RULES AND REGULATIONS
Title 61--REVENUE
DEPARTMENT OF REVENUE
[61 PA. CODE CHS. 31 AND 48]
Sales and Use Tax; Books, Publications and Advertising Materials
[30 Pa.B. 1654] The Department of Revenue (Department), under authority contained in section 270 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 7270), by this order amends §§ 31.3 and 31.29 (relating to exclusions; and books, publications and advertising materials) and deletes §§ 48.2 and 48.3 (relating to religious articles; and sacramental wines) to read as set forth in Annex A.
Purpose of Regulation
The Department is amending § 31.29 to bring it into conformity with recent statutory changes and to reflect the Department's current policy.
Sections 31.3, 48.2 and 48.3 are amended or deleted in accordance with the Pennsylvania Supreme Court decision in Haller v. Department of Revenue, 728 A.2d 351 (Pa. 1999), cert. denied, 120 S. Ct. 325 (1999). In Haller, the Court found the exclusion in section 204(28) of the TRC (72 P. S. § 7204(28)) in violation of both the United States and Pennsylvania Constitutions. Section 204(28) of the TRC provides a Sales Tax exclusion for the sale at retail or use of religious publications sold by religious groups and Bibles and religious articles.
Explanation of Regulatory Requirements
In accordance with Haller, § 31.3 is amended to delete paragraph (22) relating to religious publications sold by religious groups. The remaining paragraphs in the section are renumbered accordingly.
The Department amended subsection (a) by adding definitions of ''advertising insert'' and ''newspaper'' consistent with the statutory changes made in section 204(30) of the TRC. The definition of ''direct mail advertising literature or materials'' is amended to clarify the Department's interpretation of what constitutes direct mail advertising literature or materials as well as to incorporate the act of April 23, 1998 (P. L. 239, No. 45) (Act 45) statutory change to section 204(35).
Consistent with section 204(50) of the TRC, the Department is adding a definition of ''magazine.'' The Department is also adding the definitions of ''advertising literature or material,'' ''circulated among the general public,'' ''mail order catalog'' and ''subscription'' to fill a void that existed in the regulation regarding these areas. Definitions for ''publication,'' ''religious publication'' and ''shopping guide'' are also added to subsection (a) because of questions the Department received in these areas.
Subsection (b)(1) provides the scope of the regulation. Subsection (b)(2) provides a listing of items exempt from tax when sold at retail.
In response to Haller, §§ 48.2 and 48.3 are deleted.
Affected Parties
A taxpayer making a sale at retail or use of publications, advertising inserts and advertising literature or materials may be affected by this amendment. In addition, sales of religious publications, Bibles and religious articles will be affected by the Haller decision.
Comment and Response Summary
Notice of proposed rulemaking was published at 27 Pa.B. 6572 (December 20, 1997). This proposal is being adopted with changes to read as set forth in Annex A.
The Department received three comments from the public during the public comment period. The Department also received comments from the Independent Regulatory Review Commission (IRRC) and the Senate Finance Committee. No comments were received from the House Finance Committee.
Amendments to the proposed rulemaking in response to comments are as follows:
(1) IRRC and two of the public commentators questioned the Department's use of the term ''vendor'' in the definition of ''direct mail advertising literature or materials,'' noting that the term would unduly restrict the application of the direct mail exclusion. The Department agrees with the concern raised and deleted the reference to ''vendor'' in the definition.
(2) In its comments, IRRC questioned why the Department created a separate definition for ''advertising literature or materials'' since the proposed definition is language that was formerly a part of the definition of ''direct mail advertising literature or materials.'' IRRC suggested that the Department clarify its intent and revise the definitions to improve their clarity.
