[Federal Register Volume 60, Number 44 (Tuesday, March 7, 1995)]
[Proposed Rules]
[Pages 12490-12492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5458]



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POSTAL SERVICE

39 CFR Part 111


Special Bulk Third-Class Eligibility Restrictions

AGENCY: Postal Service.

ACTION: Proposed rule.

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SUMMARY: This proposed rule implements provisions of Public Laws 103-
123 and 103-329, the Treasury, Postal Service, and General Government 
Appropriations Acts for 1994 and 1995, respectively. The proposed rule 
is necessary to clarify and implement further restrictions on the use 
of special bulk third-class rates.

DATES: Comments must be received on or before April 6, 1995.

ADDRESSES: Written comments should be mailed or delivered to Manager, 
Mailing Standards, USPS Headquarters, 475 L'Enfant Plaza SW., 
Washington, DC 20260-2419. Copies of all written comments will be 
available for inspection and photocopying from 9 a.m. to 4 p.m., Monday 
through Friday, in Room 6800 at the above address.

FOR FURTHER INFORMATION CONTACT: Ernest J. 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 subsections (j) and new subsection (m) (1993 amendments). These 
sections add further restrictions on the use of special bulk third-
class postage rates by qualified organizations. Specifically, the law 
makes certain types of advertisements, promotions, and offers, as well 
as some products, ineligible to be mailed at the special bulk third-
class rates. The final rule implementing the new statutory restrictions 
was published by the Postal Service on May 5, 1994, with an 
implementation date of September 4, 1994. It was subsequently delayed 
indefinitely by notice in the Federal Register (59 FR 39967) on August 
5, 1994.
    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 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 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 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 of 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.
    This proposal republishes for comment the rules adopted on May 5, 
1994, with certain changes. The major change is the addition of new 
sections E370.5.4(d)(2) and 5.8 of the Domestic Mail Manual (DMM) that 
implement the new exception to the restrictions in the 1993 amendments. 
Specifically, the new rule provides that the 1993 amendments do not 
apply to advertisements for products or services that appear in third-
class material meeting the content requirements for periodical 
publications. These content requirements are listed in DMM E370.5.8.
    Other changes from the rules published May 5, 1994, include the 
following. Several sections in the DMM have been renumbered to 
accommodate the addition of new DMM E370.5.8; section 5.7(c) has been 
deleted. This provision excluded certain material in newsletters and 
other publications from the new advertising restrictions. Because the 
publications that were intended to benefit from the provision are among 
those that are expected to benefit from the new 1994 exception, this 
section has been deleted as unnecessary and potentially confusing. 
Products and services advertised in materials meeting the content 
requirements for a periodical [[Page 12491]] publication are mailable 
at the special bulk third-class rates regardless of whether their sale 
or provision is substantially related to the purposes of the qualified 
organization. (This proposed rule change does not affect the 
prohibition on mailing advertisements for affinity, credit, debit, or 
charge cards; insurance policies; and travel arrangements.) Also, the 
cost of a low-cost item has been adjusted for cost of living. Editorial 
changes, including the consolidation of provisions and deletion of 
unnecessary or redundant provisions, have been proposed in several 
sections for the purpose of clarity. These editorial changes are not 
intended to make substantive changes from the rules adopted on May 5, 
1994.
    As a reminder, mailers should remain aware that the restrictions in 
proposed DMM E370.5.4(d) do not apply unless the material to be mailed 
``advertises, promotes, offers, or, for a fee or consideration, 
recommends, describes, or announces the availability of'' a product or 
service. Other material is not prohibited under this restriction. This 
includes certain acknowledgments and ``permissible references'' 
described in current DMM E370.5.6 (which would be renumbered as DMM 
E370.5.7 under this proposal). 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; a new definition 
of public service announcements has recently been adopted by the Postal 
Service in the Federal Register ( 59 FR 10021) on February 23, 1995. 
The determination whether other material may come within the 
restrictions in 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 other item subject to section DMM 
E370.5.4(d). The Postal Service understands that sweepstakes 
announcements generally involve such arrangements. Where an individual 
is only eligible for a prize or premium if a purchase is made, the 
matter would generally be considered under the provisions of DMM 
E370.5.4(d).
    Although exempt from the notice and comment requirements of the 
Administrative Procedure Act (5 U.S.C. 553(b), (c)) regarding proposed 
rulemaking by 39 U.S.C. 410(a), the Postal Service invites comments on 
the following proposed revisions of the Domestic Mail Manual, 
incorporated by reference in the Code of Federal Regulations. See 39 
CFR part 111.

List of Subjects in 39 CFR Part 111

    Postal service.

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.
    3. In the Domestic Mail Manual, section E370 is amended by adding 
5.4(d), 5.6, 5.8, and 5.10. The proposed text is 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 qualified 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 
qualified 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 products or 
services advertised are substantially related to one or more of 
[[Page 12492]] 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 a 
publication 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 
a qualified 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 a qualified 
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 section 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 how many issues are to be 
published each year and at what regular intervals (daily; weekly; 
monthly; monthly except June; four times a year in June, August, 
September, and December; annually; etc.).
    (4) Name and address of the nonprofit organization, including 
street number, street name, and ZIP+4 or 5-digit ZIP Code. The street 
name and number 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) ISSN or USPS number, 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 
section 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 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 do not have to meet the definition of low-cost as described in 
5.10a.
    c. A periodical publication (as defined in E211) of a nonprofit 
organization unless it is ineligible under the provisions of E370.5.0 
to be mailed at the special bulk third-class rates.
* * * * *
    An appropriate amendment to 39 CFR 111.3 to reflect these changes 
will be published if the proposal is adopted.
Stanley F. Mires,
Chief Counsel, Legislative.
[FR Doc. 95-5458 Filed 3-6-95; 8:45 am]
BILLING CODE 7710-12-P