[Federal Register Volume 60, Number 87 (Friday, May 5, 1995)]
[Rules and Regulations]
[Pages 22270-22274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11152]
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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: This final rule implements provisions of Public Laws 103-123
and 103-329 that further restrict the kinds of advertisements and
products that are mailable at the special bulk third-class rates by
authorized organizations.
EFFECTIVE DATE: October 1, 1995.
FOR FURTHER INFORMATION CONTACT: Ernest Collins, (202) 268-5316.
SUPPLEMENTARY INFORMATION: On October 28, 1993, the President signed
into law Public Law 103-123, the Treasury, Postal Service, and General
Government Appropriations Act for 1994. Title VII of the Act, the
Revenue Forgone Reform Act, amended 39 U.S.C. 3626 by adding provisions
to subsection (j) as well as new subsection (m) (1993 amendments).
These sections add further restrictions on the use of special bulk
third-class postage rates by qualified organizations.
On September 30, 1994, the President signed into law Public Law
103-329, the Treasury, Postal Service, and General Government
Appropriations Act for 1995 (1994 amendment), amending provisions of
Public Law 103-123. The amendment creates an exception to the 1993
amendments for advertisements printed in materials that meet the
content requirements for periodical publications as prescribed by the
Postal Service.
The Postal Service published in the Federal Register (60 FR 12490-
12492) on March 7, 1995, a proposal to amend the Domestic Mail Manual
(DMM) to implement certain provisions of Public Laws 103-123 and 103-
329. 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 nonprofit organizations, political
committees, and voting registration officials. The Postal Service
requested comments by April 6, 1995.
The 1993 amendments established new 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 (other than insurance, travel, or financial
instruments, which were the subject of restrictions in previous
legislation and rulemaking) to qualify for mailing at the special bulk
third-class 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 of 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 amendments also added
restrictions on the mailing of products at the special bulk third-class
rates.
The 1994 amendment provides that advertisements mailed at the
special bulk third-class rates need not meet the substantially related
test if the material of which the advertisement is a part meets the
content requirements for a periodical publication, as specified by the
Postal Service. The 1994 amendment does not affect the restrictions on
the mailing of products established in the 1993 amendments.
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 authorized 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 the Postal Service has pointed out in prior rulemakings, 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 [[Page 22271]] is to promulgate rules
implementing Public Laws 103-123 and 103-329.
A final rule was published in the Federal Register (59 FR 23158-
23164) on May 5, 1994, to implement provisions of Public Law 103-123,
with an effective date of September 4, 1994. That final rule was
subsequently indefinitely delayed by notice in the Federal Register (59
FR 39967) on August 5, 1994. This final rule adopted in this notice
carries forth most of the same rules that were to have been effective
September 4, 1994, while implementing the new exception for
advertisements provided by Public Law 103-329. The exception specifies
that advertisements in material that meets the content requirements for
a periodical publication, as specified by the Postal Service, need not
be substantially related to the purpose(s) of the authorized
organization to qualify for mailing at the special bulk third-class
rates.
As explained below, the new rules deny the use of special bulk
third-class rates for mailpieces that do not meet the content
requirements for a periodical publication as prescribed by the Postal
Service and contain one or more advertisements for products or services
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 regardless of the inclusion of
other advertisements that do qualify for mailing at those rates.
Products and services advertised in mailpieces that meet the content
requirements for a periodical publication need not be substantially
related to a purpose of the authorized organization to be mailable at
the special bulk third-class rates. 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 for certain advertising of financial instruments, insurance
policies, and travel arrangements. Restrictions on advertisements for
the last three types of products or services are not subject to the
exceptions adopted in this rulemaking.
Material that is not considered to be advertising is not prohibited
under these restrictions. This material includes certain
acknowledgments and ``permissible references'' described in current DMM
E370.5.6 (which will be renumbered as DMM E370.5.7). It also includes
public service announcements that are not considered to be advertising
under postal standards. This policy is set forth in DMM E211.11.2. The
determination of whether other material comes within the restrictions
in new DMM E370.5.4(d) must be made on a case-by-case basis. For
example, the Postal Service has received inquiries concerning material
containing prize offers. If the reader is not required to make a
purchase in order to be eligible for a prize, the material is not
considered to be an advertisement or otherwise subject to DMM
E370.5.4(d). The Postal Service understands that sweepstakes
announcements usually include such arrangements. When an individual is
eligible for a prize or premium only if a purchase is made, the matter
would generally be considered under the provisions of DMM E370.5.4(d).
