Is a membership magazine that's mostly advertising for the publisher's own services taxable when mailed to members, sold to non-members, or handed out free at the counter?

Plain-English summary

AAA Western and Central New York, a not-for-profit automobile club affiliate, publishes a bimonthly member magazine called "Destinations." A dollar of each member's annual dues is allocated to the publication, which is mailed to members and also displayed for sale to non-members ($1/copy or $6/year) at the club's fifteen local offices. AAA asked the Department three questions: is Destinations exempt as a periodical; is AAA's cost of having an outside printer produce it taxable; and are the printer's own purchases of paper and ink taxable.

The Department's review of five submitted issues found that most of each 19-to-23-page issue -- all but roughly four pages -- was advertising: self-promotion of AAA's own travel, automotive, and financial services, plus ads from other merchants (car rental companies, traveler's checks), along with order forms and membership applications. Because a "periodical" exemption specifically excludes publications that are mainly advertising material (catalogs, flyers, pamphlets, brochures), and because Destinations isn't a "shopping paper" either, Destinations does not qualify as an exempt periodical or shopping paper.

However, Destinations does fit New York's definition of "promotional materials." That distinction mattered a lot for how each copy is actually taxed:

• Mailed free to members inside New York (by U.S. mail or similar service, without charge): exempt as promotional materials under § 1115(n)(4), as long as AAA gives its printer a properly completed Certificate of Exemption for Purchases of Promotional Materials (Form ST-121.2).
• Mailed to members located outside New York, for use outside the state: also exempt, under § 1115(n)(1).
• Sold to non-members for $1 (or $6/year): taxable retail sales -- AAA must collect state and local sales tax on those sales, but may buy those particular copies from the printer tax-free for resale.
• Given away free "over the counter" at an AAA office (to members or non-members): AAA itself owes tax, based on what it paid the printer for those copies, since giving something away for free doesn't qualify as either a resale or an exempt mailed promotional item.
• The printer's own sales of qualifying promotional-material copies to AAA: taxable retail sales to AAA (not exempt to the printer), but the printer can buy its own paper and ink tax-free for resale, since those become part of what it sells to AAA.

What this means for you

Nonprofit membership organizations publishing member magazines

If your member publication is mostly advertising for your own programs and services (rather than genuine independent editorial content), it likely won't qualify for the periodical exemption -- but it can still be treated as exempt "promotional materials" for copies you mail free to members, which is often the larger and more valuable category of distribution. Track how each copy leaves your hands (free mail, paid sale, free counter handout) since each channel is taxed differently.

Publishers and printers producing member/customer publications

Sales of the finished publication to your client are retail sales when the publication qualifies as promotional materials (not periodicals) -- but you can still buy your paper and ink tax-free for resale, since those inputs get sold to your client as part of the finished product.

Accountants and tax professionals

This ruling applies the same periodical-vs.-promotional-materials distinction seen elsewhere in this corpus (citing Debbie Ann Ascher, TSB-A-92(20)S, and Genovese Drug Stores, TSB-A-97(4)S): a publication that is mainly advertising material fails the periodical test under 20 NYCRR § 528.6(c)(3)(i), even if it also carries some genuine editorial content and even if members pay indirectly through dues. Get the Form ST-121.2 exemption certificate paperwork right, since that's what actually secures the promotional-materials exemption for the mailed copies.

Common questions

Q: Is a membership magazine that's mostly advertising exempt as a periodical?
A: No. A publication that mainly consists of advertising material doesn't qualify as an exempt periodical, even if it has a regular publication schedule and some editorial content.

Q: Are copies mailed free to members taxable?
A: No, if they qualify as promotional materials and are mailed free of charge within or outside New York by U.S. mail or a similar delivery service, with a properly completed exemption certificate given to the printer.

Q: What about copies sold to non-members?
A: Those are taxable retail sales -- the publisher must collect sales tax, though it can buy those specific copies from its printer tax-free for resale.

Q: What if copies are given away for free at an office counter?
A: The publisher owes tax on those copies, based on what it paid the printer, since a free over-the-counter giveaway isn't a resale or an exempt mailed item.

