Were promotional luggage tags exempt printed sales messages or interstate-commerce sales when sent through a California mailing house?

Plain-English summary

A California advertising-specialties distributor sold 170,000 luggage tags to a Utah company through its California advertising-agency agent. A California supplier shipped 6,000 tags directly to Utah. The other 164,000 went to a California mailing house, which packaged them with paper materials and mailed them nationwide, including 7,500 to California addresses.

The luggage tags were not printed sales messages. Section 6379.5 and Regulation 1541.5 narrowly covered catalogs, letters, circulars, brochures, and pamphlets, not advertising specialties such as matchbooks, keychains, or luggage tags. Accompanying paper materials could be analyzed separately if they independently met every printed-message condition.

The 6,000 tags shipped directly to Utah under the sale contract were exempt interstate-commerce sales. The remaining 164,000 were gifts to recipients, making the Utah company their consumer, and no portion of that sale qualified as interstate commerce because the suppliers delivered the tags to the purchaser's California mailing-house agent for later handling. Later out-of-state mailing instructions did not change the original California delivery.

What this means for you

Promotional-product sellers, agencies, mailing houses, and tax professionals

Analyze each physical item and each delivery leg separately. A promotional specialty does not become a printed sales message merely because it travels with exempt paper, and interstate treatment depends on shipment out of state under the seller-purchaser contract—not later forwarding by the purchaser's agent.

Common questions

Q: Were the luggage tags printed sales messages?

A: No. Luggage tags were outside the statute's narrow list of eligible printed forms.

Q: What about the paper materials mailed with the tags?

A: They could qualify separately if they were principally promotional and met all Regulation 1541.5 conditions.

Q: Why were the 6,000 Utah shipments exempt?

A: The California supplier shipped them directly out of state under the contract of sale.

Q: Why did the other 164,000 not qualify as interstate commerce?

A: They were first delivered to the purchaser's agent at a California mailing house for later distribution.

Citations and references

• California Revenue and Taxation Code § 6379.5
• California Sales and Use Tax Regulations 1541.5, 1620(a)(3)(B), and 1670(a)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 432.0064
• Original supporting opinion: 432.0064 PDF

Original ruling text

432.0064

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego

August 9, 1993

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

Mr. H--- B--A--- M--XX --- ----- ---, CA XXXXX-XXXX

BURTON W. OLIVER
Executive Director

Dear Mr. B---:
This is in response to your letter of January 4, 1993. It did not contain a sample of the tags, envelopes and contents, so we must make certain assumptions that may or may not be true. You ask whether a sales or use tax applies to the purchase of luggage tags under the following facts: You are an advertising specialties distributor that works with F---, C--- & B--- (F---), a California advertising agency. One of F---’s clients is N---, Inc., a Utah corporation, which I will assume has no contact or “nexus” with California, except its contacts with you and F---. F--- ordered 170,000 luggage tags from you for N---, without providing you with a resale certificate. We assume that N--- is the purchaser from you, and F--- is N---’s agent. You purchased 70,000 from a California supplier, and 100,000 from two out-of-state suppliers. The California supplier shipped 6,000 tags directly to N--- in Utah. The remaining 164,000 tags were shipped to C--- M---, a California mailing house. These 164,000 tags were packaged along with paper printed materials and sent to locations throughout the United States, 7,500 of which were shipped to California addresses. The first question is whether these tags fall under the definition of “printed sales messages” in Revenue and Taxation Code section 6379.5 and Regulation 1541.5. The definition of printed sales messages is a narrow one, limited to catalogs, letters, circulars, brochures, and pamphlets printed for the principal purpose of advertising or promoting goods or services. It does not include items such as matchbooks, keychains, or luggage tags. Along with the tags, the mailing house packages other “paper printed material” and sends them together to locations all over the United States. We assume that the enclosed paper printed materials were “printed sales messages” as defined in Regulation 1541.5 (copy enclosed). The principal purpose must be the advertising or promoting of goods or services.

Mr. H--- B---

-2 -

August 9, 1993
432.0064

If Regulation 1541.5 applies, tax does not apply to the sale or use of the printed sales messages. You should review Regulation 1541.5(b)(1)-(3) to be certain that it meets all three requirements. If it does not meet the requirements, tax applies to charges for the printed sales messages to the same extent as to charges for printed matter generally. It is our opinion that the 6,000 tags shipped directly to Utah is a sale in interstate commerce and not taxable, without regard to the identity of the “retailer.” The property was so shipped pursuant to the contract of sale. See Regulation 1620(a)(3)(B). The 164,000 remaining tags are purchased from you by N--- for distribution free of charge. Such distributions are gifts under Regulation 1670(a), and N--- is the consumer. The remaining question is whether any portion of the sale of these 164,000 tags from you to N--- is exempt as a sale in interstate commerce. It is our opinion that no portion of this sale is in interstate commerce. The suppliers all “drop shipped” on your behalf to N---’s agent, a California mailing house, for further handling at the direction of N---. To be eligible for an interstate commerce exemption, the tags would have had to be shipped out of state by the supplier pursuant to the purchase agreement. The following is a quotation from Business Taxes Law Guide Annotation 280.0120 (which does not apply to “printed sales messages”). “A printer which delivers advertising materials to a mailing service for shipment to points within and without the state pursuant to subsequent instructions of the purchaser is liable for tax on his total gross receipts even though the mailing service is designated as a ‘bailee.’ The sale of the materials shipped to out-ofstate points is not an exempt sale in interstate commerce because the materials are not shipped outside the state pursuant to the contract of sale between the printer and the purchaser.” If you have other questions, please contact me. Sincerely yours,

Donald F. Fillman
Tax Counsel
DLF:wk
Enclosure: Reg. 1541.5