Do magazine subscriptions distributed by first-class mail qualify for Texas's sales tax exemption on newspapers and magazines?

Plain-English summary

A publisher asked the Comptroller whether sales of a magazine distributed to subscribers by first-class mail could be treated as exempt from Texas sales tax, the way newspaper and magazine sales are generally exempted.

The answer was no. Rule 3.299(b)(2) requires that a magazine be entered as second-class mail to qualify for the sales tax exemption on newspapers and magazines. Because this publication was mailed first-class, its subscription sales did not qualify, regardless of its content or purpose.

The letter also addresses two related points the publisher may have been counting on. First, sales of the magazine to retail outlets (rather than to individual subscribers) can still be made tax-free, but only if the retailer provides a valid resale certificate, which the publisher must keep on file for four years from the date of the last sale it covers. Second, the fact that the publication was "not for profit" did not help — Rule 3.299(d)'s separate exemption for certain nonprofit publications did not apply to this magazine.

What this means for you

Magazine and periodical publishers

If you want your subscription sales to qualify for the newspaper/magazine sales tax exemption, check your mail classification with the U.S. Postal Service. Under Rule 3.299(b)(2), the exemption is tied to second-class mail entry — first-class distribution takes the publication outside the exemption, no matter its editorial content or frequency.

Nonprofit or association publishers

Don't assume nonprofit status alone exempts your publication's subscription sales. Rule 3.299(d) has its own separate requirements for nonprofit publications, and simply being "not for profit" was not sufficient in this ruling. Review the specific criteria in that subsection before relying on it.

Accountants and tax professionals advising publishers

Remember that wholesale/retail-outlet sales of a taxable magazine can still be made tax-free with a properly accepted resale certificate — advise clients to collect and retain those certificates for four years from the date of the last covered sale, consistent with general Texas resale-certificate recordkeeping practice.

Common questions

Q: Why doesn't this magazine qualify for the sales tax exemption?
A: Because it is distributed to subscribers by first-class mail. Rule 3.299(b)(2) requires exempt magazine sales to be entered as second-class mail, and this publication did not meet that requirement.

Q: Can the publisher still sell the magazine tax-free to retail stores?
A: Yes. Sales to retail outlets can be made tax-free if the retailer provides a valid resale certificate, which the publisher should keep on file for four years from the date of the last sale it covers.

Q: Does being a nonprofit publication change the answer?
A: No. The letter notes the publication was "not for profit" but still did not qualify for exemption under Rule 3.299(d).

Citations and references

Regulations:

• 34 Tex. Admin. Code § 3.299(b)(2) (exempt magazine sales must be entered as second-class mail)
• 34 Tex. Admin. Code § 3.299(d) (nonprofit publications exemption)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1186E07

Original ruling text

July 21, 1992

Dear **:

Thank you for your letter of June 2, 1992, concerning the taxability of
magazine sales distributed by first-class mail.

Magazine subscriptions distributed through first class mail do not qualify for
exemption from sales tax. Rule 3.299 ((b)(2), enclosed, concerning newspapers
and magazines specifically states that exempt magazine sales must be entered as
second class mail.

Sales to retail outlets may be made tax free upon acceptance of a valid resale
certificate from the retailer. You should retain these certificates for a four
period from the date of the last sale covered by the certificate.

Although the publication is "not for profit", it does not qualify for exemption
under Rule 3.299 Section (d).

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free at 1-800-252-5555, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Administration Division, comptroller
of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division