Board Drops Plan to Exempt Free Newspapers From Tax

Stung by complaints from some lawmakers that it was “legislating and not regulating,” the State Board of Equalization Thursday backed away from a plan to exempt free circulation newspapers from a newly imposed sales tax.

A board majority that had indicated two days ago that it would vote to make free newspapers eligible for the exemption, decided instead to approve a series of emergency regulations that will require the publications to pay the tax.

The tax, which was approved by the Legislature and signed into law by Gov. Pete Wilson, went into effect July 15. Paid newspapers are taxed on their sales but can recoup the tax by adding it to the basic price of their publications. But free newspapers that are taxed on their printing costs, have no way of passing the added financial burden to their readers. So-called “junk mail” circulars are exempted under a previous law.

Board member Matt Fong, who had expressed support for applying the exemption to free newspapers, said he became convinced after telephone calls from lawmakers and some newspaper publishers that it would be more appropriate to leave that decision to the Legislature.

“I was concerned that the board was turning into a legislative body,” he said. “I’m sensitive to the plight of these free and small independent newspapers, but the bottom line is that they will have to seek their remedy from the Legislature.”

Fong said he thought most of his colleagues on the board had been impressed by a bluntly worded letter from Sen. Quentin L. Kopp (I-San Francisco) who called the board’s proposed action “improper.”

While he “applauded” the board for its concern for free newspapers, Kopp wrote, “a board regulation is not the proper method of correcting the injustice and the board should accordingly refrain from usurping legislative power.”

Kopp, an opponent of the newspaper tax, said he intended to introduce legislation next month that would correct the problems it is causing for free newspapers. He said a number of senators, including Senate President Pro Tem David A. Roberti (D-Los Angeles), had indicated they would co-author the measure and “I expect (it) to pass.”

The publishers of many of the state’s free newspapers--especially those that serve university student bodies--have complained that the new tax will put such a financial burden on them that some may have to fold.

Chairman Brad Sherman suggested on Tuesday that the Board of Equalization could spare most free newspapers from having to pay the tax by voting to make them eligible for a tax exemption that applies to “printed sales messages.” State regulations have interpreted “printed sales messages” to mean catalogues, shoppers, pamphlets and circulars.

But Fong said some publishers of free newspapers have complained to him that they did not want to be included in any junk mail tax classification.

Sherman told the board he still believed it should expand the exemption, but he would not press the point because a majority clearly no longer supported his position.