Acp Publishing Pty Limited v Commissioner of Taxation [1993] FCA 459; (1993) 93 Atc 4773, (1993) Aust Sales Tax Cases 85-171 (1993) 26 Atr 456 (1993) 49 FCR 191 (17 September 1993)

FEDERAL COURT OF AUSTRALIA

ACP PUBLISHING PTY LIMITED v. COMMISSIONER OF TAXATION
No. NG23 of 1993
FED No. 649
Number of pages - 8
Sales Tax
[1993] FCA 459; (1993) 93 ATC 4773, (1993) Aust Sales Tax Cases 85-171
(1993) 26 ATR 456
(1993) 49 FCR 191

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
HILL J

CATCHWORDS

Sales Tax - Exemptions - "periodicals, magazines" not being "advertising matter" - whether publication was "advertising matter" - essential character of publication to be determined from publication itself - relevance of the purpose of readers discussed.

Words and Phrases - "advertising matter".

Sales Tax (Exemptions and Classifications) Act 1935: Schedule 1, Item 100.

Deputy Commissioner of Taxation (Cth) v Rotary Offset Press (1971) 45 ALJR 518; applied.

Deputy Federal Commissioner of Taxation v Thomson Publications (Australia) Pty Ltd (1979) 79 ATC 4296; applied.

Commissioner of Taxation v Thomson Australian Holdings Pty Ltd (1988) 20 FCR 85; applied.

HEARING

SYDNEY, 3 September 1993
17:9:1993

Counsel and Solicitors for the Applicant: DH Bloom QC and A Robertson

instructed by Phillips Fox

Counsel and Solicitors for the Respondent: AH Slater QC instructed by
Australian Government
Solicitor

ORDER

THE COURT ORDERS THAT:

1. Application dismissed.
2. Applicant to pay respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

HILL J The applicant, ACP Publishing Pty Limited ("ACP"), commenced the present proceedings in the High Court of Australia seeking a declaration that sales tax was not payable upon the sale value of the publication "Unique Cars" pursuant to the provisions of the Sales Tax (Exemptions and Classifications) Act 1935. By consent, the proceedings were remitted by McHugh J to this Court for decision.

2. By an amended Statement of Claim filed in this Court, the application was amended to take into account the introduction of what has been termed the "new streamlined sales tax" so that the applicant thereafter sought a declaration that the publication was exempt from sales tax as being "periodicals, books or magazines" within Item 100 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 ("the Exemptions and Classifications Act"). The declaration sought was subsequently further limited to a declaration that three issues of the publication, being the issues of February, March and April 1993, were exempt from sales tax.

3. Under the present sales tax legislation which took effect from 1 January 1993, sales tax will not be payable if the goods the subject of an "assessable dealing" are covered by an exemption Item being an item or sub-item in Schedule 1 to the Exemptions and Classifications Act 1992: s.24 and s.5(1) of the Sales Tax Assessment Act 1992 ("the Assessment Act"). Item 100 of the Exemptions and Classification Act 1992 is in the following terms:

"(1) Books, pamphlets, leaflets, periodicals,
magazines or printed music.
(2) This Item does not cover:
(a) advertising matter (including matter
that is published in order to
advertise any business or products
of the publisher or of the person or
persons for whom the matter is
published or is to be published."

4. The parties were in agreement that the publications in issue were periodicals, magazines or both. The question to be resolved was the familiar question whether they were "advertising matter".

5. Before proceeding to discuss that question it is necessary first to describe the publications in question. I do so in relation to the issue of March 1993. The other issues do not differ significantly.

6. "Unique Cars" is a publication of 348 pages including the covers. The front cover proclaims that it is "The Car Enthusiast's Magazine". The outside covers are printed on thick glossy paper. The front cover contains colour photos of three cars, a 1937 Buick Straight 8, a 1929 Chev Bus Roadster and a 1959 FC Holden. Underneath each photo appears a description of the car and selling features, a phone number and a price. The inside front cover contains a colour advertisement for a modern car. There follows on pages 3 to 5 a series of photos of cars in glossy colour, under which there is text which describes the particular car, its selling points, an asking price and a telephone number. One of these pages is reserved for photos of seven cars, being part of a private collection for sale.

7. Page 51 is a table of contents which also contains details of those involved with the publication in management and advertising. The next page is a full page black and white advertisement. The next contains details of advertising rates and seeks copy for "Private advertisements", referring thereby to advertising of private cars for sale, which might be in colour, black and white, or which might take the form of classified advertising.

