[Federal Register Volume 59, Number 86 (Thursday, May 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10852]
[[Page Unknown]]
[Federal Register: May 5, 1994]
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POSTAL SERVICE
39 CFR Part 111
Special Bulk Third-Class Eligibility Restrictions
AGENCY: Postal Service.
ACTION: Final rule.
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SUMMARY: On October 28, 1993, the President signed into law Public Law
103-123, the Treasury, Postal Service, and General Appropriations Act
for 1994. Title VII of the Act, the Revenue Forgone Reform Act, amends
39 U.S.C. 3626 by adding provisions to subsection (j) and new
subsection (m). These sections concern the administration of special
bulk third-class postage rates for certain qualified organizations. The
provisions, which were not to take effect until after December 31,
1993, make certain types of advertisements, promotions, and offers, as
well as some products, ineligible to be mailed at the special bulk
third-class rates. This document contains regulations implementing the
legislative changes.
EFFECTIVE DATE: September 4, 1994.
FOR FURTHER INFORMATION CONTACT: Ernest Collins, (202) 268-5316.
SUPPLEMENTARY INFORMATION: The Postal Service published in the Federal
Register (58 FR 64918-64919) on December 10, 1993, a proposal to amend
the Domestic Mail Manual to implement certain provisions of Public Law
103-123, the Treasury, Postal Service, and General Appropriations Act
for 1994. These provisions made certain types of matter ineligible to
be mailed at the special bulk third-class postage rates, which are
available for use by certain qualified nonprofit organizations and
political committees. The Postal Service requested comments by January
10, 1994. Subsequently, the comment period was extended to February 9,
1994, by notice in the Federal Register (58 FR 65959) on December 17,
1993. At the request of postal customers, the Postal Service held a
public meeting on January 28, 1994, as announced in the Federal
Register (59 FR 1512) on January 11, 1994, to facilitate the receipt of
comments regarding the proposal to implement new statutory restrictions
on the use of special bulk third-class mail.
The new legislation establishes additional content-based
restrictions on matter eligible for special bulk third-class rates. In
order for material that advertises, promotes, offers, or for a fee or
consideration, recommends, describes, or announces the availability of
any product or service to qualify for mailing at these rates, the sale
of the product or the providing of the service must be substantially
related to the exercise or performance by the organization of one or
more of the purposes constituting the basis for the organization's
authorization to mail at such rates. The determination whether a
product or service is substantially related to an organization's
purpose is to be made in accordance with standards established under
the Internal Revenue Code.
The legislation also establishes restrictions for mailing products
at the special rates. The only products mailable at the special bulk
third-class rates are low-cost products as defined under the Internal
Revenue Code, items donated or contributed to the qualified
organization, and periodical publications of qualified organizations.
The Postal Service views the new provisions as supplementary to, rather
than a change to or replacement for, existing restrictions on special
rate mailings. That is, mailings ineligible for the special rates under
existing rules remain ineligible for these rates, regardless of whether
they violate the new restrictions. Further, mailings that violate the
new restrictions would not be eligible for the special rates,
regardless of whether they would be eligible under existing rules.
As a general matter, it should be recognized that the Postal
Service has limited discretion on what may be mailed at the special
rates. These historically subsidized rates are based on statutes that
prescribe standards for who may mail at the special rates and what may
be sent at those rates. The Postal Service views its role as the
administrator of these laws. Accordingly, its goal in this rulemaking
is to promulgate rules implementing Public Law 103-123.
As explained below, the new rules deny the use of special bulk
third-class rates for mailpieces that contain advertisements for
products or services of the qualified organization that are not
``substantially related'' to a purpose on which the organization's
authorization to mail at the special bulk third-class rates is based.