Evaluation of Comments Received
Written comments were received from six associations and
organizations. One favorable comment recommended adoption of the
proposed rule in its entirety. Three other comments generally favored
adoption of the proposed rules, with specific objections to only one
subsection. Two comments expressed broader concerns with the proposal.
After considering all six comments, the Postal Service has determined
to adopt the rule as proposed except for minor changes described below.
Although two comments did not object to the four general content
requirements for a periodical publication in proposed DMM E370.5.8
(i.e., title, printed sheets, identification statement, and
nonadvertising content) or to the remainder of the proposed rules, they
opposed the requirement for a frequency statement in the identification
statement. The comments stated that this additional rule creates a
frequency requirement whereas the restrictions adopted by Congress call
for eligibility to be based on the content requirements for periodical
publications, not periodicity or other requirements. The comments
pointed out that it is important to recognize the financial and
staffing resource constraints under which many nonprofit organizations
operate. They stated that it is not uncommon for an organization's
mailing to be prepared, printed, and presented to the Postal Service
for delivery after a volunteer has found the time to write the
material, or after the next grant or donation has been received to fund
its production, or both. As an alternative to eliminating the
requirement for a frequency statement in the third-class publication's
identification statement, one of the comments suggested that mailers be
allowed to state the frequency as ``irregular.''
The Postal Service agrees with the statements of these two comments
that the exception created in the 1994 legislation does not establish a
frequency requirement for matter meeting the content requirements for a
periodical publication. The Postal Service proposal is based on the
need to implement a statute that requires a listing of the content
requirements for periodicals. Identification statements are required to
be printed in second-class periodicals, and frequency statements are in
the identification statements. However, unlike second-class
publications, publications eligible for mailing at the special bulk
third-class rates are not required to be issued according to a regular
frequency or to have a minimum number of issues produced each year. The
rule simply requires mailers to provide a description of the
publication frequency in the identification statement. If the term
``irregular,'' or a similar term, best describes the intended
frequency, then that description satisfies DMM E370.5.8. As a further
note, if the frequency changes, the new frequency should be included in
the identification statement when the publication is again published;
no separate notice need be provided to the Postal Service. Further, the
Postal Service will not monitor the publication to ensure that the
stated frequency is met and will not impose sanctions if it is not
followed, as might occur if a frequency requirement were imposed.
Accordingly, in view of the comments received, the Postal Service has
added ``irregularly'' as an example of a statement of frequency in DMM
5.8c(3). It has also changed the requirement in that subsection from
``Statement of frequency showing how many issues are to be published
each year and at what regular intervals (daily; weekly; monthly except
June; four times a year in June, August, September, and December;
annually; etc.)'' to ``Statement of frequency showing when issues are
to be published (daily; weekly; monthly; monthly except June; four
times a year in June, August, September, and December; annually;
irregularly, etc.)'' to eliminate confusion as to what constitutes an
acceptable statement of frequency.
Two comments reminded the Postal Service of its commitment to
publish and distribute a detailed handbook to be made available to
interested mailers, and these comments asked that this handbook include
explanations concerning specific types of mailings, particularly if
such explanations could not be added directly to the DMM. As
[[Page 22272]] previously announced, the Postal Service plans to
publish a handbook that will contain information regarding special bulk
third-class mailings. The handbook will combine current Publications
417 and 417-A and will contain information regarding application
procedures, qualifying organizations, mailing at other post offices,
and cooperative mailings, as well as material concerning the new
content-based restrictions (advertisements, products, premiums,
sweepstakes, etc.). Although the handbook will contain helpful
information to assist authorized organizations to determine whether
their materials qualify for mailing at the special bulk third-class
rates, the Domestic Mail Manual will contain the rules governing the
kinds of materials that qualify for mailing at these rates. The
handbook will provide information and examples that will be helpful in
applying the rules in the Domestic Mail Manual. Plans are to distribute
the handbook as far in advance as possible of the effective date of
this final rule. A notice will be published in the Postal Bulletin when
the handbook is available for distribution.