Prior to this proposal, the definition of ''direct mail advertising literature or materials'' attempted to address what was considered advertising literature or materials and when these items were exempt. The Department felt this definition was confusing and did not provide the public with an adequate definition of what constitutes ''advertising literature or materials.'' The Department acknowledges the need for clarity and has therefore made significant organizational changes to both definitions. In response to IRRC and one of the public comments, the Department specifically references reply envelopes and application forms as items included in the definition of ''advertising literature or materials.''
(3) IRRC and the two public commentators also raised the concern that the limitation of the phrase ''to prospective purchasers'' within the definition of ''direct mail advertising literature or materials'' was beyond the scope of the enabling statute. The Department acknowledges the concern and deleted ''to prospective purchasers'' and added ''distributed directly to intended recipients.''
(4) IRRC and a public commentator suggested that the use of ''corporate'' when referring to annual reports in the definition of ''advertising literature or materials'' and ''publication'' was unduly restrictive and did not allow for noncorporate entities that publish annual reports. The Department agrees with the concern raised and amended both definitions to reference ''financial and corporate annual reports.''
(5) In addition to the revision to ''publication'' referenced in paragraph (4), the Department amended the listing for prospectuses by deleting the term ''stock'' and adding the term ''investment'' in response to a public comment.
(6) In response to the statutory changes made by Act 45 relating to the one-time license to use a list of names and mailing addresses for each delivery of direct mail advertising literature or materials, the Department added a new subparagraph (vii) to subsection (b)(2). The language set forth in Act 45 responded to comments from the Senate, IRRC and the public regarding the use of mailing lists in direct mail advertising.
(7) Section 31.29(b)(1) relates to scope and provides the general rule regarding taxation of publications, advertising inserts and advertising literature or materials. In the proposal, paragraph (2) provided a listing of items and examples that are exempt from tax. In its comments, IRRC suggested that the examples in paragraph (2) need to be clarified and restructured in a more logical order. After reviewing the examples at issue, the Department concluded they were not necessary and deleted them from the regulation.
Revisions initiated during the Department's internal review of the regulation are as follows:
(1) The proposed definitions of ''magazine'' and ''textbook'' are amended to more closely track the statutory definitions provided in section 204(33) and (50) of the TRC.
(2) Consistent with Act 45, the definition of ''mail order catalog'' is amended to require distribution through the United States Postal Service.
(3) Stylistic changes were made throughout the regulation for clarity.
Revisions initiated in response to Haller are as follows:
(1) Section 31.3 is amended to delete paragraph (22) relating to religious publications sold by religious groups. The remaining paragraphs in the section are renumbered accordingly.
(2) The definition of ''religious organization'' was deemed unnecessary and is deleted from § 31.29(a). Subsection (b)(1) relating to scope is amended by adding ''bibles, religious publications, including religious publications sold by religious organizations'' to the items subject to tax when delivered to a location within this Commonwealth. All references to bibles and religious publications are deleted from subsection (b)(2) relating to examples of items exempt from tax. The remaining examples in paragraph (2) are renumbered accordingly.
(3) Sections 48.2 and 48.3 are deleted.
Comments that did not result in an amendment to the regulation are as follows:
IRRC and two of the public commentators questioned limiting the direct mail exclusion to items distributed by the United States Postal Service. Although the Department understands the argument that today's delivery market place provides an array of delivery services, Act 45 specifically references ''through the United States Postal Service''; therefore, the Department is unable to expand the scope of the exclusion to include other types of delivery services.
In its comments, IRRC asked the Department to explain whether and when E-mail advertising is taxable or nontaxable, and the statutory basis for its taxation or its exemption if it is not taxed. If there are circumstances when E-mail advertising is subject to tax and other circumstances when it is not taxed, IRRC also requested examples of both situations. E-mail advertising is an example of an enhanced telecommunication service and is not taxable as a telecommunication service. The Department has created the term ''enhanced telecommunication service'' to provide guidance to taxpayers who might be confused about the application of tax to services that involve telecommunication services yet, due to rapid changes in technology, are not what the Department has historically considered to be taxable telecommunications services, see Department's statement of policy, § 60.20 (relating to telecommunications service).