This prohibition applies to catalogs and publications containing such
advertisements, regardless of the inclusion of other advertisements
that do qualify for mailing at those rates. Paid advertisements that do
not violate any of the current restrictions will continue to be allowed
in publications sent at the special bulk third-class rates, as long as
they pass the ``substantially related'' test. These new rules are in
addition to, and are designed to be compatible with, existing
prohibitions on the use of special bulk third-class rates for improper
cooperative mailings, and certain advertising for credit cards,
insurance policies, and travel arrangements. As a separate matter, the
Postal Service will revise mailing statements for special bulk third-
class mailings by citing the appropriate Domestic Mail Manual section
to call mailers' attention to provisions with which they need to be
familiar.
Evaluation of Comments Received
Written comments from almost 600 religious, educational, fraternal,
charitable, labor, and agricultural organizations and individuals were
received by the Postal Service. In addition, 14 commenters offered oral
comments at the public meeting.
Four hundred seventeen comments oppose enforcement of the
``substantially related'' test to determine whether an advertisement,
promotion, or offer is mailable at the special bulk third-class rates.
They state that the test would be detrimental to fundraising activities
needed to sustain operating budgets, harm religious publications of all
faiths, and impair organizations' abilities to carry on their
religious, educational, or charitable functions.
As explained above, the Postal Service's responsibility is to
implement and administer a new statutory provision restricting the use
of special bulk third-class rates. This law specifically requires that
the sale of a product or the providing of a service must be
``substantially related (aside from the need, on the part of the
organization promoting such product or service, for income or funds or
the use it makes of the profits derived) to the exercise or performance
by the organization of one or more of the purposes constituting the
basis for the organization's authorization to mail at such rates''
(i.e., special bulk third-class rates). Consequently, the Postal
Service and qualified organizations are required to use the
``substantially related'' test to determine whether an advertisement,
promotion, or offer is mailable at the special bulk third-class rates.
The statute further states that the ``substantially related'' test
for products and services must be consistent with the standards
established by the Internal Revenue Service (IRS) and courts reviewing
IRS decisions. Accordingly, the rules adopted by the Postal Service
follow these standards.
To be ``substantially related'' in accordance with IRS standards,
an advertised product or service must contribute importantly to the
accomplishment of one or more of the purposes of the qualified
organization. This means that the sale of the product or service must
be directly related to accomplishing one or more of the purposes on
which the organization's authorization to mail at the special bulk
third-class rates is based. The sale of the product or offering of the
service must have a causal relationship to the achievement of the
exempt purposes (other than through the production of income) of the
qualified organization. (Whether an activity generates income that will
be used to accomplish one or more of the purposes of the qualified
organization is not to be used as a factor in determining whether an
advertisement passes the ``substantially related'' test.) A synopsis of
IRS rulings regarding the definition of ``substantially related'' is in
Internal Revenue Manual, sec. 7751, part (36) 40 (Exempt Organizations
Handbook). Additionally, the Postal Service expects to publish a
handbook that will provide further guidance to mailers.
One of the major points of contention throughout this rulemaking
has been the classification of third-class newsletters, bulletins, and
other publications containing paid advertising from parties other than
the publisher. The proposed rule published on December 10, 1993, sets
forth the Postal Service's view that these publications are subject to
the new statutory restrictions, and would be excluded from mailing at
the special bulk third-class rates if they contained paid advertising
that did not comply with the ``substantially related'' test. Numerous
commenters have opposed this interpretation, arguing that the statute
contains a general exception for these publications, or that it
reflects the intent of Congress to permit paid advertising, as
distinguished from an organization's own advertising, to be sent at the
special rates. The Postal Service believes that these objections are
not well taken, and that the terms of the statute contain no special
exception from the ``substantially related'' test for the advertising
content of third-class publications.
The ``substantially related'' test is contained in new subparagraph
(D) of 39 U.S.C. 3626(j)(1), which forbids the application of special
bulk third-class rates to ``mail which advertises, promotes, offers,
or, for a fee or consideration recommends, describes, or announces the
availability of'' certain categories of products and services. The
types of advertising already restricted under paragraph (j)(1) include
advertisements for credit cards by subparagraph (A), for insurance
policies by subparagraph (B), and for travel arrangements by
subparagraph (C). Subparagraphs (A), (B), and (C) contain no exception
for paid advertising in third-class publications, and the Postal
Service has not applied any such exception in its enforcement of these
provisions.
