Is a publisher's weekly newsprint publication exempt from Tennessee sales and use tax, and is its separate free annual publication also exempt?

Subject

Sales and use tax treatment of a weekly newsprint publication versus an annual publication.

Plain-English summary

The Tennessee Department of Revenue drew a clean line between two publications produced by the same publisher: a weekly newsprint publication is exempt from Tennessee sales and use tax, while a separate annual publication is not.

Tennessee generally taxes tangible personal property, including printed publications imported for sale or distribution in the state. But Tennessee specifically exempts "periodicals printed entirely on newsprint or bond paper and regularly distributed twice monthly, or on a biweekly or more frequent basis" — meaning new issues must come out at least every 14 days. The weekly publication, printed entirely on newsprint and distributed every week, clearly clears that bar and is exempt. The annual publication, published only once a year, fails the frequency test outright — no analysis of its paper type was even necessary once that timing requirement wasn't met.

Because the annual publication doesn't qualify for the periodical exemption, it's taxed depending on how it moves: sales tax applies if copies are sold to Tennessee customers (based on the sales price), while use tax applies if the taxpayer instead uses the publication in Tennessee — for example, giving it away free to subscribers as a gift, which Tennessee treats as a taxable "use" by the distributing business itself. Because the publisher's printer is out of state, the taxpayer also owes use tax on copies shipped from the printer into Tennessee, unless those copies are ultimately resold or are merely passing through Tennessee in storage en route to out-of-state destinations. The use tax is calculated on "cost price" — the actual production cost with no deductions for materials, labor, or shipping.

What this means for you

Publishers and periodical distributors

The newsprint/bond-paper periodical exemption is a two-part test, and both parts must be satisfied: the right paper type, and distribution at least every 14 days. A publication that misses the frequency bar — even one edition that comes out just once a year — gets no exemption at all, regardless of what it's printed on. If you distribute a periodical for free, remember that giving it away doesn't avoid tax; it just shifts the tax from a sales-tax obligation (on a sale) to a use-tax obligation (on your own use/distribution as a "gift").

Accountants and tax professionals

This ruling is a clean statutory walk-through of Tenn. Code Ann. § 67-6-329(a)(21) and its implementing frequency rule (TENN. COMP. R. & REGS. 1320-5-1-.46), plus the use-tax mechanics for out-of-state-printed materials under Tenn. Code Ann. § 67-6-313(a) and Young Sales Corp. v. Benson. Note the Department explicitly declined to independently verify whether the sample paper stock actually qualified as "newsprint" — it relied on the taxpayer's own representation, a detail worth flagging if a client's paper stock is ever questioned.

Common questions

Q: Does a publication have to be a newspaper to qualify for the periodical exemption?
A: No, but it must be printed entirely on newsprint or bond paper AND distributed at least every 14 days (twice-monthly, biweekly, or more frequently).

Q: Does giving a publication away for free avoid Tennessee tax?
A: No. If a nonexempt publication is given away as a gift or otherwise used in Tennessee rather than sold, the distributing business owes use tax on it instead of sales tax.

Q: Who is liable for use tax when a publication is printed out of state and shipped into Tennessee?
A: The taxpayer generally owes use tax on copies shipped from an out-of-state printer into Tennessee, unless those copies are ultimately resold or are just being stored in Tennessee before shipment to out-of-state locations.

Q: Does this ruling apply to other publishers' periodicals?
A: No. A Tennessee letter ruling binds the Department only for the specific taxpayer and facts addressed and cannot be relied on by others, though the frequency/paper-type test it applies is a matter of general statute.

