California Sales tax / Use Tax: Distributed promotional compact discs qualified for printed sales message exemption

PeoplePC, Inc. v. Cal. SBE , Cal. Ct. App. (9/4/09). A California Court of Appeal reversed a trial court to hold that an Internet access service provider's distributed special order compact discs (CDs), imprinted with a promotional message for discounted Internet service, qualified for the State's sale/use tax exemption for printed sales messages rather than remained taxable gifts of tangible personal property. That is, the mass-mailed CDs containing the imprinted promotional messages constituted "printed sales messages," as they were circulars whose stipulated principal purpose was to advertise and promote the company's sale of Internet access service.

The State Board of Equalization unsuccessfully argued that the printed sales message exemption:

- Is limited to sales messages printed on paper catalogs, letters, circulars, brochures, and pamphlets; and
- Does not include CDs as "circulars" because they are not paper, but merely plastic discs that store a computer program for accessing Internet service.