Unlike the earlier provisions, however, new subparagraph (D) does
contain a specific exception related to publications. Subclause
(D)(ii)(II) provides that ``clause (i) [containing the substantially
related test] shall not apply if the product involved is a periodical
publication described in subsection (m)(2) [a periodical publication of
a qualified nonprofit organization] (including a subscription to
receive any such publication).'' By its terms, this provision
recognizes that a periodical publication may also be a product that a
nonprofit organization wishes to advertise, and it exempts the
advertising for the publication (or for subscriptions to the
publication) from the ``substantially related'' test. It in no way
prevents the application of the test to third-party paid advertising
for other products or services that may be contained in an issue of the
publication itself.
A second specific exception concerning publications is contained in
new 39 U.S.C. 3626 (m), which restricts what ``mail consisting of
products'' may be sent at the special bulk third-class rates. Under
paragraph (m)(1), such products must either have been received by the
mailing organization as gifts or contributions, or be ``low-cost
articles'' as defined in the Internal Revenue Code. Paragraph (m)(2)
makes an exception from these requirements for a ``periodical
publication of a qualified nonprofit organization.'' Thus, the statute
recognizes that a periodical publication may also be a product that a
nonprofit organization wishes to mail, whether as a benefit to members
or a premium for potential donors in the course of a fundraising
appeal, and allows such mailings to go at the special rates. By its
terms, however, the ``product rule'' of subsection (m) does not
override the separate and distinct ``advertising rules'' of subsection
(j), and the Postal Service believes that it would be erroneous to
construe subsection (m) as a blanket exception to those rules. Such
interpretation would rob the new ``substantially related'' test of
subparagraph (j)(1)(D) of much of its effectiveness, by allowing
mailers to convert ineligible third-class catalogs into eligible third-
class ``publications,'' and overturn the Postal Service's established
enforcement policies regarding the credit card, insurance, and travel
advertising restrictions in subparagraphs (j)(1)(A), (B), and (C).
The new restrictions do not apply to publications mailed at the
special nonprofit second-class rates. However, if a publisher wishes to
mail copies of a special second-class rate publication at the special
bulk third-class rates as provided for in DMM E215.2.6, those copies
are subject to these new rules. Accordingly, those copies may not be
mailed at the special bulk third-class rates if they contain any
material ineligible for the special rates.
It should be emphasized that the application of the ``substantially
related'' test to third-party paid advertising in publications does not
preclude all paid advertising in publications mailed at the special
bulk third-class rates. If the product or service advertised is
substantially related to one or more of the nonprofit's qualifying
purposes, the publication may still be mailed at the special rates.
Each situation must be considered on a case-by-case basis, including
consideration of the product or service advertised and the nature of
the nonprofit organization. Examples of acceptable types of
advertisements include an advertisement for a blood glucose tester in a
nonprofit diabetes association's publication and an advertisement for
courses at one college in another college's publication.
It should also be noted that the ``substantially related'' test and
other advertising restrictions do not apply if the material in question
is not considered an advertisement under postal rules. The Postal
Service received numerous comments concerning the listing of
contributors in publications, such as the lists of individuals and
firms that appear on the back page of many church bulletins. For
purposes of these rules, acknowledgments of organizations or
individuals who have contributed to the nonprofit mailer are not
generally treated as advertising. 39 U.S.C. 3626(j)(2)(A). To prevent
technical disputes in individual cases concerning the distinction
between an advertisement and an acknowledgment, the rule will consider
material to be acknowledgments, rather than advertising, if they appear
on a page headed ``Sponsors,'' ``Contributors,'' ``Donors'' or a
similar term, and each acknowledgment does not exceed the size of a
business card (approximately 7 square inches). The listings should not
be labeled as advertising in other portions of the publication or
elsewhere (such as rate cards).
Similarly, organizations may still include information and response
cards concerning membership benefits in publications sent at the
special third-class rates. Such matter will still be required to comply
with the restrictions in 39 U.S.C. 3626(j)(2)(B).
