California Regulation 1590 has been amended in an effort to clarify its application to sales of newspapers made available in tangible and digital format. Regulation 1590 was last amended in 1994. At that time, newspapers were generally sold via printed means. Since then, however, technology and reader inclinations have changed, and it is now common practice for publishers to sell access to digital content or a combination of digital and printed content for a single charge.
Charges for printed newspapers that appear more than 60 times a year are subject to tax. However, the charge for digital content is not subject to tax if there is no tangible personal property transferred. In the Notice of Proposed Regulatory Action issued in April 2016, it was pointed out that in keeping with the decision in Dell Inc. v. Superior Court of San Francisco, 159 Cal. App. 4th 911 (Cal. Ct. App. 2008) publishers need to reasonably and fairly allocate the taxable and exempt components of lump-sum charges for printed and digital newspaper subscriptions because neither were incidental. Unfortunately, Regulation 1590 did not address this scenario, and the Board’s Business Taxes Committee (BTC) concluded that the lack of guidance posed a problem. This problem was the primary basis for this amendment.
The BTC felt that assigning an exempt percentage, in lieu of vendor allocation, would remove the challenge faced by vendors. Initially, it proposed an exemption for 38% of the lump-sum charge. The BTC came to this conclusion based on data provided by a retailer, who previously requested guidance from the Board of Equalization’s legal department on a similar issue. The BTC released its proposed changes to interested parties, who agreed with the streamlined approach but disagreed with the percentage. During the course of this process, different percentages were proposed and discarded by the BTC. At one point, the California Newspaper Publishers Association (CNPA) provided the BTC with a survey of 27 newspapers, which showed nontaxable percentages ranging from 44% to 63% and had an overall unweighted average nontaxable percentage of 53%. Ultimately, the BTC decided to adopt the unweighted average, and Regulation 1590 was amended to reflect that as of October 1, 2016. A rebuttable presumption exists that 53% of the lump-sum charge for printed and digital newspaper content is not subject to tax when bundled as a single transaction.