P.S. Docket No. SCD 94-254
July 25, 1995
In the Matter of the Petition by )
)
ROBERT SPIDELL )
PUBLISHER )
SPIDELL PUBLISHING, INC. )
1110 N. Gilbert Street )
Anaheim, CA 92801-1401 )
)
)
Denial of Application for Second-Class )
Mail Privileges for "SPIDELL'S CALIFORNIA )
TAXLETTER" ) P.S. Docket No. SCD 94-254
APPEARANCE FOR PETITIONER: Peter Kemmerly, Vice President
Spidell Publishing, Inc.
1110 N. Gilbert Street
Anaheim, CA 92801-1401
APPEARANCE FOR RESPONDENT: Anthony Alverno, Esq.
Classification & Customer Service
United States Postal Service
475 L'Enfant Plaza S.W.
Washington, D.C. 20260-1146
INITIAL DECISION
This proceeding arises out of a Petition filed by Robert Spidell, President of Spidell Publishing, Inc., appealing a ruling of the Manager, Business Mail Acceptance, United States Postal Service. That ruling, dated November 25, 1994, declared that Petitioner's publication, Spidell's California Taxletter, was ineligible for second-class mail privileges because it was primarily designed for advertising purposes.
Petitioner submitted an application for second-class mail privileges (PS Form 3501) for Spidell's California Taxletter on September 8, 1992 (JS Ex. 47). The Manager, Rates and Classification Center, in San Bruno, California denied the application on June 11, 1993, citing former DMM §423.131, which disqualified "general publications primarily designed for advertising," (JS Ex. 39). By letter dated July 15, 1993, Petitioner appealed. The appeal was forwarded to the Manager, Business Mail Acceptance, at U.S. Postal Service Headquarters, who, by letter dated November 25, 1993, requested additional information from Petitioner. Petitioner provided this information on December 22, 1993 (JS Ex. 3), and the Manager issued her final decision on November 25, 1994 (JS Ex. 1). Petitioner filed this appeal, under 39 C.F.R. Part 954, on December 19, 1994.
The parties submitted this case on a stipulated record, which included a Joint Stipulation of Facts ("JS") numbered 1 through 32, and Exhibits ("JS Ex") numbered 1 through 59. Both parties filed briefs on April 4, 1995, and reply briefs on April 24, 1995. At Petitioner's request, the parties presented a one-hour oral argument on July 14, 1995. Based on the entire record,(1) I make the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. Spidell's California Taxletter is published monthly by Spidell Publishing, Inc., in Anaheim, California. Spidell Publishing, Inc. is engaged in the business of disseminating tax information to tax professionals. (JS, ¶¶ 1, 2).
2. Spidell Publishing Inc. ("Spidell") is owned by Robert and Janet Spidell, and is managed by Robert and Janet Spidell, Peter Kemmerly, and Janet Crowley. It is not a parent or subsidiary to any other company, and has no separate divisions. (JS, ¶¶ 3, 4).
3. In addition to Taxletter, Spidell markets other products and services. The following list, with prices, was provided by Petitioner in its December 22, 1993 response to the Manager:
Spidell's California Taxletter $97 (per year)
Spidell's California Tax Forms $99
Federal Home Study Course $65
California Home Study Course $65
Federal Fall Seminars $65
California Fall Seminars $65
California Summer Seminars (½ day) $65
(full day) $125
Special Reports:
Guide to Dissolving California Corporations $15
California Taxation of Nonresidents
and Part-Year Residents $25
How California Trusts & Estates are Taxed $15
Taxation of California S Corporations $15
(JS, ¶ 7; JS Ex. 3, p. 4).
4. All the products and services sold by Spidell, including Taxletter, share the same administrative and editorial staff, employees, finances, management and office space. (JS, ¶ 5).
5. The editorial content of Taxletter includes articles on California and Federal tax laws, court rulings, comments on specific cases, and other information of interest to tax professionals. The annual subscription price is $97.00.(2) (JS, ¶ 6). A typical issue contains approximately 16 pages. (JS Exs. 32, 33, 34).
6. Advertisements for Spidell's other products and services, such as its tax seminars, and its home study courses, are regularly included with issues of Taxletter, often as page-long "supplements." A typical example is a page listing dates and locations for Spidell's tax seminars, along with a registration form to send in with the required fee for attendance. (JS Exs. 23-26). Not every issue of Taxletter includes some sort of advertising supplement, but many do. No other products are advertised or promoted in Taxletter. (JS, ¶¶ 7, 16).
