[Federal Register Volume 62, Number 220 (Friday, November 14, 1997)]
[Rules and Regulations]
[Pages 61014-61015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30008]


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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