Q: Can another membership organization rely on this ruling for its own magazine?
A: Not automatically. This advisory opinion binds the Department only as to the petitioner and the specific facts (the actual content mix and distribution channels) described.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(4)(i) (definition of retail sale)
• Tax Law § 1101(b)(12) (definition of promotional materials)
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1110 (compensating use tax)
• Tax Law § 1115(a)(5) (newspapers and periodicals exemption)
• Tax Law § 1115(i) (shopping papers exemption)
• Tax Law § 1115(n)(1), (4) (promotional materials exemption)
• 20 NYCRR § 526.6(c) (resale exclusion)
• 20 NYCRR § 528.6(c) (definition of periodical; exclusion for advertising material)
• TSB-M-97(6)S, Expanded Sales and Compensating Use Tax Exemption for Promotional Materials (Aug. 20, 1997)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1998.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a98_74s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(74)S
Sales Tax
November 5, 1998

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S980410A

On April 10, 1998, the Department of Taxation and Finance received a
Petition for Advisory Opinion from AAA Western and Central New York, Inc., 100
International Drive, Buffalo, New York 14221.
Petitioner, AAA Western and
Central New York, Inc., provided additional information pertaining to the
petition on June 4, 1998.
The issues raised by Petitioner are:
(1) Whether a certain publication entitled Destinations is exempt from New
York State and local sales and compensating use taxes.
(2) Whether or not Petitioner’s cost of producing the publication through
an outside printer is subject to sales tax.
(3) Whether the outside printer’s purchases of paper and ink used to
produce Petitioner’s publication are subject to sales tax.
Petitioner submitted the following facts as the basis for this Advisory
Opinion.
Petitioner is a not-for-profit corporation affiliated with the American
Automobile Association ("AAA") and AAA New York State. Petitioner offers its
dues paying members automotive, travel and financial services.
Petitioner
publishes a bimonthly publication, entitled Destinations, six times a year. The
publication contains articles regarding travel and tours, automobiles, member
discounts, traffic safety, upcoming events and club news.
It is mailed to
Petitioner’s primary members, and $1 of their membership dues is allocated to
Destinations as shown on the membership application. Copies are also on display
and available for sale to non-members at Petitioner’s fifteen offices throughout
Western and Central New York State. Signs posted at or near the displayed copies
of the publication state that non-members may purchase a copy for $1 per copy (or
$6 for a year’s subscription).
These prices are indicated inside the
publication. Petitioner pays a vendor to print the publication. Copies of the
publication that are sent to members or subscribers by U.S. mail are sent at the
second class periodical postage rate.
As part of its petition, Petitioner submitted the five most recent issues
of its publication for review.
Applicable Law and Regulations
Section 1101(b)(4)(i) of the Tax Law defines "retail sale," in part, as
follows:
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. . . .
Section 1101(b)(12) of the Tax Law defines "promotional materials" as:
Any advertising literature, other related tangible personal
property (whether or not personalized by the recipient’s name or

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other information uniquely related to such person) and envelopes
used exclusively to deliver the same. Such other related tangible
personal property includes, but is not limited to, free gifts,
complimentary maps or other items given to travel club members,
applications, order forms, and return envelopes with respect to such
advertising literature, annual reports, promotional displays and
Cheshire labels but does not include invoices, statements and the
like.
Section 1105(a) of the Tax Law imposes sales tax upon "[t]he receipts from
every retail sale of tangible personal property, except as otherwise provided in
this article."
Section 1110 of the Tax Law provides, in part:
(a) Except to the extent that property or services have
already been or will be subject to the sales tax under this article,
there is hereby imposed on every person a use tax for the use within
this state on and after June first, nineteen hundred seventy-one
except as otherwise exempted under this article, (A) of any tangible
personal property purchased at retail. . . .
Section 1115 of the Tax Law provides, in part:
(a) Receipts from the following shall be exempt from the tax
on retail sales imposed under subdivision (a) of section eleven
hundred five and the compensating use tax imposed under section
eleven hundred ten:
*

*

*

(5) Newspapers and periodicals.
*

*

*

(n)(1) Except as otherwise provided in this subdivision,
promotional materials mailed, shipped or otherwise distributed from
a point within the state, by or on behalf of vendors or other
persons to their customers or prospective customers located outside
this state for use outside this state shall be exempt from the tax
on retail sales imposed under subdivision (a) of section eleven
hundred five and the compensating use tax imposed under section
eleven hundred ten of this article.
*

*

*

(n)(4) Notwithstanding any contrary provisions of paragraph
one of this subdivision, promotional materials which are printed
materials and promotional materials upon which services described in
paragraph two of subdivision (c) of section eleven hundred five have
been directly performed shall be exempt from tax under this article
where the purchaser of such materials mails or ships such
promotional materials, or causes such promotional materials to be
mailed or shipped to its customers or prospective customers, without
charge to such customers or prospective customers, by means of
common carrier, United States postal service or like delivery
service.