Citations and references

Statutes, rules, and cases:

• Tenn. Code Ann. § 67-6-202(a) (sales tax on tangible personal property)
• Tenn. Code Ann. § 67-6-102(a)(43) (definition of "tangible personal property")
• Tenn. Code Ann. § 67-6-329(a)(21) (periodical exemption: newsprint/bond paper + twice-monthly-or-more distribution)
• TENN. COMP. R. & REGS. 1320-5-1-.46 (biweekly/more-frequent standard: new issues at least every 14 days)
• Tenn. Code Ann. § 67-6-203(a) (use tax)
• TENN. COMP. R. & REGS. 1320-5-1-.49(1) (use tax on stock items withdrawn for use as gifts)
• Tenn. Code Ann. § 67-6-102(a)(35) (definition of "sales price"); § 67-6-102(a)(10) (definition of "cost price")
• Tenn. Code Ann. § 67-6-313(a); Young Sales Corp. v. Benson, 450 S.W.2d 574 (Tenn. Ct. App. 1970) (use tax on out-of-state-printed materials shipped into Tennessee)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/06-05.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING #06-05

WARNING

Letter rulings are binding on the Department only with respect to the
individual taxpayer being addressed in the ruling. This presentation of the
ruling in a redacted form is informational only. Rulings are made in
response to particular facts presented and are not intended necessarily as
statements of Department policy.

SUBJECT

Sales and use taxability of publications published by taxpayer.

SCOPE

This letter ruling is an interpretation and application of the tax law as it relates to
a specific set of existing facts furnished to the department by the taxpayer. The
rulings herein are binding upon the Department and are applicable only to the
individual taxpayer being addressed.

This letter ruling may be revoked or modified by the Commissioner at any time.

Such revocation or modification shall be effective retroactively unless the
following conditions are met, in which case the revocation shall be prospective
only:

(A) The taxpayer must not have misstated or omitted material facts
involved in the transaction;

(B) Facts that develop later must not be materially different from the
facts upon which the ruling was based;

(G) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a
prospective or proposed transaction; and

(E) The taxpayer directly involved must have acted in good faith in
relying upon the ruling; and a retroactive revocation of the ruling
must inure to the taxpayer's detriment.

FACTS

[TAXPAYER] publishes two publications. [WEEKLY PUBLICATION] is a
publication printed entirely on newsprint and distributed weekly. The Taxpayer
gathers information and creates the Weekly Publication in a format suitable for a
digital press. The actual printing and mailing of the Weekly Publication is not
done at the Taxpayer’s office in Tennessee, but is contracted for with a printer in
[STATE — NOT TENNESSEE].

The Taxpayer also produces an annual publication which is distributed to its

subscribers at no charge. This publication is titled [ANNUAL PUBLICATION].

The Annual Publication is mailed to subscribers separately from the Weekly

Publication. Occasionally, copies of the Annual Publication are sold on request.

The Annual Publication is printed by the same printer as the Weekly Publication.
QUESTIONS

1. Is the Weekly Publication subject to Tennessee sales or use tax?

2. Is the Annual Publication subject to Tennessee sales or use tax?

RULINGS

1. The Weekly Publication, if printed on newsprint, is not subject to sales or use
   tax.

2. The Annual Publication is subject to sales or use tax, if sold or distributed to
   Tennessee residents, or if the Taxpayer uses the publication in Tennessee.

ANALYSIS

1. The Weekly Publication, if printed on newsprint, is not subject to
   sales or use tax

The sales tax is imposed on the privilege of making retail sales of tangible
personal property in Tennessee. Tenn. Code Ann. § 67-6-202(a). Tangible
personal property includes “personal property, which may be seen, weighed,
measured, felt or touched or is any other manner perceptible to the senses.”
Tenn. Code Ann. 8 67-6-102(a)(43). The Weekly Publication and the Annual
Publication can be weighed, measured, felt and touched; therefore each is
tangible personal property. The Taxpayer imports the Weekly Publication and
the Annual Publication for sale and distribution in the state of Tennessee.
Absent an exemption, the Taxpayer will be subject to sales and use tax on the
sale and distribution of both publications.

The statute, however, provides numerous exemptions. Tenn. Code Ann. 8 67-6-
329(a) states in pertinent part:

The sale at retail, the use, the consumption, the distribution and the
storage for use and consumption in this state of the following
tangible personal property is specifically exempted from the tax
imposed by this chapter:
KkKKK

(21) Periodicals printed entirely on newsprint or bond paper and
regularly distributed twice monthly, or on a biweekly or more
frequent basis, and advertising supplements or other printed matter
distributed with such periodicals.

