[Federal Register: November 14, 1997 (Volume 62, Number 220)]
[Rules and Regulations]
[Page 61014-61015]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14no97-13]

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POSTAL SERVICE

39 CFR Part 111


Eligibility Requirements for Certain Nonprofit Standard Mail Rate
Matter

AGENCY: Postal Service.

ACTION: Final rule.

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SUMMARY: This notice adopts a proposed rule which was published in the
Federal Register on September 8, 1997 (62 FR 47178-47179). It amends
the regulations of the Postal Service governing the eligibility
requirements for mail to be sent at the Nonprofit Standard Mail rates
of postage. For the most part, this final rule adopts the proposal as
it was published with changes suggested in comments received from
interested parties.

EFFECTIVE DATE: November 14, 1997.

FOR FURTHER INFORMATION CONTACT: Jerome M. Lease, 202-268-5188.

SUPPLEMENTARY INFORMATION: The proposed rule discussed in detail the
common practice of nonprofit organizations to offer premium items, such
as tote bags, umbrellas, t-shirts, and coffee mugs when seeking
contributions or membership dues payments from new members. As
explained in the proposed rule, by statute, material that advertises,
promotes, offers, or, for a fee or consideration, recommends,
describes, or announces the availability of any product or service,
other than separately restricted travel, insurance, and financial
instruments such as credit cards, is ineligible for the nonprofit rates
of postage unless the sale of the product or the provision 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 Nonprofit Standard Mail rates or other
prescribed exceptions are met. 39 U.S.C. 3626(j)(1)(D).
    The Postal Service promulgated standards implementing the statute
effective October 1, 1995. Since that time, the Postal Service has
consistently held that ``backend premiums'' such as those described
above are to be considered advertising for the product offered as a
premium. In addition, the Postal Service has generally concluded that
``utilitarian'' items such as coffee mugs, t-shirts, tote bags,
umbrellas, and similar items are not normally related to an
organization's qualifying purposes, thus disqualifying such
advertisements from being mailed at the Nonprofit Standard Mail rates.
    The proposed rule offered standards by which, if met, the Postal
Service would not consider the announcement of the backend premium as
an ``advertisement.'' Specifically, the Postal Service proposed two
tests. First, the requested contribution must be at least five (5)
times the cost of the premium to exempt the announcement from being
considered as an advertisement for the premium. The cost of the premium
is its actual cost to the nonprofit organization. Second, the requested
contribution must be at least three (3) times the represented value in
the mailpiece, if any, of the premium. Each test must be met or the
offer will be considered an advertisement.
    The Postal Service received a total of 12 comments on the proposed
rule. In one fashion or another, all of the commenters expressed their
support for a test or threshold by which announcements of backend
premiums would not be considered as advertisements, thereby eliminating
the need for consideration of the substantially related test.
Accordingly, after full consideration of the comments received, the
Postal Service believes it is appropriate to adopt, with revision of
the ratios, the proposed changes in eligibility requirements at this
time.

Evaluation of Comments Received

    Written comments were received from 12 organizations and
associations representing nonprofit organizations. Of primary concern
to 11 of the 12 commenters is the Postal Service's proposed test of
requiring a contribution or dues payment to be at least five times the
cost and three times the represented value of the premium to activate
the exception from material being considered as an advertisement. Four
commenters supported the proposal in its entirety including the five
times cost and three times represented value criteria. On the other
hand, two commenters requested a test of three times the cost and
eliminating the represented value test. Other

[[Page 61015]]