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With respect to the resale exclusion, Section 526.6(c) of the Sales and Use
Tax Regulations provides, in part:
(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.
(ii) Tangible personal property which is purchased for
promotional or advertising purposes and sold for a minimal charge
which does not reflect its true cost, or which is not ordinarily
sold by that person in the operation of his business, is a retail
sale to the purchaser thereof, and not a sale to the recipient of
the property.
(iii) A resale certificate may not be used by the person
making the purchases described in subparagraphs (i) and (ii) of this
paragraph for such purchases.
*

Example 3:

*

*

A vendor purchases catalogs and distributes them to his
potential customers for a minimal charge, which does not
reflect the cost to him. He is the retail purchaser of
the catalog, and is required to pay the tax thereon. He
cannot charge his customer tax on the charge for the
catalog.

Section 528.6(c) of the Sales and Use Tax Regulations defines "periodical"
as follows:
(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;
(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,

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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. . . .
Opinion
Petitioner is a not-for-profit affiliate of the American Automobile
Association (AAA) and AAA New York State. Petitioner is an automobile club
membership organization which receives dues from its members and provides a
number of automotive, travel and financial services and savings opportunities to
the members.
Petitioner publishes a bimonthly publication entitled Destinations which
it mails to its members. The publication is also available to non-members for
$1 per copy. However, an article in the October/November 1997 issue (submitted
with the petition) indicates there were no sales through dealers, carriers,
vendors or counter sales in the preceding six month period.
Each of the five issues of the publication submitted for review is
designed to induce sales and encourage recipients to travel and use Petitioner’s
services. While each issue contains brief editorials on current happenings with
regard to highway and motor vehicle legislation, traffic safety and motoring
concerns, of the 19 to 23 pages in each edition, the articles constitute a
combined total for each of roughly four pages or less.
The articles are
generally designed to promote Petitioner’s programs, workshops, travel tours, and
its dedication and commitment to servicing the needs of its members.
The
remainder and major portion of each publication is devoted to advertising in the
form of self-promotion for Petitioner’s automotive, travel and financial
services, as well as advertising for other merchants such as car rentals and
traveler’s checks. Each of the five issues also contains various order forms to
request additional information, membership applications and return envelopes with
respect to such advertising literature.
Destinations mainly consists of advertising material to promote and
advertise Petitioner’s business and would not seem to qualify as an exempt
periodical under Section 528.6(c) of the Sales and Use Tax Regulations (see 20
NYCRR 528.6(c)(3)(i); Debbie Ann Ascher, Adv Op Comm T&F, March 6, 1992,
TSB-A-92(20)S; Genovese Drug Stores, Inc., Adv Op Comm T&F, January 30, 1997,
TSB-A-97(4)S). It should also be noted that Destinations is not a shopping paper
as defined in Section 1115(i) of the Tax Law and, accordingly, the exemption for
shopping papers under that section does not apply to it (Genovese Drug Stores,
Inc., supra).
On the other hand, Destinations does constitute promotional materials as
defined in Section 1101(b)(12) of the Tax Law. Issues of Destinations sent to
members out of state for use outside the state would be exempt from sales and use
taxes, pursuant to Section 1115(n)(1). In addition, effective March 1, 1997, the
issues of Destinations which are mailed by Petitioner to its members in New York
by means of the United States Postal Service or a like delivery service, without
charge to these members, are exempt from sales and compensating use tax in
accordance with Section 1115(n)(4) of the Tax Law. To avail itself of this

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exemption from sales and use taxes, Petitioner must supply its printer with a
properly completed Certificate of Exemption for Purchase of Promotional
Materials, Form ST-121.2 (see Technical Services Bureau Memorandum, Expanded
Sales and Compensating Use Tax Exemption for Promotional Materials, August 20,
1997, TSB-M-97(6)S).
Petitioner’s sales of Destinations to non-members, for $1 per copy (or $6
per year), are subject to tax under Section 1105(a) of the Tax Law. Accordingly,
Petitioner must collect State and local sales or use tax on such sales.
Petitioner may purchase such issues to be sold to non-members from the printer
exempt from tax, as purchases for resale.
If Petitioner gives copies of
Destinations away "over the counter" to members (or non-members), for example,
at Petitioner’s place of business, Petitioner would be liable for tax, based upon
the purchase price from the printer, on the issues which it hands out free of
charge.
The printer’s sales of Destinations which do qualify as promotional
materials are retail sales to Petitioner pursuant to Section 526.6(c)(4)(i) of
the Sales and Use Tax Regulations.
The printer may purchase for resale, the
paper and ink used to produce the issues it sells to Petitioner, in accordance
with Section 1101(b)(4)(i) of the Tax Law (see New York State Department of
Taxation and Finance Publication 842, Sales Tax Information for Printers).

DATED:

November 5, 1998

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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