8. The next section, pages 54 to 66, is entitled "News and Products". In this section appear short articles, largely concerning products new to the market. These articles originate either as press releases from the public relations offices of suppliers, or from the advertising staff of the publication who may have obtained the information in the course of seeking advertising. Written material suffers some sub-editing before publication. Most of the articles conclude with a contact name and phone number, presumably associated with the supplier or merchandiser of the product discussed, from whom further information may be obtained.

9. Pages 67 to 147 contain more photos of cars, but this time in black and white. The heading is "Private Advertisers". Underneath that heading on page 67 appears the words:

"To appear in this Magazine a car needs to
be - Special - Old - Rare - Very
Fast - Modified - Very Expensive - or
perhaps just Strange
DEFINITELY NOT YOUR AVERAGE CAR."

10. Underneath each photo again appears some text detailing the car, its selling features, asking price and a telephone number to call. Interspersed between these pages are a number of full page black and white advertisements.

11. At page 148 there appears what is entitled "Special Feature". In this section, which continues to page 157, are short articles on sports cars, motor sports and a Hooper Rolls Royce Emperor State Landaulette. Some of these features also show a telephone number for further information. Pages 158 to 268 contain further black and white advertisements for cars from "Private Advertisers" with occasional black and white advertisements interspersed. Pages 269 to 282 are classified advertising for cars, services and engines.

12. Pages 283 to 292 detail coming events, both national and state, in the motor world. Pages 294 to 340 are occupied with "Club notices". These notices, which give details of the numerous car clubs throughout the country, are left standing to be checked from time to time for dates times and places, or for revision as changes are notified by clubs. There follow four pages of small black and white advertisements and a page devoted to showing the deadlines for accepting advertising in 1993. There follows an advertiser's index and then the back pages. On the inside back page is an advertisement for other publications of the Trader Magazine Group and the last page is reserved for a colour advertisement for an oil product.

13. A calculation made by the applicant showed that of the total 348 pages, the editorial, special features, coming events and club notice board constituted 82 pages, that is 23.5% of the publication.

14. Not all private advertisements for cars are accepted for publication. It was said in evidence that in order to appear in the magazine a car must be capable of being classified as "unique" by virtue of its age, design, modification, restoration or some other feature which designates it as unusual in some way. An average of three to four advertisements submitted per issue are rejected.

15. Approximately 70,000 to 75,000 copies of the magazine are distributed via newsagents, with a return rate of approximately 20%. Of the publications's total revenue only 30% represents revenue from advertising. The balance depends upon the cover price. Thus the publication is circulation rather than advertising based.

16. There was tendered in evidence the results of a survey by a market research organisation giving the results of a questionnaire administered by telephone to a sample of 464 respondents. The sample was chosen at random from a larger sample of persons who had previously been identified as "readers" (not, it may be said, necessarily "purchasers") of the publication. It seems that the average issue of the publication is read by 3.8% of the national population aged 14 years and over. The sample was reduced to eliminate from it those who had not read an issue of the publication in the preceding 12 months and those who refused to participate in the survey, leaving a sample of 300. The survey was aimed at determining the reasons for reading the publication.

17. Objection was taken to the relevance of the results of the survey to the issue before the Court. No objection was taken to the methodology adopted. I admitted the survey into evidence subject to this objection, although, as will be seen, I do not think that it is ultimately relevant to the issue before me. The survey demonstrated, as might be expected, that readers had "an above average intention to buy a car in the next 12 months". This intention was, however, limited to 20% of readers. Readers were more likely not to have purchased the last issue of the magazine which they had read, although cumulatively a majority had purchased an issue at some time. 59% of those responding indicated that their motivation for "dipping into" the publication was "general interest". Only 15% claimed that they had been specifically looking for a car "to buy". 22% used the magazine as a guide to car prices.

18. Senior counsel for ACP submitted that the determination whether a particular publication constituted "advertising matter" should be made on a quantitative basis, that is to say, that provided that there existed a not insignificant level of non-advertising matter (for example, news), that sufficed to take the publication out of the field of advertising matter. Alternatively, he submitted that if the test were qualitative the answer was the same. The character of the publication was, it was said, "information as entertainment rather than as advertising". The private advertisements operated, it was said, to attract and sustain the interest of readers, for the cars were unique.

19. Senior counsel for the Commissioner submitted, on the other hand, that the publication must be looked at as a whole, having regard to the purpose manifested by it. The task of the Court was to determine the "essential character" of the publication and in the present case that was as "advertising matter".