7. If an article in Taxletter makes reference to a form that is published in Spidell's California Tax Forms, it is customary for the publisher to print a notation at the end of the article so advising readers. (JS, ¶ 11).
8. The articles in Taxletter serve as the basis for Spidell's Home Study courses. Every fourth issue contains, as an insert, an examination and answer sheet. Subscribers may, if they wish to do so, send in a completed answer sheet, with a $15 fee, and have their exam graded. The courses have been approved by an entity called The Tax Preparers' Program, apparently a State organization, for continuing-education credit. Spidell sends a certificate of completion to participants who score 70 percent or better. (JS, ¶¶ 8, 9).
9. Spidell does not keep separate financial accounts for each of its products or services, but its records do show the revenue generated by each. For the twelve month period ending October 30, 1993, their records show total sales of approximately $2,000,000, of which approximately $600,000 (30 percent) is from Taxletter. (JS, ¶ 17; JS Ex. 7). This equates to slightly more than 6,100 paid annual subscriptions.(3)
10. Because Spidell's records do not separate the production costs for its various products, it cannot be determined with certainty whether Taxletter would be profitable if it were run as a single enterprise, or even how much it actually contributes to the net profit of Spidell Publishing, Inc. Petitioner "surmises" that it would not be profitable as a single enterprise because production costs, in proportion to income, would increase dramatically if they were not shared with the other products and services. (JS, ¶ 18).
CONCLUSIONS OF LAW
1. To qualify for second-class mail rates a publication must be authorized under one of five qualification categories.(4) One of the standards applicable to all categories is that "[t]he primary purpose of a periodical must be the transmission of information."(5)
2. The specific category into which Petitioner's publication falls is called "general publications," for which the Basic Standards read as follows:
General publications must meet the applicable basic standards for second-class mail in E210, and must be originated and published for the purpose of disseminating information of a public character or they must be devoted to literature, the sciences, art, or some special industry.(6)
3. There are several additional standards for general publications, some of which deal with advertising. Section E212.1.3 is the one at issue in this case, and it states:
Advertising is defined in E211. General publications primarily designed for advertising purposes do not qualify for second-class privileges, including publications that:
b. Are owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of any other business or calling of those who control them.(7) (emphasis added)
4. The definition of "advertising" found in DMM §E211.11.1 includes the following:
d. A newspaper's or periodical's advertisement of its own services or issues, or any other business of the publisher, whether in display advertising or reading matter.
5. The issue to be resolved can be stated quite simply: is Spidell's California Taxletter "primarily designed for advertising purposes?" The answer, however, as in many other such cases in the past, is not available through any precise, objective measurement. What a particular publication is "primarily designed" for may be in the eye of the beholder. Respondent, the U.S. Postal Service, through examination of various factors that are regularly used to help make this judgment, argues that the answer is - yes. Petitioner, while conceding that he does use Taxletter to promote his other products and services, argues that this is only incidental to its "primary" purpose, which is to generate income by being an integral part of his repertoire of informational services to tax professionals.
6. Whether a publication is "primarily designed for advertising" is a question of fact, to be decided on a case-by-case basis. Willamette TV and Cable Guides, P.S. Docket No. 16/97 (P.S.D. 1985 at p. 8, quoting AMOCO Motor Club, P.S. Docket No. 2/50); Interval International, Inc., P.S. Docket No. 29/70 (I.D. 1988 at p. 12); Banner Publications, Inc., P.S. Docket No. 17/32 (I.D. 1983 at p. 11).
7. The test set forth in subparagraph b. of DMM §E212.1.3, quoted above, like the other four subparagraphs of that section, is used to further define the term "primarily designed for advertising," and thus to help postal officials, as well as customers, determine which publications do not qualify for second-class rates. The terms of subparagraph b. must be read in the conjunctive, i.e. all provisions must apply in order for a publication to be disqualified. Westchester Interconnect, Inc., P.S. Docket No. 18/75 (P.S.D. 1985). The only portion of this test that is at issue in this case is the phrase, "essentially for the advancement of any other business . . .." There is no question that Taxletter is owned and controlled by Spidell Publishing, or that it is auxiliary to the other parts of Spidell's business.
8. As used in this rule, the term "essentially" means "primarily," principally," "fundamentally," or "first in importance or precedence." Interval International, Inc., P.S. Docket No. 29/70 (I.D. 1988 at p. 12); Lotus Publishing Corporation, P.S. Docket No. 24/68 (I.D. 1987 at p. 12); Smokenders, Inc., P.S. Docket No. 4/192 (I.D. 1977 at p. 15). Therefore, the phrase "essentially for the advancement of any other business," is not a more, or less, stringent standard that the basic rule itself - "primarily designed for advertising."