One comment stated that requester publications should be allowed to
qualify for special second-class rates. The comment also suggested that
the Postal Service explore with interested parties the adoption of
rules to accomplish this goal. This comment is beyond the scope of this
rulemaking.
One comment stated that the proposed rule neither distinguishes
between premiums and products nor between advertising and solicitations
for donations. This comment argues that solicitations by nonprofit
organizations that seek donations and offer premiums to contributors
should not be considered advertising. The provision questioned by the
comment was among the provisions originally adopted on May 5, 1994, and
is carried forward in the rules adopted with this final rule. The
Postal Service specifically addressed the issue raised by this comment,
which concerns ``back-end premiums'' in that earlier rulemaking, 59 FR
23162, and the Postal Service continues to believe that the conclusions
reached at that time are sound. The definition for advertising as set
forth in DMM E211.11.0 states that the term includes all material for
the publication of which a valuable consideration is paid, accepted, or
promised that calls attention to something to get people to buy it,
sell it, seek it, or support it. The Postal Service, therefore,
believes that a mailpiece containing information promising to furnish a
product or premium in return for making a donation is an advertisement
for the product or premium. Consequently, the advertisement must comply
with one of the applicable exceptions in order to be eligible for the
special rates, i.e., be substantially related to the purposes of the
authorized organization (which includes advertisements for items
received by the authorized organization as a donation or gift), or be
in material that meets the content requirements for a periodical
publication. The Postal Service further notes that the question of
whether the back-end premium itself may be mailable at the special
rates is subject to a different set of rules: the product restrictions
set forth in DMM E370.5.10. Additionally, it should not be forgotten
that the new restrictions on advertising affect only material
considered to be advertisements. Accordingly, a mailpiece of an
authorized organization that contains only a donation solicitation for
that organization will not be considered an advertisement subject to
the new restrictions.
The same comment noted its agreement with statements in the
Supplementary Information portion of the proposed rules concerning
treatment of sweepstakes and public service announcements (PSAs), and
urged that these be incorporated into the rules. Postal policy
concerning PSAs is contained in DMM E211.11.0 (see 60 FR 10021, 10029,
February 23, 1995). The treatment of sweepstakes mailings is an
application of the general rules published in this notice. These are
necessarily ``regulations of a general character,'' United States
Postal Service v. Council of Greenburgh Civic Associations, 453 U.S.
114, 133 (1981). It is impractical for the Postal Service to anticipate
and address specific examples of mailings in these rules. Nevertheless,
detailed information about products, premiums, donation solicitations,
and advertisements will be addressed in the upcoming handbook to assist
customers in determining whether these materials are mailable at the
special bulk third-class rates.
One comment stated that the proposed rules ``create a pseudo-
periodical publication category in third-class.'' It stated that
periodical publications are defined in DMM E200; that clear and precise
content requirements are listed in DMM E212.1.3, E212.3.1, and
E212.4.1; that Congress intended that the provisions of DMM E212.1.3a,
1.3c, and 1.3d serve as the content restrictions affecting special bulk
third-class mail containing space advertising; and that the law does
not require that a special bulk third-class mailpiece be a periodical
publication.
The Postal Service believes that it is in agreement with the
comment on two essential points: (1) That the statutory exception is
not limited to periodicals, but to materials that meet the content
requirements for periodicals; and (2) that the test for the Postal
Service is to adopt regulations to implement the statutory language
established by Congress. If the statute requires the creation of a
``pseudo-periodical'' category, that matter is beyond the authority of
the Postal Service, whose role is limited to the implementation of the
statute. Although the comment stated a belief that DMM E212.2.3,
E212.3.1, and E212.4.1 create content requirements, it did not urge
that they be included in the final rule. Instead, the comment indicated
a belief that Congress intended DMM E212.1.3a, 1.3c, and 1.3d to serve
as the restrictions, although it did not cite any direct evidence of
such congressional intent. These rules establish advertising
restrictions only for second-class eligibility purposes. The proposed
rule contains an advertising restriction in DMM E370.5.8d. The proposed
rule also establishes other criteria such as the need for a title,
printed sheets, and an identification statement. Because these are all
items that must be contained in the mailpiece, the Postal Service
believes, contrary to the assertions of this comment, that these
criteria are fairly described as content requirements for periodical
publications. The Postal Service believes that proposed DMM E370.5.8
contained reasonable, objective criteria to implement a statute
requiring a listing of the content requirements for periodicals and,
therefore, adopts the proposed rule.