suggestions included a test of three times cost and 1\1/2\ times
represented value; three times cost and two times represented value;
four times cost and two times represented value; and a single test that
would be based on the lower of cost or market value of the premium.
    The most common reason for requesting lower numbers be used,
particularly with respect to the test related to the ``represented
value'' of the premium, is a disclosure requirement of the Internal
Revenue Service which requires that the ``fair market value'' of a
premium be disclosed. (The donor may not take a charitable deduction
for that part of his or her payment). Along those same lines, one
commenter was concerned about using a cost figure when merchandise
which is ``obsolete'' and without current market value is offered as a
premium. Others simply cited lower numbers as a more reasonable way to
fairly assess whether the offer of a premium should be considered
advertising.
    We have considered the comments, and determined to adopt both of
the proposed tests, albeit with modifications in the original ratios.
Up to this time, the Postal Service viewed these solicitations as two
distinct transactions (i.e., part donation and part sale). Even though
the amount of the donation generally exceeded the amount of the sale,
the premium offer was considered to be an advertisement for that item.
The rulemaking looks to the premise, supported by a recent ruling of
another agency, that the solicitation is a single transaction (rather
than part solicitation and part sale); it then looks to whether the
solicitation or sale is the predominant part of the transaction. That
is, it looks to whether the amount of the sale is greater than the
amount of the donation.
    One means to make this judgment would be to compare the fair market
value of the premium(s) with the ``donation'' (i.e., the difference
between the amount solicited and the fair market value). However, the
fair market value of the premium may not always be clear or readily
ascertained. Accordingly, the Postal Service proposal looked to the
represented value, if any, of the premium(s), since this would be the
perceived value of the premium(s), as well as the cost to the
nonprofit, since there is generally a relationship (i.e., markup)
between cost and market value.
    We continue to believe that both of these standards are
appropriate, but will adjust the ratios. With respect to represented
value, the solicitation will not be considered to be an advertisement
if the requested donation is more than two times the represented value
of the premium(s). (For example, if the request is for $100.00, the
represented value of the premium(s) could be no more than $49.99). With
respect to cost to the nonprofit, the solicitation will not be
considered an advertisement if the requested donation is more than four
times the represented value of the premium(s). (For example, if the
request is for $100.00, the cost of the premium(s) may be no more than
$24.99). In adopting this test, we considered that a usual ``markup''
over costs is two to one, which was suggested in some comments
(although other comments suggest the ratio may be higher).
    The comment concerning application of the test to ``obsolete''
merchandise raises an interesting concern. Even if we would be inclined
to consider this concern, it is not clear to us how a standard could
easily be administered (e.g., how can we determine what is
``obsolete?''). While we do not believe it appropriate to delay this
rulemaking to give further consideration to this concern, we will
consider further proposals regarding it.
    Two commenters were concerned that the proposed rule does not make
clear that only premium offers which are not substantially related to a
nonprofit organization's qualifying purposes must meet the test
incorporated in the final rule to be eligible for mailing at Nonprofit
Standard Mail rates. We believe that adoption of these suggestions is
not needed, and would unnecessarily complicate the regulations. The
rule is intended to define the solicitations which will not be
considered advertising. If solicitations are advertising, they may
still be eligible for nonprofit rates if the premiums are substantially
related to the organization's purposes or contained in material meeting
the content requirements of a periodical.
    One commenter also suggested that future adjustments be made
possible, such as adjustments for inflation. We will remain open to
future suggestions to change the standards adopted here.
    Another commenter requested that the Postal Service include a
provision for ``one written warning'' if a premium offer for a product
or service is determined to be ineligible for mailing at the nonprofit
rates; and, to create a statute of limitations to limit a nonprofit
organization's liability for making improper mailings. This same
commenter requested ``retroactive'' application of the policy adopted
in the final rule, although no justification for this request was
offered in the comment provided. These requests are beyond the scope of
this rulemaking. Nevertheless, the Postal Service has an ongoing
dialogue with the nonprofit community and concerns such as those
expressed here have been considered.
    Finally, one commenter offered views concerning the application of
the ``substantially related'' standard. These comments were beyond the
scope of the rulemaking.

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, redesignate 5.9, 5.10, 5.11, and
5.12 as 5.10, 5.11, 5.12, and 5.13, respectively; add new 5.9 to read
as follows:
5.0  ELIGIBLE AND INELIGIBLE MATTER
* * * * *

5.9  Contribution and Membership Premiums

    Announcements for premiums received as a result of a contribution
or payment of membership dues are not considered advertisements if the
requested contribution or membership dues is more than 4 times the cost
of the premium item(s) offered and more than 2 times the represented
value in the mailpiece, if any, of the premium item(s) offered.
* * * * *
    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. 97-30008 Filed 11-13-97; 8:45 am]
BILLING CODE 7710-12-P