Was a ticket broker's event guide an exempt periodical or printed sales message when its schedules were intended to drive ticket sales?

Plain-English summary

A printer sold a folded publication called "The Guide" to a ticket broker. One version went to paid subscribers and another was distributed free at music stores. The 24-panel publication contained event schedules and advertisements. The printer claimed both periodical and printed-sales-message exemptions.

The Appeals Review Section treated the event schedules as advertising because their purpose was to induce readers to buy tickets from the broker. That classification pushed advertising above 90 percent of the printed area, so the guide did not qualify as an exempt periodical under section 6362 and Regulation 1590.

The guide was the type of printed sales message described in section 6379.5, but delivery remained decisive. Delivery to the purchaser or its employees defeated the exemption. Delivery to an independent business engaged to distribute the advertising could qualify even when the buyer hired that distributor.

Because the record did not show the recipient for every transaction, the recommendation called for a reaudit removing sales delivered to an independent distributor or mailing agent from the taxable measure. The source does not show final Board action.

What this means for you

Printers, ticket marketers, publishers, and tax professionals

Functional content can be advertising even when formatted as useful schedules or information. If relying on the printed-message exemption, preserve delivery proof distinguishing buyer possession from delivery to an independent distributor.

Common questions

Q: Why did the event schedules count as advertising?

A: Their primary purpose was to generate interest and induce recipients to buy tickets from the broker.

Q: Did the guide qualify as an exempt periodical?

A: No. Once the schedules counted as advertising, advertising exceeded 90 percent of the issue.

Q: Was the guide a printed sales message?

A: Yes as to its type and content, but exemption still depended on qualifying delivery.

Q: What delivery could qualify?

A: Delivery to an independent distributor or mailing agent could qualify; delivery to the buyer or its employees could not.

Citations and references

• California Revenue and Taxation Code §§ 6362 and 6379.5
• California Sales and Use Tax Regulation 1590

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 432.0099
• Original supporting recommendation: 432.0099 PDF

Original ruling text

STATE OF CALIFORNIA

432.0099
BOARD OF EQUALIZATION
BUSINESS TAXES APPEALS REVIEW SECTION
In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law of:
THE T--- P---, INC.

Petitioner

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DECISION AND RECOMMENDATION

No. SR AS 11-630637-010

The Appeals conference in the above-referenced matter was held by H. L. Cohen on September 9, 19XX in Van Nuys, California.

Appearing for Petitioner:

Appearance Waived

Appearing for the
Sales and Use Tax Department:

Mr. H. Murray
Supervising Tax Auditor
Ms. T. Pistoni
Tax Auditor
Protested Items

The protested tax liability for the period April 1, 1988 through March 31, 1991 is measured by: Items

A.

B.

State, Local
and County

Claimed exempt sales under $10,000
Disallowed based on a sample

$273,544

Claimed exempt sales over $10,000
Disallowed on an actual basis

364,010

Total

$637,554

THE T--- P---, INC.
SR -- XX-XXXXXX-010

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December 23, 1993
432.0099

Contentions
Petitioner contends that:

1. The publication "The Guide" is an exempt periodical sale of which is not taxable.
2. Sales of printed matter are exempt because the printed matter constitutes printed sales
   messages.
   Summary
   Petitioner is a corporation which is engaged in printing. The last Board audit was for the period through September 30, 1974. The auditor examined petitioner's records of sales claimed to be exempt. Sales of a publication entitled "The Guide" to T--- M--- were claimed by petitioner to be sales of exempt periodicals. The auditor concluded that the publication contained primarily advertising material and thus did not qualify as an exempt periodical. T--- M--- is a --- broker which sells tickets to various performances and events. "The Guide" contains a schedule of events and also advertisements. Two versions are published, one is for paid subscribers, and the other is given away free at music stores. "The Guide" is printed on both sides of a single sheet of paper. It is folded into twelfths with each of 24 panels having the appearance and format of a single complete page. The auditor regarded only one of the 24 panels as not being advertising. Petitioner contends that the schedules which form a major part of the publication are not advertising. The auditor also disallowed exemption claims of printed matter claimed to be sales of printed sales messages. Petitioner contends that the sales to T--- M--- also qualify for this exemption. The auditor disallowed the exemption on the basis that petitioner delivered the printed products directly to the purchasers rather than to a mailer or distributor. Analysis and Conclusions Section 6362 of the Revenue and Taxation Code exempts from tax the sale and use of any periodical regularly issued at average intervals not exceeding three months. Sales and Use Tax Regulation 1590 provides that the term "periodical" does not include a publication of which the advertising portion including product publicity exceeds 90% of the printed area of the entire issue. At issue here is whether or not the schedule of events in "The Guide" constitutes advertising. There is apparently no question that the classification of the schedule information will determine whether or not the advertising exceeds 90% of the total area. We have previously concluded that where information is provided about a product but the primary purpose of providing the information is to create interest for the purpose of the sale of the product, the

THE T--- P---, INC.
SR -- XX-XXXXXX-010

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December 23, 1993
432.0099

information is regarded as advertising (see Business Taxes Law Guide Annotation 385.1580, December 19, 1966). Here the schedules are intended to induce recipients of "The Guide" to purchase tickets from T--- M---. Accordingly, the scheduled information is regarded as advertising. The publication, therefore, does not qualify as an exempt periodical. Section 6379.5 provides: "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." While we agree that the printed matter in question is the type of printed sales messages specified in the statute it is necessary for the printed sales message be delivered to a person other than the buyer. The essential element of the exemption is that the printed sales message does not come into the possession of the purchaser or the purchaser’s employees. In many circumstances under Sales and Use Tax Law delivery to the agent of the buyer is regarded the same as delivery to the buyer. This exemption, however, specifically distinguishes between delivery to an agent of the buyer who was hired to distribute the printed sales messages and delivered to the buyer or an employee of the buyer. It is not clear from the evidence available to whom petitioner delivered the printed sales messages. If delivery was to the buyer, the exemption does not apply. If delivery was to an independent person who was in the business of delivering advertising, the sales are exempt even if the person was hired by the buyer. Recommendation Reaudit to remove from the amount subject to tax sales in which delivery was made to an independent distributor or mailing agent.

H. L. Cohen, Senior Staff Counsel

Date