20. Guidance is to be obtained from a number of cases which have considered the predecessor to Item 100. In Deputy Commissioner of Taxation (Cth) v Rotary Offset Press (1971) 45 ALJR 518, Gibbs J considered whether the publication "The Realtor" was advertising matter. That publication was put out by Estate Agents Co-operative Limited as a means of publicising houses for sale. There were photographs of the houses on sale, with a brief description of them, and other advertising matter. There was also what were described as "other material" which comprised 1.35% of the whole publication and consisted of articles and information in question and answer form. It was held that the publication was "advertising matter". Gibbs J (at 521) said:

"The word 'advertise' means to make generally or
publicly known, or to give public notice of, but
the phrase 'advertising matter' in the context
of item 51 must have a somewhat more limited
meaning, and must be restricted to published
announcements of a business kind, for example,
calling attention to the fact that property is
for sale and setting out its qualities,
especially the desirable ones. In my opinion,
it is clear that the greater part of the
material contained in The Realtor is
'advertising matter'. It seems to me that all
the parts of the publication other than the
articles and questions and answers and the 'fill
ins', indexes, mastheads etc are advertisements - there
is no other word by which they may properly be described."

21. His Honour rejected a submission that the question whether the publication was "advertising matter" was to be determined by the subjective purpose of publication. Rather, as his Honour put it, it depended upon the "nature of the matter itself". His Honour continued (at 522):

"The question whether a periodical is
'advertising matter' seems to me to depend on
whether the periodical, viewed objectively and
without regard to the actual intentions of those
publishing it, answers that description. In
other words, if the periodical on its face
appears to be designed to promote the sale of
property by means of a public announcement that
it is for sale, and by giving a description of
its qualities and a statement of its price, it
is 'advertising matter' notwithstanding that its
publication was, in fact, promoted not only by
the desire to sell the property, but for other
purposes as well."

22. His Honour then turned to consider a submission made for the taxpayer in that case that to be advertising matter the publication had to be "simply advertising matter". His Honour said:

"If that be so, those descriptions could rightly
be applied to the whole of the publication, with
the possible exception of the articles and
answers to readers, whatever purpose may, in
fact, have actuated the minds of those who
published the advertisements. In my opinion,
therefore, the greater part (about ninety-four
per cent on the average) of the contents of The
Realtor consisted of announcements which clearly
can be described as 'advertising matter'...
However there was in most issues some
material... which viewed alone could not be
referred to as 'advertising matter', namely, the
articles and the answers to readers' questions.
However, it seems to me that a publication does
not cease to be properly described as
'advertising matter' because it comprises some
material that does not directly promote the
transactions which the advertisements seek to
bring about. ...When the publication is looked
at as a whole, it seems to me that the articles
and answers to questions are, like the 'fill
ins' indexes and mastheads, merely ancillary to
the whole production and do not alter its
character. The question is one of fact and
degree and, indeed, perhaps almost one of impression."

23. Despite the submission of Counsel to the contrary, it is difficult to see that in the passage cited, Gibbs J is expressing a test dependent solely upon the quantity of advertisements. Indeed, in a later passage in the judgment, dealing I must say with a different point, his Honour points out that the Saturday edition of the "Sydney Morning Herald" at that time contained 94% advertising, but was clearly to be seen as a newspaper. Mere quantum of advertising did not suffice to change the character of the publication. That is not to say that quantity of advertising would be irrelevant in determining whether a particular publication was advertising matter. Quantity of advertising is thus relevant but not determinative.

24. The Realtor case makes it clear that what is to be determined is the objective character of the publication, its "essential character". That character will not depend upon the subjective aim of the publisher and evidence of that aim (some was sought to be advanced in the present case) would be inadmissible.

25. The decision of Gibbs J was upheld by the full court of the High Court: (1972) 72 ATC 4212.

26. The issue arose again for consideration in the Supreme Court of New South Wales in Deputy Federal Commissioner of Taxation v Thomson Publications (Australia) Pty Limited (1979) 79 ATC 4296, a case concerning a number of publications of which "Building Product News" was perhaps typical. The publication comprised, in addition to a large volume of advertising, short articles about new products under the heading "Product News". These were culled, inter alia, from press releases (as were the so-called news items in the present case) and edited. Each article contained a reference number. A reader desiring more information could complete a "Reader Service Card" and obtain descriptive literature, price lists and the like. There were also, however, in a number of the publications some items on topics of general interest.