Consistent with Postal Service practice and policy, public service
announcements for which no consideration has been paid will not be
considered advertising, and may be included in publications sent at the
special bulk third-class rates.
Finally, announcements of activities substantially all the work of
which is contributed by the members or supporters of a qualified
organization without compensation and advertisements for products and
services, including products and services offered as prizes or
premiums, substantially all of which have been received by a qualified
organization as gifts or contributions, are considered to be
``substantially related'' to the organization's purposes.
One hundred twenty-seven comments asserted that the Postal
Service's proposed rule did not follow the intent of Congress to base
mailing restrictions on whether the qualified organization pays
unrelated business income tax on the particular activity advertised.
The law, however, does not adopt the test urged by the comments.
Instead it clearly states that the products or services advertised must
be ``substantially related'' to the purpose(s) on which the qualified
organization's authorization to mail at special bulk third-class rates
is based. This ``relatedness'' test is only one of the factors
considered by the IRS in determining whether unrelated business income
tax must be paid, but this part of the test is singled out by the
statute as the standard that the Postal Service must follow.
Accordingly, the Postal Service is directed to rely on the
``substantially related'' portion of the unrelated business income tax
analysis but not the other parts.
Twenty-five comments oppose or protest increases in rates for
nonprofit mailers over the next 6 years, the end of subsidized funding
for nonprofit postage rates, and other aspects of the Revenue Forgone
Reform Act that will have an adverse effect on the mailing activities
of churches and church organizations. In general, these types of
comments are beyond the scope of this rulemaking. These comments also
questioned whether including new member information, financial
information, attendance information, and announcements of upcoming
church events would disqualify church bulletins from being sent at the
special bulk third-class rates. This kind of information concerning the
qualified organization's activities would generally be considered to be
substantially related to the nonprofit religious purposes of a church.
Three comments requested that scholarly journals be allowed to
continue to accept exchange advertisements and paid advertisements to
attract new subscriptions and promote books and journals. The final
rule allows paid advertisements to be in materials that are mailed at
the special bulk third-class rates as long as the advertisements are
for products or services related to the purposes on which the qualified
organization's authorization to mail at special bulk third-class rates
is based. Although each advertisement must be considered on a case-by-
case basis, the inclusion of exchange advertisements and third-party
paid advertisements under the circumstances described would not appear
to violate the ``substantially related'' test.
Ten comments stated that the proposed definition of ``low-cost
items'' was inconsistent with the Internal Revenue Service definition.
These comments are correct.
Accordingly, the definition for ``low-cost items'' in the final
rule is the same definition that the Internal Revenue Service uses and
includes a provision for annually increasing the cost of such items
based on the cost of living.
Ten comments stated that requiring a separate certification at the
time of mailing would be an administrative and logistical burden for
mailers and the Postal Service, urged that mailers needed more
information about the process and the consequences of improper
certification, and questioned why such a statement could not be
included on the mailing statement for each mailing. It was also
suggested that the application for special bulk third-class mailing
privileges be modified to state that the organization will submit only
mailings it thinks qualify for the special bulk third-class rates. In
response to these comments, it should be noted that the intended
purpose of the certification statement was more instructive than
regulatory. That is, the Postal Service was concerned that nonprofits
should be aware of the restrictions on nonprofit rates. Because mailing
statements are often signed by agents, there was concern that the
nonprofits themselves may not be aware of the new rules. Further,
although the publication of these rules and a one-time notice to the
nonprofit organization would provide sufficient legal notice, the
Postal Service took notice that the officers of nonprofit
organizations, particularly smaller ones, regularly change, and was
concerned that new officers might not be aware of the rules.
Nevertheless, in view of the hardships noted by comments, a separate
certification will not be required. Instead, the mailing statement that
must be completed for each mailing will be modified to refer to the DMM
section in which the standards for advertisements are located, as a
reminder and a reference. The Postal Service will also explore other
ideas to promote awareness of the rules, such as providing information
pertaining to this final rule to qualified organizations before the
effective date of the rule change.