One comment stated that the proposed rule would allow organizations
to use special bulk third-class postal rates to compete unfairly with
for-profit organizations. This comment generally appears to be opposed
to the use of special bulk third-class rates for advertising matter and
asserts that authorized organizations' mailings should be restricted to
nonadvertising and non-income-generating endeavors. The comment also
urged, apparently as an alternative position, that the rules be
reviewed to create stricter limits against the mailing of
advertisements at the special rates.
The comment that authorized organizations should be restricted to
nonadvertising and non-income-generating endeavors goes beyond the
scope of the statutes and the authority of the Postal Service. The
kinds of organizations that may mail at the [[Page 22273]] special bulk
third-class rates and what they may mail at those rates are established
by statute. Although these laws set forth restrictions against the
entry of advertisements at the special rates, they also provide
exceptions to the restrictions. The Postal Service is not permitted to
change provisions of the statutes by rulemaking as urged by the
comment. The same comment also asked that the rules be revised to limit
advertisements mailed at the special bulk third-class rates to those
advertisements that are 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, which it describes as the ``current rule.'' In fact, this
provision was part of the final rule published on May 4, 1994, to
implement the 1993 amendments. As described above, this provision was
subsequently indefinitely delayed, but it is adopted as part of this
final rule. The comment essentially requested the Postal Service to
ignore the additional exception created in the 1994 amendments. This
would be beyond the authority of the Postal Service for reasons
explained above. The same comment also argued that the proposed rule
creates an overly broad definition of periodical publication in DMM
E370.5.8; the comment would limit the new exception to ``legitimate
nonprofit publications'' and change proposed DMM E370.5.8d to require
the publication to contain at least 75% nonadvertising matter. The
exception in the 1994 amendments is not limited to ``periodicals''; it
refers to material meeting the content requirement for periodical
publications. Moreover, the proposed 75% threshold is inconsistent with
existing content requirements.
In addition to the changes to the proposed rule described above,
the following additional minor changes have been made in the final
rule. The phrase ``qualified organization,'' which describes
organizations authorized to mail at the special bulk third-class rates,
has been changed to ``an authorized organization'' in DMM 5.6c and
5.6d. DMM 5.6b(3) has been revised to clarify that the exception in the
1994 amendment applies to material that meets the content requirements
for periodicals rather than solely to ``publications.'' Finally, the
requirement for inclusion of a USPS number in DMM 5.8c(6) has been
eliminated since such a number would ordinarily appear only in matter
entered as second-class mail.
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 continues 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. In the Domestic Mail Manual, renumber sections E370.5.6, 5.7,
5.8, and 5.9 as E370.5.7, 5.9, 5.12, and 5.11, respectively; add new
E370.5.4(d), 5.6, 5.8, and 5.10 as follows:
E--Eligibility
* * * * *
E370 Special (Nonprofit) Bulk Rates
* * * * *
5.0 ELIGIBLE AND INELIGIBLE MATTER
* * * * *
5.4 Prohibitions
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 other product or service unless one of the following
exceptions is met:
(1) The sale of the product or the providing of such service is
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 to determine whether an advertisement, promotion, or
offer for a product or service is for a substantially related product
or service and, therefore, mailable at the special bulk third-class
rates.
(2) The product or service is advertised in third-class material
meeting the prescribed content requirements for a periodical
publication. The criteria in 5.8 are used to determine whether the
third-class material meets the content requirements for a periodical
publication.
[Change title of 5.5 as follows:]
5.5 Definitions, Insurance
* * * * *
[Add new 5.6, renumber existing 5.6 as 5.7, and renumber existing 5.7
as 5.9.]