27. Approximately two-thirds of the publication consisted of advertising in the ordinary sense of the word, ie "a paid announcement in a newspaper or periodical". Waddell J said (at 4305):

"If the product items are to be regarded as
'news' or at least as not 'advertising matter',
then it seems to me that the whole of the
publications cannot be regarded as 'advertising
matter'. On the other hand, if the product
items were 'advertising matter' then the other
editorial items were, in my view, so
insignificant in relation to the whole of each
publication that each of the publications should
be regarded as 'advertising matter'."

28. In the event, his Honour was of the view that the editorial items were news, rather than advertising matter. They were clearly distinguishable from the advertising by form and character. Of the submission that the publication was "advertising matter", Waddell J said simply (at 4306):

"In my opinion the product items should not be
regarded as 'advertising matter' having regard
to their character as viewed objectively and
having regard to the evidence relevant to their
true nature and to the circumstances in which
they came to be published."

29. An objective approach to the characterisation of a publication was taken as well in Commissioner of Taxation v Thomson Australian Holdings Pty Ltd (1989) 25 FCR 481. That case concerned a somewhat different question arising under Item 51 (1)(c) of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935, namely, whether certain publications were excluded from exemption as being "catalogues" or "price lists". Davies J, in a passage accepted by the parties as correctly stating the law on appeal, said at first instance ((1988) 20 FCR 85 at 86):

"...the task of the Court is to determine the
essential character of the goods, what
essentially the goods are, not some
characteristic that the goods might have.
Essential character derives from the basic
nature of the goods, from what they are, though
composition, function and other factors
necessarily play a part."

30. On appeal, (1990) 25 FCR 481, the decision of Davies J was upheld. However, the decision turned on the meaning of words not presently at issue and is therefore of limited assistance.

31. I approach the task before me as requiring an objective enquiry. The structure of Item 100 makes it clear that the categories of "periodicals and magazines" are not mutually exclusive of the category of "advertising matter". That is to say, that a publication may be a periodical or magazine but yet be properly characterised as "advertising matter". Given that advertising is often a more significant source of revenue to a particular publication than circulation income, (it is not on the facts of the present case) the mere fact that there is a substantial degree of advertising will not preclude a publication being exempt from tax. Certainly the problem is not to be solved by calculating the extent of advertising and arbitrarily classifying the publication as advertising matter or not depending upon whether it comprises more or less than 50% advertising. Conversely, the fact that there is some percentage less than 100% will not provide the answer.

32. What is necessary is to determine, objectively, the essential character of the publication, to determine what the publication is designed to achieve; what it does. The Realtor had one purpose only: it was designed as a medium for the promotion of real estate offered for sale through members of the co-operative of real estate agents. The existence of some articles of general interest did not change its character as advertising. The present publication is in the same position. It exists as a medium for the publication, by persons who wish to sell their "unique" cars, of advertisements announcing that fact. It may well be that the photos have interest to those who are lovers of specialty cars. It may well be the case that the car the subject of the advertisement must satisfy certain criteria before the advertising will be accepted. Neither of those matters changes the character of the publication.

33. There was a suggestion in the evidence that the extent of non-advertising (that is to say, the features and announcements) had increased in the recent past, the inference being that this increase had been arranged to improve the chance of the publication becoming exempt from sales tax. I do not regard that evidence as significant. If the inclusion of more news could operate to transform advertising matter into a newspaper, or periodical, then the fact that the news was inserted to achieve that end would hardly change the character of the publication. It either would or would not be exempt from sales tax. There was no suggestion that the anti-avoidance provisions of Part 8 of the Assessment Act could have any operation in a case such as the present.

34. In the process of characterisation there is no assistance to be obtained from an analysis of the motivation of those who read, "browse" through, or "dip into" the publication. The fact that many may read the Australian Financial Review just to read the daily doings of "Alex" would hardly enable the newspaper to be characterised as a comic strip. The purpose of the publication (not of its proprietors) must be found in an examination of the publication itself. When that examination is conducted in the present case, the publication will be seen to be but the vehicle for advertising cars of a particular kind. The articles and notices do not, it seems to me, change the character of the publication. The product items and other features may have some interest, but the purpose of the publication is unlikely to be seen as the dissemination of that material. The same is true of the motor club details and diary of forthcoming events. In my view each of the publications is properly to be characterised as "advertising matter".

35. I would accordingly declare that none of the three editions of the magazine before me is covered by Exemption Item 100. The applicant must pay the respondent's costs.