Fiscal Impact
The Department determined that the amendments will result in a minimal loss of revenue for the Commonwealth.
Paperwork
The amendments will not generate significant additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The amendments will become effective upon final publication in the Pennsylvania Bulletin. The regulations are scheduled for review within 5 years of final publication. No sunset date has been assigned.
Contact Person
The contact person for an explanation of the amendments is Anita M. Doucette, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on December 9, 1997, the Department submitted a copy of the notice of proposed rulemaking, published at 27 Pa.B. 6572 (December 20, 1997) to IRRC and the Chairpersons of the House and Senate Committees on Finance for review and comment. In compliance with section 5(c) of the Regulatory Review Act, the Department also provided IRRC and the Committees with copies of all comments received, as well as other documentation.
In preparing these final-form regulations, the Department considered the comments received from IRRC, the Committees and the public.
These final-form regulations were approved by the Committees on February 8, 2000, and were approved by IRRC on February 17, 2000, in accordance with section 5.1(e) of the Regulatory Review Act (71 P. S. § 745a(e)).
Findings
The Department finds that:
(1) Public notice of intention to amend the regulations has been given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The amendments are necessary and appropriate for the administration and enforcement of the authorizing statute.
Order
The Department, acting under the authorizing statute, orders that:
(a) The regulations of the Department, 61 Pa. Code Chapters 31 and 48, are amended by amending §§ 31.3 and 31.29 and deleting §§ 48.2 and 48.3 to read as set forth in Annex A, with ellipses referring to the existing text of the regulations.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary of the Department shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
ROBERT A. JUDGE, Sr.,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to the document, see 30 Pa.B. 1320 (March 4, 2000).)
Fiscal Note: Fiscal Note 15-353 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart B. GENERAL FUND REVENUES
ARTICLE II. SALES AND USE TAX
CHAPTER 31. IMPOSITION § 31.3. Exclusions.
The tax does not apply to the following:
* * * * * (21) Sales to or use of tangible personal property or services by: charitable organizations; volunteer firemen's organizations; nonprofit educational institutions; or religious organizations for religious purposes.
(i) This exclusion does not apply to property or services used in an unrelated trade or business carried on by this type of organization or institution. This exclusion does not apply to materials, supplies and equipment used in the construction, reconstruction, remodeling, repair and maintenance of real estate, other than materials and supplies used in routine maintenance and repairs of real estate.
(ii) Equipment used in the routine maintenance and repair of real estate is subject to tax.
(22) Property or services purchased by the United States, the Commonwealth of its political subdivisions, or instrumentalities thereof.
(23) Flags of the United States and the Commonwealth.
(24) The sale at retail or use of rail transportation equipment used in the movement of personalty.
(25) The sale at retail of horses, if at the time of purchase, the seller is directed to ship or deliver the horse to an out-of-State location. The seller shall obtain a bill of lading from the carrier or purchaser, reflecting the out-of-State destination. The seller shall execute and retain a ''Certificate of Delivery to Destination Outside of the Commonwealth'' to justify the noncollection of sales tax. If a horse is sold and delivered to a domiciled person prior to out-of-State delivery the ''Certificate of Delivery to Destination Outside of the Commonwealth'' shall have both bills of lading attached.
(26) The sale at retail or use of fish feed purchased by or on behalf of sportsmen's clubs, fish cooperatives or nurseries approved by the Fish and Boat Commission.
(27) The sale at retail or use of supplies and materials to tourist promotion agencies, which receive grants from the Commonwealth, for distribution to the public as promotional material.
(28) The sale or use of brook trout, brown trout or rainbow trout.
(29) The sale at retail or use of buses to be used exclusively for the transportation of children for school purposes.
(30) The sale at retail or use of firewood cut into proper lengths for burning and used for fuel for cooking, hot water production or to heat residential dwellings.
