Is a drugstore's free monthly newsletter for senior customers exempt from sales tax as a periodical or shopping paper, or is its cost a taxable purchase by the store?

Plain-English summary

Genovese Drug Stores gives away a free four-page monthly publication called "Good News" as part of its "Senior Sixty Plus Program." It includes short medical-interest articles reprinted (with permission) from various medical journals, a calendar of dates when special medical services are available at specific stores, house ads for Genovese's own services, third-party medical service announcements, and money-saving coupons. It's produced by an outside printer and made available at Genovese's stores. Genovese asked whether the cost of producing this publication was exempt from sales tax.

The Department said no, for two independent reasons. First, because Genovese gives the newsletter away for free to promote its own and others' services, that's not a purchase "for resale" -- New York's regulations specifically treat free promotional giveaways as a taxable retail purchase by the giver, not a resale to the recipient. Second, "Good News" doesn't qualify as an exempt periodical either: even though it contains some genuine articles, the Department found it's "designed mainly for advertising purposes," which disqualifies it under the periodical exemption's specific carve-out for advertising material. It also isn't an exempt "shopping paper" under a separate provision, since a shopping paper must meet several strict conditions (published at least 50 times a year, contain ads from numerous unrelated advertisers, be independently owned rather than controlled by the business whose products it promotes, etc.) that this store-branded newsletter doesn't meet.

So Genovese owes sales tax on its purchase of "Good News" from the outside printer, to the extent copies are delivered and distributed at its New York stores. There's a partial silver lining: for any copies Genovese later ships to stores located outside New York, it may be entitled to a refund of the tax paid on that portion, under the bulk-purchase-and-reshipment refund provision.

What this means for you

Retailers producing customer newsletters, flyers, or promotional publications

Giving a publication away for free doesn't make its production cost exempt -- quite the opposite, New York specifically treats a free promotional giveaway as a taxable retail purchase by the business handing it out, not a tax-free resale. And even a publication with real editorial content can still be classified as advertising material (and lose periodical-exemption eligibility) if its main purpose is promoting the giver's own products or services.

Multi-state retailers distributing the same publication to stores in different states

If you print a batch of a promotional publication in bulk and later ship some copies to out-of-state locations, check the bulk-purchase reshipment refund rule -- you may be able to recover the New York tax paid on the portion that ends up outside the state, as long as you meet the storage and reshipment timing requirements.

Accountants and tax professionals

This ruling is a useful two-exemption denial in one: it shows both why the periodical exemption's advertising-material carve-out can apply even to a publication with genuine articles, and why the free-giveaway rule (20 NYCRR § 526.6(c)(4)(i)) treats the distributing business, not the recipient, as the taxable purchaser.

Common questions

Q: Does having real articles in a newsletter guarantee it qualifies as an exempt periodical?
A: No -- if the publication is designed mainly for advertising purposes, it can still be disqualified from the periodical exemption regardless of genuine editorial content.

Q: Who pays the tax on a free promotional giveaway -- the business or the customer who receives it?
A: The business that purchases and gives away the item is treated as making a taxable retail purchase; there's no tax-free "resale" to the person who receives it for free.

Q: Can another retailer rely on this ruling for its own newsletter?
A: No. This advisory opinion binds the Department only as to Genovese Drug Stores, Inc. and the specific content, distribution, and purpose of "Good News" described.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (definition of retail sale)
• Tax Law § 1115(a)(5) (newspaper and periodical exemption)
• Tax Law § 1115(i) (shopping paper exemption)
• Tax Law § 1119(a)(2) (refund/credit for bulk-purchased property reshipped out of state)
• 20 NYCRR § 526.6(c) (resale exclusion; free promotional giveaways not a resale)
• 20 NYCRR § 528.6(c) (definition of periodical; advertising material excluded)
• 20 NYCRR § 534.3(c) (refund for property purchased in bulk and reshipped out of state)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_04s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(4)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S960813A