9. The owners of any business may have multiple motives in creating a publication, but even if one of those motives is to promote the owner's other products, this is not disqualifying under DMM §E213.1.3 unless it is the "primary" motive. Lotus Publishing Corporation at 11; Westchester Interconnect, Inc., P.S. Docket No. 18/75 (I.D. 1984 at p. 11-12); Willamette TV and Cable Guides at 8; Smokenders at 16; Exxon Travel Club, Inc., P.S. Docket No. 2/85 (I.D. 1974 at pp. 34-5).
10. In her letter denying Petitioner's application, the Manager said, "[b]ased on the restrictions of DMM E212.1.3, the primary issue that must be addressed is whether Spidell's California Taxletter is used to further the other business of SPI." (JS Ex. 1, p. 2). That statement is not entirely accurate, as it omits the key words, "primarily," or "essentially."
11. Respondent points to several factors that support the argument that Taxletter is a "house organ," i.e. a publication whose primary purpose is to promote the owner's other enterprises. These include the fact that Spidell clearly controls the content of Taxletter, that Taxletter admittedly does advertise and promote the publisher's other products and services, that it does not advertise any competitors' products, and that the administrative and financial structure of Spidell Publishing, Inc. is so integrated that it cannot be proved that Taxletter is profitable. None of these factors is conclusive, however. All are merely tools to be used to help make the ultimate judgment. As was stated in Interval International, Inc., at p. 13, "[a]lthough profitability is not essential to second-class status, it is a factor to consider when determining whether a publication is primarily designed for advertising purposes." Even taken all together, these several factors do not require that a publication be disqualified if other evidence demonstrates that advertising is not its primary purpose.
12. Most persuasive in this case are the issues of Taxletter itself. (JS Exs. 32-35). It is clearly a serious, professional publication, providing useful, perhaps even essential, up-to-date information and commentary on California tax laws and procedures. In no way does it appear to be similar to the magazine published by a computer maker in Commodore Business Machines, Inc., P.S. Docket No. 14/95 (I.D. 1983), which the Administrative Law Judge described as follows: "[n]early all of the articles and other editorial matter in Commodore are solely devoted to Commodore's computers and other products." Commodore at 7. Nor is it similar to the publication created by a computer software maker in Hal Goldstein, P.S. Docket No. 26/109 (I.D. 1987), which "extensively feature the products and services sold by Personalized Software," and which the publisher admitted "was conceived as a means to market a product he created." Goldstein at 4 and 8. It is also unlike the publication of a vacation resort promoter in Interval International, Inc., P.S. Docket No. 29/70 (I.D. 1988), which "is literally filled with promotional information about [the owner's] services and benefits and advertisements for the WTC travel agency." Interval at 12.
13. Both sides focus considerable attention on the question of Taxletter's profitability, making contrary arguments as to what the stipulated facts demonstrate. Even assuming that Taxletter would not be profitable if it were run as a single business, and Petitioner is not obligated to prove that it would be, I conclude from the stipulated facts that Taxletter is intended to be a profit-making part of Petitioner's business, just as are his seminars, tax forms, home-study courses, and special publications. The facts that Taxletter generates thirty percent of Petitioner's annual gross revenue, and that more than six thousand tax professionals pay $97.00 per year to receive it each month, are strong evidence that it is not "primarily designed" to advertise, or "essentially for the advancement of," the other parts of Petitioner's business. Rather, these facts show that Taxletter is primarily designed to make money, through the dissemination of information.
