Was an HMO brochure inviting prospective members to enroll, explaining benefits, and listing participating physicians a printed sales message?

Plain-English summary

A printer produced a brochure for a health maintenance organization and delivered it to a mailing house for distribution to prospective members. The brochure invited enrollment, explained benefits, and listed participating physicians to demonstrate the choices available.

California treated the brochure as a printed sales message when the HMO published and distributed it to prospective members to explain enrollment benefits and promote its services. The printer could accept a Regulation 1541.5 exemption certificate when delivery met the regulation's requirements.

A footnote alerted the district that the brochure's wording might also permit use as a directory for existing members. A 1997 memorandum clarified that this was a possible alternate use requiring factual follow-up, not a change to the prospective-member holding.

What this means for you

Health plans, printers, and tax professionals

Document the brochure's intended audience, principal promotional purpose, and delivery path. Material sent to prospects to induce enrollment can qualify, while distribution to existing members as a service directory may require separate analysis.

Common questions

Q: Did the physician list prevent printed-sales-message treatment?

A: No. It helped demonstrate the choices available and promote enrollment.

Q: Could the printer accept an exemption certificate?

A: Yes, when the printed message was delivered in the manner Regulation 1541.5 required.

Q: Did California decide that copies distributed to existing members were exempt?

A: No. The source flagged that possible directory use for factual follow-up.

Citations and references

• California Sales and Use Tax Regulation 1541.5

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 432.0060
• Original opinion and clarification memorandum: 432.0060 PDF

Original ruling text

STATE OF CALIFORNIA

432.0060

STATE BOARD OF EQUALIZATION
916-445-6450

April 29, 1992
Dear Ms X-------------,
As you know, your February 19, 1992 letter to Mr. X--------- of the California State Board of Equalization has been referred to the legal staff for reply. You asked whether a brochure you print for X----------------------- is a printed sales message as defined in Sales and Use Tax Regulation 1541.5. You note that the brochure is delivered to a mailing house and mailed to prospective members of X-----------. In addition to inviting membership, the brochure provides an explanation of benefit and lists participating physicians. You note that the list of participating physicians is intended to demonstrate the many choices available to members of X----------------- health maintenance organization. X------------ hopes that, where prospective members will be able to locate a participating physician in their area, the prospective members will be more inclined to become members of X------------. We believe that the brochure is a printed sales message when X------------ publishes and distributes the brochure to prospective members for the purpose of explaining the benefits of enrolling in the X----------- health maintenance organization to promote the sale of X------------- services. You may accept an exemption certificate as provided in subdivision © of Sales and Use Tax Regulation 1541.5, Printed Sales Messages, when you deliver the printed sales messages in the manner described in the regulation. We hope this answers your questions; however, if you need further information, feel free to write directly to this office. Very truly yours,

Ronald L. Dick
Senior Tax Counsel
RLD:sr

Bc:

San Bernandino District Administrator

This opinion relates to the sale of a printed sales message by X------------- to X-----------. The nature of the brochure makes it susceptible to use by X-------------- by distribution to existing members as a directory of membership services. We provide you with this information in case you wish to follow up to determine whether X------------ had any catalogs distributed to new members.

State of California

Board of Equalization

Memorandum

To:

Ms. Leila Khabbaz – MIC:40

From:

Ronald L. Dick
Senior Tax Counsel

Subject:

Annotation 432.0060

432.0060
Date:

December 18, 1997

Sales and Use Tax Annotation 432.0060 does not accurately state the content of its backup correspondence. We suggest the annotation be reworded to state the following: “A health maintenance organization’s brochures which invited prospective members to join the organization and provided an explanation of benefits and a list of participating physicians to demonstrate the choices available to the prospective members were printed sales messages.” The footnote to the backup letter notes the nature of the brochure made it susceptible to use for distribution to existing members as a directory of membership services the footnote was merely to alert the district office of ambiguous wording in the brochure that created the possibility the purchaser might make a use of the brochure other than as a printed sales message.

RLD:sr