On August 13, 1996, a Petition for Advisory Opinion was received from
Genovese Drug Stores, Inc., 80 Marcus Drive, Melville, New York 11747.
The issue raised by Petitioner, Genovese Drug Stores, Inc., is whether the
cost of its "Good News" newsletter is exempt from sales tax.
Petitioner submits the following facts.
Petitioner provides a publication, entitled "Good News," free of charge for
its senior customers. This is evidenced in its statement at the bottom of its
publication, "Good News."
The statement reads, "'Good News' is a monthly
calendar designed for and about Seniors and it's FREE! Good News is part of the
Genovese Senior Sixty Plus Program. Inside you'll find interesting facts and
coupons to help save you money on the items you need."
"Good News" is a four-page monthly publication for and about its senior
customers. It consists of brief articles of medical interest, a calendar for the
current month that highlights dates when special medical services are available
at various store locations for senior customers, house ads advertising the
services offered by Petitioner, as well as announcements of medical services
offered by third parties, and coupons for items sold in the drug stores. The
articles are by different authors, and are lawfully reproduced from different
medical journals, societies and organizations. The articles generally take up
one page or less of the publication.
The monthly issues of "Good News" do not constitute a book, either singly
or when successive issues are put together.
"Good News" is available for
circulation to the public through Petitioner's stores.
An outside printer
produces the publication and supplies Petitioner with copies.
Section 1101(b)(4) of the Tax Law provides, in part:
Retail sale. (i) A sale of tangible personal property to any
person for any purpose, other than (A) for resale as such or as a
physical component part of tangible personal property, or (B) for
use by that person in performing the services subject to tax under
paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of
section eleven hundred five where the property so sold becomes a
physical component part of the property upon which the services are
performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax. . . .

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Sales Tax

Section 1115(i) of the Tax Law provides:
(A)Receipts from the retail sale of a shopping paper to the
publisher of such publication shall be exempt from the tax imposed
by subdivision (a) of section eleven hundred five and receipts from
the sale of printing services performed in publishing such paper
shall be exempt from the tax imposed by paragraph two of subdivision
(c) of such section.
(B) For purposes of this subdivision, the term "shopping paper"
shall mean those community publications distributed to the public,
without consideration, for purposes of advertising and public
information. To qualify as a shopping paper for purposes of this
subdivision, the publication must also:
(1) be distributed to the public on a community-wide basis,
(2) be published at stated intervals at least fifty

times a

year;
(3) having continuity as to title and general nature of
content from issue to issue,
(4) contain in each issue news of general or community
interest and community notices or editorial comment or articles by
different authors;
(5) not constitute a book, either singly or when successive
issues are put together;
(6) contain in
unrelated advertisers;

each

issue

advertisements

from

numerous

(7) be independently owned in that the publication is not
owned by or under the control of the owners or lessees of a shopping
center or a merchants association or similar entity or a business
which sells property or services (other than advertising) and the
advertisements in such publication are not predominantly for the
property or services sold by such business; and
(8) meet the requirement set forth in subparagraph (C) of this
subdivision.
(C) The advertisements in such publication shall not exceed ninety
percent of the printed area of each issue.
(D) The term "shopping paper" shall not include mail order and
other catalogs, advertising fliers, travel brochures, house organs,
theatre programs, telephone directories, shipping and restaurant

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Sales Tax

guides, racing tip and form sheets, shopping center advertising
sheets and similar publications. (emphasis added)
Section 1119(a) of the Tax Law provides, in part:
Subject to the conditions and limitations provided for herein, a
refund or credit shall be allowed for a tax paid pursuant to
subdivision (a) of section eleven hundred five or section eleven
hundred ten
. . . (2) on the sale or use of tangible personal
property purchased in bulk, or any portion thereof, which is stored
and not used by the purchaser or user within this state if that
property is subsequently reshipped by such purchaser or user to a
point outside this state for use outside this state, . . . (emphasis
added)
Section 526.6 of the Sales and Use Tax Regulations provides in part:
(a) The term retail sale or sale at retail means the sale of
tangible personal property to any person for any purpose, except as
specifically excluded.
*

*

*

(c) Resale exclusion. (1) Where a person, in the course of his
business operations, purchases tangible personal property or
services which he intends to sell, either in the form in which
purchased, or as a component part of other property or services, the
property or services which he has purchased will be considered as
purchased for resale, and therefore not subject to tax until he has
transferred the property to his customer.
*

*

*

(4)(i) Tangible personal property which is purchased and given
away without charge, for promotion or advertising purposes is not
purchased for resale. It is a retail sale to the purchaser thereof,
and is not a sale to the recipient of the property. (emphasis added)
Section 528.6 of the Sales and Use Tax Regulations provides, in part:
Newspapers and periodicals.-(Tax Law, Sec. 1115(a)(5)).
(a)
Exemption. The sales of newspapers and periodicals is exempt from
sales and compensating use tax.
*

*

*

(c) Definition of a periodical. (1) In order to constitute a
periodical, a publication must conform generally to the following
requirements:
(i) it must be published in printed or written form at stated
intervals, at least as frequently as four times a year;