14. Respondent relies heavily on LaSalle County Legal News & Public Record Bulletin, P.S. Docket No. 12/113 (I.D. 1982), which bears some similarity to the instant case. The Bulletin was published by The Credit Bureau of Kankakee, Illinois which, like Spidell, had several related enterprises, in their case all dealing with dispensing credit information. Like Spidell, The Credit Bureau did not separately allocate costs among its different activities, and all the activities were managed by a single group of employees. The Administrative Law Judge concluded that, also like Taxletter, the Bulletin "on its face does not appear to be designed for advertising purposes." LaSalle at 10. The Petitioner in that case also presented evidence that the Bulletin was intended to, and did, make a profit. Finally, the Petitioner, again like Spidell, argued that the evidence as to the extent of the Bulletin's advertising did not measure up to the words "primarily" and "essentially," as required by the DMM. Nevertheless, the Judge concluded that the Bulletin was "primarily designed for advertising." His ruling was based on an earlier decision in Holmes Management Company, P.S. Docket No. 4/71 (I.D. 1976), which stated that ". . . if a person in a particular business undertakes to issue a publication in which that business is mentioned, there is a presumption that the purpose of such person is to advertise his non-publishing business." Holmes at 12. The Holmes opinion goes on to say that this presumption is rebuttable and, in fact, the petitioner in that case successfully did so. In La Salle, however, the Judge found that the petitioner had failed to rebut the presumption, largely because the Bulletin was "inextricably interwoven and interdependent" with the petitioner's credit reporting business. Respondent argues that this phrase amounts to a separate test for judging a publication's qualification for second-class status, and that because all of Spidell's products are "inextricably interwoven and interdependent," Taxletter is disqualified. Whatever the merits of the LaSalle decision, this cannot be so, for the evidence still has to show that the purpose of Taxletter is "essentially for the advancement of any other business . . .," in order for Respondent to prevail. The fact that different parts of a business are "interwoven and interdependent" may make it more difficult for a publisher to prove some of the factors that might be helpful, such as profitability, but it is not a separate test. In fact, there is merit to Petitioner's argument that the interwoven and interdependent nature of his business makes the phrase "essentially for the advancement of any other business" inapplicable to him. He argues that he has only one business - the dissemination of tax information, and that all parts of that business, including Taxletter, work to support each other. If one examines the Holmes case, it does appear that a publication in Spidell's type of scenario is unlike what was targeted by the evidentiary presumption articulated in Holmes. In stating the basis for the presumption, the Judge in Holmes quoted first from legislative history in 1879:
"If a gentleman or a company have a large business and they publish a newspaper, it is prima facie for the purpose of advertising that business, and it makes no difference how much general matter there may be to cover up that design, it cannot be concealed." Congressman Money, Cong. Globe, 45th Cong., 3rd Sess., 697 (1879)
Then from an opinion, also written in 1879, by the Assistant Attorney General for the Post Office Department:
"I am not prepared to say that a person engaged in either one occupation I have named, or occupation or profession of kindred character, may not also engage in editing a legitimate newspaper entitled to the pound rate of postage. I am prepared to say, however, in view of the law, that a person so engaged in two occupations having so little legitimate connection ought not (if the paper is devoted to the particular interests in which he is engaged) to advertise himself at all, for if he does he must know that he raises a very strong, if not a conclusive, presumption that the primary or leading object of his paper is to advertise his business." (Ops. A.A.G. for the P.O.D., Vol. 1 p. 400)(8)
Both of these statements draw to mind a situation where there is a "main" business, and the business owner then creates a publication which, rather than being a substantial revenue-producing segment of that business, appears to be a sideline to draw attention to the "main" business. The publications that were disqualified in Interval, Hal Goldstein, and Commodore are good examples. Others are R.H. Smith, Jr., P.S. Docket No. 3/112 (I.D. 1975) (a publication by the owner of singles clubs), and Florists' Transworld Delivery Association, P.S. Docket No. 1/167 (P.S.D. 1974) (a publication by an organization whose members' business was selling flowers). The instant case is unlike all of these.
Finally, despite some of its similarities to the instant case, I find LaSalle less persuasive than many other cases that deal with the DMM provision in issue here. I do not believe simple application of the Holmes presumption, especially considering the historical explanation for that presumption, is a good substitute for the case-by-case factual analysis found in nearly all the other cases on this subject.
CONCLUSION
Spidell's California Taxletter is not "conducted . . . essentially for the advancement of any other business" of Spidell Publishing, Inc., and is not "primarily designed for advertising purposes." Accordingly, Petitioner's appeal is sustained, and the Manager's decision denying Petitioner's application for second-class mail privileges for Spidell's California Taxletter is reversed.
Bruce R. Houston
Acting Chief Administrative Law Judge
1. Documents attached to Petitioner's April 24, 1995 Reply Brief to support Petitioner's interpretation of certain facts have not been considered, as they were not part of the stipulated record, and Respondent expressly declined to stipulate their contents.
2. Petitioner's Brief states that the price was going to be $117 as of May 1, 1995, but that this was a normal price rise, not based on this appeal.
3. Petitioner's application (JS Ex. 47) claimed 7785 subscriptions and the postmaster's audit reduced this to 6809. I do not find these differences material to the issues in this case.
4. Domestic Mail Manual (DMM) Section E211.1.1.
7. When this case began, this rule was found in DMM §423.131. The DMM was reorganized, and renumbered, in 1993, but there was no substantive change to any of the rules applicable to this case.
8. This quotation, taken from a lengthy discussion of this subject in the case of a newspaper published by an attorney, can be found in Official Opinions of the Solicitor of the Post Office Department, Vol I, p. 400, at 406.