Four comments expressed confusion between advertising, public
``thank yous,'' and free advertisements, and asked for clarification.
The definition for advertising that will be used to administer the new
eligibility requirements for special bulk third-class matter is in DMM
E211.11.1. As discussed above, public service announcements for which
no consideration is paid are not considered advertising as stated in
DMM E211.11.2. Two examples of a public service announcements are
``Support the Red Cross Blood Drive'' and ``Buy U.S. Savings Bonds.''
Eighty-one comments raised a variety of conflicting views from the
perspective of commercial mailers and small or local religious and
charitable organizations. The commercial mailers stated that it is
unfair to business owners who are not members of a qualified
organization to allow qualified organizations to include advertisements
of their members in the materials they mail at the special bulk third-
class rates, and higher postage should be paid when third-party
advertisements are mailed with materials of a qualified organization.
The small nonprofit organizations argued against imposing additional
restrictions on the advertising in their publications and other
materials they mail at the special bulk third-class rates. In general,
those comments concern suggestions that the Postal Service has no
authority to implement. The Postal Service is required to administer
the statutory provisions that prohibit only certain types of
advertising in nonprofit mail matter.
Three comments (two colleges and a religious organization) stated
that advertisements for similar types of organizations and affiliated
organizations should be permitted in materials mailed at the special
bulk third-class rates. The statutes and implementing rules look to the
nature of the product or service promoted, rather than to the identity
of the advertiser. As noted above, paid advertisements for
``substantially related'' products or services may be mailed at the
special bulk third-class rates, regardless of the identity of the
advertiser.
One comment stated that the proposed regulations do not include
provisions for informing mailers of enforcement decisions or of
measures that may serve to assist mailers plan future mailings. Notice
of changes in these standards will be published by the Postal Service
in accordance with its usual procedures for rulemaking.
Two comments suggested that the proposed definition of ``periodical
publication'' goes beyond the requirements of the new statute. Nothing
in the new statute suggests an intent to modify the established postal
definition of periodical publication derived from statutory standards,
which the Postal Service believes to be consistent with the common
usage and understanding of that term among mailers. The use of the
existing definition for a periodical publication would seem consistent
with the statute and would in addition help avoid ambiguity and
confusion.
Seventy-six comments stated that the proposed rule change is vague
and complex, does not clearly define ``substantially related'' and
``contribute importantly,'' and does not indicate whether ``front-end''
and ``back-end'' premiums as well as emblematic products will qualify
for mailing at the reduced rates. The Postal Service does not believe
the rule is unclear. Moreover, the final rule clearly states that the
phrases ``substantially related'' and ``contribute importantly'' will
be administered in accordance with Internal Revenue Service rulings and
precedents. In addition, as discussed, the Postal Service will produce
a publication to provide further guidance and examples concerning the
rules. The question whether front-end and back-end premium products, as
well as emblematic products, are eligible for the special rates will be
determined on a case-by-case basis by the statutory restrictions
concerning the mailing of ``products.'' That is, these products must
meet the definition for low-cost items, be donated or contributed to
the mailing organization, or be periodical publications.
Thirty-seven comments stated that they oppose retroactive
applicability of eligibility restrictions if the qualified organization
made an innocent mistake or lacked knowledge of the restriction at the
time of mailing, and requested that the Postal Service excuse ``minor
infractions'' regarding advertisements that do not meet the
``substantially related'' test. The statute does not provide any such
exceptions, and the Postal Service is required to ``maintain procedures
for the prompt collection of postage deficiencies arising from'' these
rules. 39 U.S.C. 3626(k)(3). See also 39 U.S.C. 2601(a)(1), which
requires the Postal Service to ``collect debts due to the Postal
Service.'' Indeed, the granting of an exception to some noncomplying
mailers would appear to discriminate against mailers who pay postage at
the appropriate rate. 39 U.S.C. 403(c). Here, the final rule is being
published in advance of its effective date to give mailers time to
adjust their methods of operation, and the regulations contain
sufficient detailed information to help mailers ensure that they comply
with the new eligibility restrictions. In addition, mailers may obtain
private legal or financial advice and counsel to assist in making their
decisions. Nevertheless, the Postal Service will continue to consider
requests for compromise or settlement of revenue deficiencies on a
case-by-case basis, consistent with existing postal policies.
