apply. If you have any further questions, please feel free to write again. Sincerely,
Kelly W. Ching
Staff Counsel
KWC:cl
Cc:
X-------------- District Administrator
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