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 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
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 authorized organization. (The fact that income is
produced from selling an advertised product or providing a service does
not make such action a substantially related activity, even if the
income will be used to accomplish the purpose or purposes of the
authorized 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 the sale or providing of 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. (Advertisements in third-class
material that meets the content requirements for a periodical
publication need not meet the substantially related standard to be
mailable at the special bulk third-class rates. See 5.4(d)(2) and 5.8.)
(1) If the advertising material is for a product or service that is
not substantially related, it is not mailable at the special bulk
third-class rates.
(2) If an organization pays unrelated business income tax on the
profits from the sale of a product or the providing of a service, that
activity is by IRS definition not substantially related. 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 for
special bulk third-class rates, even if the mailer does not pay
unrelated business income tax on its sale.
(3) Third-party paid advertisements may be included in material
mailed at the special bulk third-class rates if the
[[Page 22274]] products or services advertised are substantially
related to one or more of the purposes for which the organization is
authorized to mail at special bulk third-class rates. However, if the
material contains one or more advertisements that are not substantially
related, the material is not eligible for the special rates, unless it
is part of material that meets the content requirements described in
5.8 and is not disqualified from using the special bulk third-class
rates under another provision.
c. Announcements of activities, e.g., bake sale, car wash, charity
auction, oratorical contest, are considered substantially related if
substantially all the work is conducted by the members or supporters of
an authorized organization without compensation.
d. Advertisements for products and services, including products and
services offered as prizes or premiums, are considered substantially
related if the products and services are received by an authorized
organization as gifts or contributions.
e. An advertisement, promotion, offer, or subscription order form
for a periodical publication meeting the eligibility criteria in E211
and published by one of the types of nonprofit organizations listed in
2.0 is mailable at the special bulk third-class rates.
[Renumber existing 5.8 as 5.12, renumber existing 5.9 as 5.11, and add
new 5.8 as follows:]
5.8 Periodical Publication Content Requirements
Advertisements for products and services in materials that meet the
content requirements for a periodical publication are mailable at the
special bulk third-class rates. The material mailed must meet the
following requirements:
a. Have a title. The title must be printed on the front cover page
in a style and size of type that make it clearly distinguishable from
other information on the front cover page.
b. Be formed of printed sheets. (It may not be reproduced by
stencil, mimeograph, or hectograph processes. Reproduction by any other
process is permitted.) Any style of type may be used.
c. Contain an identification statement on one of the first five
pages of the publication that includes the following elements:
(1) Title.
(2) Issue date. The date may be omitted if it is on the front cover
or cover page.
(3) Statement of frequency showing when issues are to be published
(daily; weekly; monthly; monthly except June; four times a year in
June, August, September, and December; annually; irregularly, etc.).
(4) Name and address of the authorized organization, including
street number, street name, and ZIP+4 or 5-digit ZIP Code. The street
number and street name are optional if there is no letter carrier
service.
(5) Issue number. Every issue of each publication is numbered
consecutively in a series that may not be broken by assigning numbers
to issues omitted. The issue number may be printed on the front or
cover page instead of in the identification statement.
(6) International Standard Serial Number (ISSN), if applicable.
(7) Subscription price, if applicable.
d. Consist of at least 25% nonadvertising matter in each issue.
Advertising is defined in E211.11.0.
* * * * *
[Renumber current 5.8 and 5.9 as 5.12 and 5.11, respectively; add new
5.10 as follows:]
5.10 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. At the beginning of each calendar year, the
value of low-cost items is adjusted for cost of living. The standard
established on January 1, 1995, provided that low-cost items have a
cost of not more than $6.56. The cost is the cost to the authorized
organization that mails the item or on whose behalf the item is mailed.
b. Items donated or contributed to the qualified organization. Such
items do not have to meet the definition of a low-cost item as
described in 5.10a.
c. A periodical publication (as defined in E211) of a nonprofit
organization unless it is ineligible under E370.5.0 to be mailed at the
special bulk third-class rates.
* * * * *
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. 95-11152 Filed 5-4-95; 8:45 am]
BILLING CODE 7710-12-P