Five comments stated that the Postal Service needs to establish a
procedure for mailers to obtain advance binding rulings regarding
whether materials and products will be mailable at the special bulk
third-class rates. In general, as discussed above, the Postal Service
does not believe such a procedure is necessary because mailers have
access to the many IRS determinations and precedents that govern how
the eligibility restrictions are administered. The Postal Service also
believes that nonprofit mailers that engage in any considerable amount
of commercial advertising or business activity may have already
obtained private legal or financial counsel to help them deal with such
matters. The Postal Service further notes that it does not have the
staffing to provide a large volume of such rulings in a timely and
consistent fashion, has not had a formal procedure for providing such
opinions in mail classification matters, and does not believe that it
is feasible to provide such a procedure.
One comment was concerned that the Postal Service may disqualify a
mailing announcing a meeting, seminar, or conference sponsored by the
qualified organization if it contains a brochure for the hotel where
the meeting will be held. This decision must necessarily be determined
upon the specific circumstances of the mailing. Nevertheless, the
Postal Service does not believe that the inclusion of such a brochure
would necessarily prevent the mailpiece from being mailed at the
special rates. For instance, it would be significant whether the
brochure is donated to the qualified organization as information for
individuals that will or may attend a meeting, seminar, or conference
sponsored by the qualified organization at that hotel, as opposed to
being provided by the hotel to the nonprofit with payment for inclusion
in the mailpiece.
Seven comments stated that a ``grace period'' should be authorized
to allow qualified organizations to mail materials that are in the
process of being prepared for mailing to avoid having to discard them
or pay a higher postage rate than was planned for the mailing. One
comment suggested that the grace period be allowed and that the Postal
Service publish a graduated phase-in schedule, beginning January 1,
1996, to allow for the acceptance of materials in the process of being
prepared for mailing. One comment suggested a 90-day grace period
consistent with this comment. The final rule will be effective
September 4, 1994, more than 4 months after it is published. Although
the Postal Service is sympathetic with the concerns expressed by
comments seeking a more extended period, these interests must be
balanced against the additional revenue loss caused by any delay in the
effective date of the rules. This loss will ultimately be borne by
postal customers. Additionally, it is noted that the rules will not
become effective until a full 8 months after the January 1, 1994, date
authorized in the legislation.
One comment from a nonprofit society stated that the regulations
should provide specific ``procedural rules'' for reliance on Internal
Revenue Service regulations and court decisions regarding the
``substantially related'' test. It is not clear what type of
``procedural rules'' the comment envisions. Nevertheless, the final
rule makes it clear, as specified by Public Law 103-123, that the
Postal Service will use standards established by the Internal Revenue
Service and the courts with respect to determining whether a product or
service is substantially related to the purpose(s) on which the
qualified organization's authorization to mail at special bulk third-
class rates is based.
Three comments stated that the Postal Service should determine that
the ``substantially related'' test does not apply to an offer for a
``back-end premium'' (a product or service provided to a donor who
first contributes a certain sum of money). To be mailable at the
special bulk third-class rates, the ``back-end premium'' itself, if it
is a product, must be a ``low-cost'' item or otherwise comply with 39
U.S.C. 3626(m). The solicitation seeking donations and offering the
``back end premium'' is, moreover, an advertisement, covered by the new
``substantially related `` test. Accordingly, the solicitation is
mailable at the special rates only if the premium is substantially
related to the nonprofit's qualifying purposes.
One comment stated that organizations that market training and
education through the mail should not be allowed to mail at the special
bulk third-class rates if they are not accredited educational
institutions. The statutory provisions do not restrict the use of
special rates in this manner, and this suggestion is beyond the
authority of the Postal Service to adopt.