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Sales Tax

(ii) it must not, either singly or, when successive issues are
put together, constitute a book;
(iii) it must be available for circulation to the public;
(iv) it must have continuity as to title and general nature of
content from issue to issue; and
(v) each issue must contain a variety of articles by different
authors devoted to literature, the sciences or the arts, news, some
special industry, profession, sport or other field of endeavor.
*

*

*

(3) Nothing in this section shall be construed to exempt as a
periodical the following:
(i) advertising material, such as catalogs, flyers, pamphlets and
brochures; . . .. (emphasis added)
Section 534.3 of the Sales and Use Tax Regulations provides, in part:
Refunds and credits based on certain uses. (Tax Law, Sec.
1119(a))
(a) Authorization. Where a sales or compensating use tax
has been correctly, legally, and constitutionally imposed and paid
on the purchase of tangible personal property, a refund or credit of
State and local taxes paid pursuant to subdivision (a) of section
1105 or section 1110 of the Tax Law on the sale or use will be
allowed to the purchaser or user when, to the satisfaction of the
Department of Taxation and Finance, the purchaser shows that such
tangible personal property was used in one of the following manners:
*

*

*

(c) Property purchased in bulk and reshipped. (1) A refund or
credit is allowable for tangible personal property, or any portion
thereof:
(i) which is purchased in bulk;
(ii) which is stored and not used by the purchaser or a user in
New York State;
(iii) which is later reshipped by such purchaser or user outside
of New York State for use outside New York State; and
(iv) provided the property is reshipped as required within three
years after the date the tax was payable to the Department of
Taxation and Finance and that application is made within three years
from the date the tax was payable to the Department of Taxation and
Finance.

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Sales Tax

(2) (i) For the purpose of this subdivision only, the phrase
purchased in bulk means a single purchase from a single vendor of
items of the same kind of tangible personal property, of such
quantity that it would require storage of some part for future use.
(ii) For the purpose of this subdivision, the phrase stored
and not used means the placement of property in storage for later
withdrawal for shipment outside of the State or use outside of the
State.
*

*

*

Example 1: A multi-location firm purchases a truckload of office
forms and stationery and stores it in a New York State warehouse.
Applicable State and local sales tax is paid by the purchaser. A
portion of the forms and stationery is later shipped to several of
the firm's locations outside of New York State. A credit or refund
is allowable for the tax paid on that portion of the forms and
stationery shipped outside of New York State for use outside of New
York.
In this case, Petitioner provides a four page, monthly publication free of
charge, for its senior customers. The publication is produced for Petitioner by
an outside printer. Petitioner's publication contains brief medical articles
which are reproduced from different medical journals or publications for its
senior customers.
Also, the publication provides a calendar of the current
month, house ads and announcements of when special services are available to its
senior customers at specific store locations, and provides coupons which are
redeemable at Petitioner's various stores.
The cost of this publication to Petitioner is not exempt from sales or use
tax. First, Petitioner's publication is not offered for sale but is given away
free of charge to advertise services and goods provided by Petitioner and third
parties. Therefore, this publication is not exempt, as a purchase by Petitioner
for resale, as defined in Section 1101(b)(4) of the Tax Law and Section 526.6(c)
of the Sales and Use Tax Regulations but is specifically categorized as a retail
sale to the Petitioner. See section 526.6(c)(4)(i) of the Sales and Use Tax
Regulations.
Second, Petitioner's publication is not a periodical for purposes of
Section 1115(a)(5) of the Tax Law. Although Petitioner's publication contains
some articles, the publication is designed mainly for advertising purposes.
Since the publication is basically advertising material, it does not qualify as
a periodical exempt from sales or use tax under Section 1115(a)(5). See Section
528.6(c)(3)(i) of the Sales and Use Tax Regulations. It should also be noted
that Petitioner's publication is not a shopping paper as defined in Section
1115(i) of the Tax Law. Therefore, the exemption from sales and use tax for
shopping papers under Section 1115(i) of the Tax Law does not apply to
Petitioner's publication.

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Sales Tax

Accordingly, Petitioner's purchase of the "Good News" publication from an
outside printer is subject to the sales and use tax as the purchase at retail of
tangible personal property, provided copies of the publication are delivered in
New York and distributed at stores located in New York State. However, with
respect to that portion of the "Good News" publication which Petitioner
subsequently ships to stores located outside of New York State, Petitioner may
be entitled to a partial refund of the sales tax paid to the printer on such
portion of the "Good News" publications. See Section 1119(a)(2) of the Tax Law.

DATED: January 30, 1997

NOTE:

/s/
JOHN W. BARTLETT
Deputy Director
Technical Services Bureau

The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.