When could printing and bindery charges for free promotional telephone directories qualify for California's printed-sales-message exemption?

Plain-English summary

A taxpayer had a printer produce pages and mailing labels for telephone directories, send them to a bindery, and then distribute the completed directories free. California assumed the directories principally advertised or promoted goods or services and therefore qualified by content as printed sales messages.

The printer's sale could be exempt if the printer delivered the pages to a carrier for delivery to the bindery rather than delivering them to the taxpayer.

Mailing labels not yet affixed at the time of the printer's sale were not then component parts of the printed sales messages. The memorandum nevertheless treated the charge for addressing the labels as nontaxable under Regulation 1504.

Assuming the bindery merely stitched or stapled the directory, its binding was fabrication of the printed sales message. The binding charge was exempt only if the bindery or permitted agent then mailed or delivered the bound directories through the specified channels and donees received and owned them at no cost.

What this means for you

Directory publishers, printers, binderies, and tax professionals

Confirm promotional content, the printer-to-bindery carrier leg, the actual binding process, and the bindery's final delivery. The memorandum's favorable result was conditional, not a blanket exemption for all directories or bindery work.

Common questions

Q: Did every telephone directory qualify?

A: No. The memorandum assumed these directories principally advertised or promoted goods or services.

Q: Could the printer deliver the pages to the taxpayer?

A: The favorable conclusion required delivery to a carrier for the bindery, rather than to the taxpayer.

Q: Were mailing-label addressing charges taxable?

A: No, under Regulation 1504 as applied in the memorandum.

Q: Was all binding exempt?

A: The opinion assumed simple stitching or stapling and required compliant final delivery to free recipients.

Citations and references

• California Sales and Use Tax Regulation 1541.5(a)(1) and (b)(2)-(3)
• California Sales and Use Tax Regulation 1504

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 432.0032
• Original supporting memorandum: 432.0032 PDF

Original ruling text

State of California

Board of Equalization

Legal Division (MIC:82)

432.0032
Memorandum
To:

From:

Subject:

Mr. James Black
Audit Evaluation and Planning

Date:

April 26, 1990

Ronald L. Dick
Tax Counsel
REDACTED TEXT
This is in reply to your February 27, 1990 memorandum in which you asked for our opinion regarding the conclusions reached by Supervising Tax Auditor David Pidal in his February 22, 1990 memorandum to you. Mr. Pidal provided the following facts: “The taxpayer has the printer print the pages of the telephone directory and mailing labels. The taxpayer then has the printed pages and mailing labels sent to the bindery for binding and affixing the mailing labels. The completed telephone directories are then either sent to the Post Office for mailing or the taxpayer will pick up them for distribution by other means. The telephone directories are distributed free of charge to another person who becomes the owner of the telephone directory.” We understand that the taxpayer to which Mr. Pidal refers is REDACTED TEXT. Mr. Pidal has concluded that the bindery charges and printing charges are exempt from tax under Sales and Use Tax Regulation 1541.5, Printed Sales Messages. We assume that there is no question that the telephone directories at issue qualify as printed sales messages. Subdivision (a)(1) of Regulation 1541.5 specifically excludes from the definition of printed sales messages, “directories unless they meet the principal purpose of advertising or promoting goods or services.” So, again assuming the directories are printed sales messages, we believe that, if the printer delivers the directories to a carrier, rather than to REDACTED TEXT, for delivery to the bindery, the sale by the printer of the printed sales messages qualifies for exemption. The mailing labels are not affixed to the printed sales messages at the time of the sale and, therefore, are not at that time component parts of the printed sales messages; however, the charge for addressing the labels is nontaxable. See Sales and Use Tax Regulation 1504, Mailing Lists and Services.

Mr. James Black

-2-

April 26, 1990
432.0032

You did not explain what type of binding material the bindery provides. We assume that the bindery merely stiches or staples the printed sales messages. In such case, the charge for the binding is a fabrication of the printed sales messages. We believe the charge is exempt under Regulation 1541.5 provided the bound printed sales messages are both (a) mailed or delivered by the bindery, the bindery’s agent or a mailing house acting as the agent for REDACTED TEXT, through the United States Postal Service or by common carrier; and (b) received by the donee at no cost in accordance with Regulation 1541.5, subdivision (b)(2) and (3). If you have any questions regarding this, feel free to contact me directly.

RLD:sr

432.0032 (8-26-04).doc-Redacted