One comment stated that the Postal Service should allow third-class
periodical publications that contain advertisements, have no
subscribers, and meet the definition of a periodical to be mailable at
the special bulk third-class rates until the Postal Service obtains
approval from the Postal Rate Commission to accept such periodicals as
second-class matter. Again, the statutory provisions do not authorize
an exception of this type, and it is beyond the authority of the Postal
Service to adopt. Organizations that wish to mail publications at the
special second-class rates will be required to obtain authorization,
under the existing eligibility requirements, to mail at those rates,
which would generally require that the publication be primarily
circulated to paid subscribers. Subscriptions may be paid for with dues
or contributions, if the dues or contributions and the subscription
price are separated to show the amount paid for the subscription. A
membership organization applying for second-class mailing privileges
under the narrowly defined ``Publications of Institutions and
Societies'' category (see DMM E222) may pass a resolution specifying
the amount that is to be used for a subscription to receive its
periodical publication if each member knows how much is being paid for
the subscription. Mailers should contact their postmasters for advice
on the exact procedures they must follow to qualify their publications
for special second-class mailing privileges.
List of Subjects in 39 CFR Part 111
Postal Service.
For the reasons discussed above, the Postal Service hereby adopts
the following amendments to the Domestic Mail Manual, which is
incorporated by reference in the Code of Federal Regulations (see 39
CFR part 111).
PART 111--[AMENDED]
1. The authority citation for 39 CFR part 111 is revised to read as
follows:
Authority: 5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 3001-
3011, 3201-3219, 3403-3406, 3621, 3626, 5001.
2. Domestic Mail Manual section E370 is amended by renumbering old
5.6 and 5.7 as 5.7 and 5.8, respectively; renumbering old 5.9 as 5.10;
and adding new 5.4(d), 5.6, 5.7c, and 5.9. The text is as follows:
E-Eligibility
* * * * *
E370 Special (Nonprofit) Bulk Rates
* * * * *
5.0 Eligible and Ineligible Matter
* * * * *
5.4 Prohibitions
Except under 5.7, special bulk third-class rates may not be used
for the entry of material that advertises, promotes, offers, or, for a
fee or consideration, recommends, describes, or announces the
availability of:
* * * * *
[Add new 5.4d as follows:]
d. Any product or service (other than those described in 5.4a ,
5.4b, or 5.4c), if the sale of the product or the providing of such
service is not substantially related to the exercise or performance by
the organization of one or more of the purposes used by the
organization to qualify for mailing at the special bulk third-class
rates. The criteria in 5.6 are used as the bases for determining
whether an advertisement, promotion, or offer for a product or service
is mailable at the special bulk third-class rates.
[Change title of 5.5 as follows:]
5.5 Definitions, Insurance
[Add new 5.6 and renumber existing 5.6 and 5.7 as 5.7 and 5.8,
respectively:]
5.6 Definitions, Substantially Related Advertising, Products
For the standards in 5.4d:
a. To be ``substantially related,'' the sale of the product or the
providing of the service must contribute importantly to the
accomplishment of one or more of the qualifying purposes of the
organization. This means that the sale of the product or the providing
of the service must be directly related to accomplishing one or more of
the purposes on which the organization's authorization to mail at the
special bulk third-class rates is based. The sale of the product or the
providing of the service must have a causal relationship to the
achievement of the exempt purposes (other than through the production
of income) of the qualified organization. (Whether selling the product
or providing the service generates income that is used to accomplish
the purposes of the qualified organization is not used as a factor in
determining whether such activity is substantially related to the
qualifying purpose or purposes of the organization.)
b. Standards established by the Internal Revenue Service (IRS) and
the courts with respect to 26 U.S.C. 513 (a) and (c) of the Internal
Revenue Code are used to determine whether an advertised product or
service, whether sold or offered by the organization or by another
party, is ``substantially related'' to the qualifying purposes of an
organization.
