DMA loses fight against California mailing list tax; tax may put California titles at a competitive disadvantage

Folio: The Magazine for Magazine Management, Nov, 1989

DMA loses fight against California mailing list tax

SAN DIEGO--A law that requires California publishers and other direct marketers to pay a 6 percent sales and use tax on mailing lists rented on magnetic tape could hurt business, Jonah Gitlitz, president of the Direct Marketing Association (DMA), told attendees of the DM West conference here recently. The DMA's attempts to stop the tax were rebuffed by the state.

THe tax will put California companies at a competitive disadvantage, Gitlitz believes. "There is no reason a client would want to go to the additional expense just to do business with a California company." The tax regulation currently exempts mailing lists that are delivered, for one-time use, as manuscript lists, Cheshire tape, or gummed or pressure-sensitive labels. Lists in magnetic tape form, however, are considered "tangible, personal property," and are therefore subject to taxation, says Robert Sullivan, regulation coordinator for the California State Board of Equalization (SBE). Many California publishers, including Petersen Publishing Co., say a good portion of their rentals are on magnetic tape.

In arguing against the tax, the DMA notes that when a mailing list is rented, a buyer virtually never uses the rented magnetic tape to produce final labels. Tapes serve the same purpose as manuscript lists, except that they can be merged/purged by running against the buyer's house file.

Earlier this summer, the DMA proposed an amendment that would exempt any transfer of a mailing list for one-time use from sales and use tax, regardless of the form in which it is delivered. On July 31, however, the California SBE rejected the proposal.

Although, to date, no other states have followed California's lead, "states are going to go after people in that regard," according to Margaret Gottlieb, director of state government affairs. "California is a bellwether state. In any trend, in terms of taxing other direct marketing businesses, California is a state others will look to," Gottlieb adds.