The above sets forth two requirements for the exemption, both of which must be
met: (1) the publication must be printed entirely on newsprint or bond paper;* and
(2) the publication must be regularly distributed twice per month or on a biweekly
or more frequent basis. A periodical will be considered to be regularly distributed
twice per month or on a biweekly or more frequent basis if “new issues are
published and distributed at least every fourteen days.” TENN. Comp. R. & REGS.
1320-5-1-.46.

The Taxpayer has represented that the Weekly Publication is printed weekly on
newsprint and is distributed on a weekly basis. Assuming that the Weekly
Publication is also printed entirely on newsprint or bond paper,’ it meets both
requirements set forth in Tenn. Code Ann. § 67-6-329(a) and is exempt from
sales and use tax.

2. The Annual Publication is subject to sales or use tax, if sold or
   distributed to Tennessee residents, or if the Taxpayer uses the
   publication in Tennessee.

The Annual Publication is only published once per year, therefore it fails to meet
the frequency-of-publication requirement set forth in Tenn. Code. Ann. 8 67-6-
329(a). The Annual Publication will therefore be subject to (A) sales tax if it is
sold to Tennessee customers, or (B) use tax if it is used in Tennessee by the
Taxpayer.

A. Application of the Sales Tax

The statute does not furnish a definition of “newsprint” or “bond paper.” Words utilized in

statutes are to be given their usual and ordinary meaning. Pridemark Custom Plating v. Upjohn
Co., 702 S.W.2d 566, 570 (Tenn. Ct. App. 1985). The American Heritage Dictionary of the
English Language (New College Ed., 1978) defines newsprint as “[iJnexpensive paper made from
wood pulp, used chiefly for printing newspapers” and defines bond paper as “[a] superior grade of
strong white paper made wholly or in part from rag pulp.”
? A sample copy of the Weekly Publication was provided with the ruling request. In this ruling, the
Department does not rule on whether or not the particular paper upon which the sample copy is
printed constitutes newsprint, but relies solely on the statement in the ruling request that the
Weekly Publication is printed on newsprint.

3

If the Annual Publication is sold to Tennessee customers, it is subject to sales tax
as tangible personal property in accordance with the discussion set forth above.
The proper tax base for imposition of the sales tax is the sales price. Tenn. Code
Ann. § 67-6-202. “Sales price” is defined as “the total amount for which a taxable
service or tangible personal property is sold . . . whether paid in money or
otherwise. . .” Tenn. Code Ann. § 67-6-102(a)(35). The Taxpayer is obligated to
collect and remit sales tax on the sales price of any copies of the Annual
Publication sold to Tennessee customers. Sales of the Annual Publication which
occur outside of the state of Tennessee will not be subject to Tennessee sales
tax.

B. Application of the Use Tax

In cases where tangible personal property is not sold, but is instead used in the
state of Tennessee, a use tax is levied at a rate equal to the sales tax. Tenn.
Code Ann. 8 67-6-203(a). The Taxpayer could be considered the user of the
Annual Publication in two circumstances. First, “[iJtems of tangible personal
property which are withdrawn from a dealer’s stock...which are purchased for
use as...gifts” are subject to the sales and use tax. TENN. Comp. R. & REGS.
1320-5-1-.49(1). Therefore, if the Annual Publication is given away without
consideration as a gift to Taxpayer’s customers, the Taxpayer is the user and
consumer of the publication, and is liable for the tax on copies distributed in
Tennessee. Second, because the printer is located out of state, the Taxpayer is
liable for use tax on any copies of the Annual Publication that are shipped from
the printer to the Taxpayer, unless such copies are either: (i) ultimately resold; or
(ii) merely stored in Tennessee before being shipped to out-of-state locations.
See Tenn. Code Ann. 8 67-6-313(a), Young Sales Corp. v. Benson, 450 S.W.2d
574 (Tenn. Ct. App. 1970).

The use tax is calculated on the cost price of the tangible personal property.
Tenn. Code Ann. § 67-6-203. “Cost price” is defined as “the actual cost of
articles or tangible personal property without any deductions therefrom on
account of the cost of materials, used, labor or service costs, transportation
charges, or any expenses whatsoever.” Tenn. Code Ann. 8 67-6-102(a)(10).

Karla R. Hyatt
Senior Tax Counsel

Approved: Loren L. Chumley
Commissioner

Date: 3/14/06