(1) If the advertising material is for a product or service that is
not substantially related, the material is not mailable at the special
bulk third-class rates.
(2) If an organization pays unrelated business income tax on the
sale of a product or the providing of a service, that activity is by
IRS definition not substantially related to the organization's
qualifying purposes. The fact that an organization does not pay such
tax, however, does not establish that the activity is substantially
related, because other criteria may exempt the organization from
payment. Thus, the inclusion of an advertisement for a product or
service in a mailpiece may disqualify the piece from using special bulk
third-class rates, even if the mailer does not pay unrelated business
income tax on its sale.
(3) Advertisements in the qualified organization's newsletter or
other publication for one or more products or services that are not
substantially related to the qualified organization's purposes,
notwithstanding the presence of advertisements that are so related, are
not mailable at the special bulk third-class rates. Third-party paid
advertisements may be included in a publication mailed at the special
bulk third-class rates if the products or services advertised are
substantially related to one or more of the purposes for which the
qualified organization is authorized to mail at the special bulk third-
class rates. If the publication contains one or more advertisements
ineligible for the special rates, the publication is not eligible for
the special rates.
(4) Advertising for one or more products or services that are not
substantially related to the qualified organization's purpose included
in a catalog that also offers items that are so related is not mailable
at the special bulk third-class rates. If the catalog contains one or
more advertisements ineligible for the special rates, the catalog is
not eligible for the special rates.
c. Public service announcements, e.g., ``Support the Red Cross
Blood Drive,'' for which no consideration has been paid are mailable at
the special bulk third-class rates.
d. Announcements of activities, e.g., bake sale, car wash, charity
auction, oratorical contest, substantially all the work of which is
conducted by the members or supporters of a qualified organization
without compensation are mailable at the special bulk third-class
rates. Such activities are considered to be ``substantially related''
to the organization's purposes.
e. Advertisements for products and services, including products and
services offered as prizes or premiums, substantially all of which have
been received by a qualified organization as gifts or contributions.
Such products and services are considered ``substantially related'' to
the organization's purposes.
f. An advertisement, promotion, or offer for a periodical
publication, including subscription order forms, meeting the
eligibility criteria in E211 and published by one of the types of
qualified nonprofit organizations listed in E370.2.0 is mailable at the
special bulk third-class rates.
5.7 Other Matter
* * * * *
[Add new 5.7c as follows:]
c. A listing in a qualified organization's newsletter or other
publication of the names of individuals or organizations who sponsor
the publication or other activities of the qualified organization. The
Postal Service presumes that an item is an acknowledgment of a sponsor
and not an advertisement ineligible for special rates if it occupies
not more than 7 square inches (the approximate size of a business card)
and if it appears in a portion of the publication titled ``Sponsors,''
``Contributors,'' ``Donors,'' or a similar designation.
[Renumber old 5.9 as 5.10 and add new section 5.9 as follows:]
5.9 Products Mailable at Special Bulk Third-Class Rates
The following products are mailable at special bulk third-class
rates:
a. Low-cost items within the meaning of 26 U.S.C. 513(h)(2),
Internal Revenue Code. Under this standard, low-cost items are
currently those having a cost of not more than $6.39 as of January 1,
1994. At the beginning of each calendar year, the value of low-cost
items is adjusted for cost of living. The cost is the cost to the
qualified nonprofit organization that mails the item or on whose behalf
the item is mailed.
b. Items donated or contributed to the qualified organization. Such
items need not meet the definition of low cost as described in 5.9a.
c. Periodical publication of a qualified nonprofit organization
that does not contain any advertisements or other material ineligible
to be mailed at the special bulk third-class rates under 5.4 a, b, c,
or d. Periodical publication and qualified nonprofit organization are
defined in 5.6f.
A transmittal letter making these changes in the pages of the
Domestic Mail Manual will be published and will be transmitted to
subscribers automatically. Notice of issuance will be published in the
Federal Register as provided by 39 CFR 111.3.
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 94-10852 Filed 5-2-94; 2:29 pm]
BILLING CODE 7710-12-U