§ 31.29. Books, publications and advertising materials.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Advertising insert--Printed advertising material that is circulated with another publication.
Advertising literature or materials--Tangible personal property that is intended to promote business interest, create goodwill or engage the attention or interest of a recipient.
(i) The term includes printed matter, brochures, matchbooks, calendars, price lists, video and audio tapes, computer disks, investment prospectuses, financial and corporate annual reports, electoral literature or materials, playing cards, envelopes, address labels, reply envelopes, application forms, pens and similar promotional materials.
(ii) The term does not include proxy materials.
Circulated among the general public--Made available for purchase from a retail outlet, such as a newsstand or bookstore, or made available for purchase by subscription. In the case of an organizational publication, the publication will be considered to be circulated among the general public only if there are regular sales of the publication to purchasers other than members of the organization.
Direct mail advertising literature or materials--Advertising literature or materials that are distributed directly to intended recipients through the United States Postal Service. The term does not include advertising literature or materials that are distributed in a manner other than by the United States Postal Service.
Magazine--A publication that is published at regular intervals not exceeding 3 months, that is circulated among the general public, and contains matters of general interest and reports of current events that are published for the purpose of disseminating information of a public character or is devoted to literature, the sciences, art or some special industry. The term does not include loose leaf information services.
Mail order catalogue--A publication that contains a listing of items with descriptive details and includes a mail order form and is distributed through the United States Postal Service.
Newspaper--A ''legal newspaper'' or a publication containing matters of general interest and reports of current events that qualifies as a ''newspaper of general circulation'' authorized to carry a ''legal advertisement'' as those terms are defined in 45 Pa.C.S. § 101 (relating to legal notices). The term does not include magazines.
Publication--Information transferred by means of tangible media.
(i) Examples include printed material, such as books; financial and corporate annual reports; investment prospectuses; proxy materials; shopping guides; magazines; tabloid newspapers; and printed material that may supplement, explain, amend, revise or otherwise alter, expand or render current a looseleaf information service, or a book or bound volumes of books previously issued, including a supplement or pocket part, whether the additional material is periodically distributed or purchased independently of the basic book to which it is applicable.
(ii) The term also includes video and audio tapes, computer disks and similar items.
Religious publication--Religious commentaries and other publications primarily devoted to religious instruction, promotion or information.
Shopping guide--A publication primarily devoted to consumer awareness, promotion or information and that is generally provided to a consumer free of charge.
Subscription--The advance purchase of a series of issues of a magazine delivered by the publisher to an address designated by the purchaser.
(i) The term includes a series of magazines provided by an organization to its members in consideration of the payment of membership dues, provided the magazine is also sold by subscription or by individual copy to the public.
(ii) The term does not include a purchase of an issue or series of issues of a magazine from a person other than the publisher.
Textbook--A new or used book that is required or approved for use in conjunction with an educational curriculum provided by an institution of learning recognized by the Department of Education.
(b) Scope.
(1) Except as otherwise provided in this subsection, the sale at retail or use of publications, advertising inserts, Bibles, religious publications, including religious publications sold by religious organizations and advertising literature or materials is subject to tax when delivered to a location within this Commonwealth.
(2) The sale at retail or use of the following items is exempt from tax:
(i) Mail order catalogs.
(ii) Direct mail advertising literature or materials. See § 32.36 (relating to printing and related businesses).
(iii) Textbooks.
(iv) Newspapers.
(v) Magazines sold by subscription.
(vi) Advertising inserts that become a part of a newspaper or magazine.
(vii) One time license fees paid for the use of a listing of names and mailing addresses for each delivery of direct mail advertising literature or materials.
CHAPTER 48. EXEMPT ORGANIZATIONS § 48.2. (Reserved).
§ 48.3. (Reserved).
[Pa.B. Doc. No. 00-526. Filed for public inspection March 24, 2000, 9:00 a.m.]
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