When could newsletters and display ads qualify as printed sales messages, and how did purchaser delivery, mixed distribution, and refunds affect the result?
Apply this to your situation
This page answers the general question as of 1988. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A printed-material producer asked about purchaser-run distribution, mixed mailed and walk-in quantities, newsletters, display advertisements, and refunds of excess sales-tax reimbursement.
The Board said any portion delivered to the purchaser was taxable. Qualifying delivery had to be performed by a mailing house or common carrier within Regulation 1541.5's definitions. If 75% met all conditions but the purchaser received the other 25%, tax applied to that 25%.
A newsletter could qualify as a printed sales message when its principal purpose was advertising or promoting goods or services and all delivery conditions were satisfied. If it instead contained news or information of general interest to the public or a particular group, it was not a printed sales message but might qualify separately as a newspaper or periodical under Regulation 1590.
Display advertisements could qualify when their principal purpose was advertising, recipients received them free, and the regulation's delivery requirements were met.
For refunds, Regulation 1700(b)(3)(A) supplied documentation rules when the seller had already returned excess tax reimbursement to customers. Subdivision (b)(3)(B) governed how to return it and what records to retain when the seller had not yet made refunds.
What this means for you
Newsletter publishers, printers, advertisers, and tax professionals
Classify content and distribution separately. Track copies delivered to third parties versus the purchaser, assess whether a newsletter is promotional or general-interest, and retain the specific customer-refund records required before claiming excess tax reimbursement back from the state.
Common questions
Q: Could the purchaser act as its own mailing house and still receive the exemption?
A: The opinion said tax applied whenever the purchaser received delivery; qualifying delivery had to be by a mailing house or common carrier as defined in the regulation.
Q: How was a mixed distribution taxed?
A: Only the portion satisfying all three exemption criteria was exempt. The example taxed the 25% delivered to the purchaser.
Q: Were all newsletters printed sales messages?
A: No. Promotional newsletters could qualify, while general-interest newsletters might instead fall under the periodical rules.
Q: Could display advertisements qualify?
A: Yes on the stated facts if they were principally advertising, received free, and delivered under the regulation.
Q: What governed customer refunds?
A: Regulation 1700(b)(3), with different documentation paths depending on whether the seller had already returned the excess reimbursement.
Citations and references
- California Revenue and Taxation Code §§ 6051 and 6379.5
- California Sales and Use Tax Regulation 1541.5(a)(3) and (a)(4)
- California Sales and Use Tax Regulations 1590 and 1700(b)(3)
Source
- Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
- Annotation page: Annotation 432.0065
- Original supporting opinion: 432.0065 PDF
Original ruling text
432.0065
STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-8485
December 1, 1988
R--- W--- and Associates
XX --- ---, Ste. “---”
---, CA XXXXX
RE:
SR -- XX-XXXXXX
Dear Mr. W---:
This is in response to your September 12, 1988 letter to the Board’s legal staff. You have requested an opinion concerning general questions on printed sales messages pursuant to Revenue and Taxation Code section 6379.5 and Sales and Use Tax Regulation 1541.5 Specifically, you write as follows: Question #1: To qualify for the deduction am I, the producer of such material, responsible for the methods used or how often the sales literature is mailed or delivered through the US Mail or other common carrier? Since many purchasers of such material have “internalized” their distribution activities they, in a sense, act as their own “mailing house”. Question #2: If I produce sales material that is distributed in the manner described in the circular, then an unknown quantity the sales material is later used as “give-away” literature for walk-in traffic, how do I determine exemption the status? Question #3: Most newsletters are produced with the intent to sell or promote goods and services by outright advertisement or by subtle journalism. Also, most newsletters are produced solely for the immediate distribution through the mail at no cost to the recipient. Therefore, are not newsletters exempt from sales and use tax?
R--- W--- & Associates
-2-
December 1, 1988
432.0065
Question #4: Some display advertisements are produced and placed in publications (such as trade journals, “buyers guides”, et cetera) that are distributed free to the public through the U.S. Mail or other common carrier. Are such display ads also exempt? Question #5: If any or all of the questions I have asked results in sales tax refunds to my clients, please explain the procedures I should use to attain these refunds (plus any penalties or interest that were charged for exempted sale tax that was paid late) and what regulations govern the legal and proper distribution of such refunds to my clients. Except where the sales are specifically exempted by statute, sales tax applies to the gross receipts of retailers from all retail sales of tangible personal property in this state (Revenue and Taxation Code section 6051). Section 6379.5 of the Revenue and Taxation Code and Regulation 1541.5 provides and exemption from tax for the sale, storage, use or other consumption in this State of catalogs, letters, circulars, brochures, and pamphlets consisting substantially of printed sales messages for goods or services. To qualify for the exemption, the printed sales messages must be: 1. Printed to the special order of the purchaser for the principal purpose of advertising or promoting goods or services. 2. Mailed or delivered by the seller of the printed material, the seller’s agent or a mailing house acting as an agent for the purchaser, through the United States Postal Service or by common carrier. 3. Received by any person other than the purchaser or purchaser’s agent at no cost to that person who becomes the owner of the printed material. Discussion: Question #1: Any time the purchaser receives delivery of the printed sales message, tax is applicable on that sale. The delivery of the printed sales message must be performed by a “mailing house” or “common carrier” as defined within Regulation 1541.5(a)(3) and (a)(4). Question #2: As long as the three criteria of Regulation 1541.5 are met then sales tax is not applicable on the sales of printed sales messages. If, however, 75 percent of the printed sales messages satisfy the criteria of Regulation 1541.5 and the other 25 percent does not, since the purchaser has received delivery of the 25 percent then tax would apply to the 25 percent delivered to the purchaser. Question #3: If the news letters’ principal purpose is to promote or advertise goods or services and the news letters satisfy the criteria of Regulation 1541.5, then tax is not applicable on their sale. On the other hand, should the news letters contain news or information of general interest to the public, or some particular organization or group of persons, then that news letter will not be
R--- W--- & Associates
-3-
December 1, 1988
432.0065
considered a printed sales message but may still be exempt pursuant to Regulation 1590 as a newspaper or periodical. Question #4: Provided the delivery requirements of Regulation 1541.5 are satisfied, the displayed advertisements will be exempt since they are for the principal purpose of advertising and they are received free of charge by its recipient. Question #5: Sales and Use Tax Regulation 1700 applies and interprets the code with respect to reimbursement for sales tax. If you have already refunded the excess sales tax reimbursement collected from customers, then Regulation 1700(b)(3)(A) provides the documentation that you would need in order to support your claim for refund with the Board. If you have not refunded the excess sales tax reimbursement that you collected, then Regulation 1700(b)(3)(B) provides the means by which you should refund the excess tax and the supporting documentation you should keep in your records in order to support your claim for refund when you file a claim for refund with the Board. I have enclosed Regulation 1541.5 (Printed Sales Messages), 1590 (Newspapers and Periodicals), and 1700 (Reimbursement for Sales Tax) for your information. If you should have any further questions, please feel free to write again. Very truly yours,
E. L. Sorensen, Jr.
Tax Counsel
ELS:md
1155C
Enclosures
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