Aircraft Spruce v. Bd. of Tax Assessors

• Decision Date: 27 October 2008
• Docket Number: No. A08A0901.,A08A0901.
• Citation: 669 S.E.2d 417,294 Ga. App. 241
• Parties: AIRCRAFT SPRUCE & SPECIALTY COMPANY et al. v. FAYETTE COUNTY BOARD OF TAX ASSESSORS.
• Court: Georgia Court of Appeals

669 S.E.2d 417

294 Ga. App. 241

AIRCRAFT SPRUCE & SPECIALTY COMPANY et al. v. FAYETTE COUNTY BOARD OF TAX ASSESSORS.

No. A08A0901.

Court of Appeals of Georgia.

October 27, 2008.

Smith, Gambrell & Russell, Edward H. Wasmuth, Jr., Atlanta, for appellants.

Donald M. Comer II, Jonesboro, for appellee.

MILLER, Judge.

This action arises out of a ruling by the Fayette County Board of Tax Assessors (the "Board"), that certain inventory held by Aircraft Spruce & Specialty Company, a division of Irwin International, Inc. ("Irwin"), at its Peachtree City warehouse was not exempt from ad valorem taxes under OCGA § 48-5-48.2(b). After that ruling was affirmed by a board of equalization, Irwin filed an appeal in the Superior Court of Fayette County. The parties filed cross-motions for summary judgment, and the trial court granted summary judgment in favor of the Board and against Irwin. The trial court found that the exemption sought by Irwin did not apply to the inventory in question, because, even though such inventory was purchased by and shipped to out-of-state customers, that inventory was nevertheless being sold "at retail" in Georgia. Irwin now appeals from that ruling, arguing that its catalog and Internet retail sales to out-of-state customers cannot be considered retail sales made in Georgia. We disagree and affirm.

The facts are undisputed and the issue before us is whether, in finding that Irwin was not entitled to the tax exemption it sought, the trial court correctly interpreted and applied the relevant statutes. "This question is one of law, which we review de novo." (Citation omitted.) State of Ga. v. Free At Last Bail Bonds, 285 Ga.App. 734, 647 S.E.2d 402 (2007).

The record shows that Irwin is a privately held, California corporation that sells aircraft parts and pilot supplies to both retail customers and wholesalers throughout the United States. Irwin markets its products through a printed catalog and a website and customers order products from Irwin using either the Internet or a toll-free telephone number. The orders are then filled from one of two warehouse facilities maintained by Irwin, one of which is located in Peachtree City. Most orders are shipped directly to the customer, but the company also maintains a "will-call" area at its warehouse in Peachtree City where customers may pick up previously placed orders, thereby avoiding shipping costs. Irwin also makes occasional "walk-in" sales at its Peachtree City facility.

In 2005 (the year prior to the assessment date at issue), approximately 84 percent of the sales made from Irwin's Peachtree City warehouse were retail sales, with 7.2 percent being retail sales to customers residing in Georgia and 76.71 percent being retail sales to out-of-state residents. Additionally, 1.34 percent of sales from the Peachtree City warehouse were made to Georgia wholesalers, and 14.73 percent were made to out-of-state wholesalers.

Under Georgia law, a retailer may be assessed ad valorem taxes based on the value of its inventory as of January 1. Certain inventory, however, is exempt from taxes under OCGA § 48-5-48.2(b), commonly known as the "freeport exemption." The relevant portions of this statute exempt from the ad valorem tax those finished goods in a retailer's inventory that, as of January 1:(i) are stored in a warehouse; and (ii) are destined for shipment to a final destination outside of Georgia. OCGA § 48-5-48.2(b)(3).

Specifically excluded from the freeport exemption, however, is otherwise eligible inventory that constitutes the "stock in trade of a retailer," which is defined as "finished goods held by one in the business of making sales of such goods at retail in this state, ... when such goods are held or stored at a business location from which such retail sales are regularly made." OCGA § 48-5-48.2(a)(4). An exception to this exclusion, found within the statutory definition of the "stock in track of retailer," provides:

Goods stored in a warehouse, ... including a warehouse ... which is part of or adjoins a place of business from which retail sales are regularly made, shall not be considered stock in trade of a retailer to the extent that the taxpayer can establish, through a historical sales or shipment analysis, ... or other reasonable, documented method, the portion or percentage of such goods which is reasonably anticipated to be shipped outside this state for resale purposes.

OCGA § 48-5-48.2(a)(4).

As of January 1, 2006, Irwin's Peachtree City warehouse contained inventory valued at approximately $3.1 million. Irwin filed for a freeport exemption as to 91.44 percent of that inventory, based on the fact that 91.44 percent of its sales in the previous year from the Peachtree City warehouse had been to out-of-state customers, both retail and wholesale. The Board instead allowed an exemption for roughly 15 percent of the inventory, citing the fact that this represented the percentage of sales Irwin had made to out-of-state wholesalers and reasoning that inventory that was the subject of out-of-state retail sales represented the "stock in trade of a retailer."

Irwin appealed that ruling, arguing that the freeport exemption should apply to all out-of-state sales, both retail and wholesale. In support of its position, Irwin first asserts that retail sales made via the telephone or Internet to an out-of-state customer are not sales "at retail in this state," i.e., they are not sales that occur in Georgia. It then reasons that, because such transactions do not qualify as retail sales in this state, by default they must be considered the shipment of goods outside the state "for resale purposes." We disagree.

The burden of proof in a tax appeal to the superior court is on the party who initiated the appeal. Therefore, in this case the burden was on [Irwin]. Further, laws granting an exemption from taxation must be construed strictly in favor of the taxing authority, and all doubts must be resolved against the taxpayer. Consequently, no exemption will be allowed unless the exemption is clearly and distinctly intended by the legislature.

(Citations omitted.) Apollo Travel Svcs. v. Gwinnett County Bd. of Tax Assessors, 230 Ga.App. 790, 791(1), 498 S.E.2d 297 (1998). Additionally, we must read the relevant statute "according to [the] natural and most obvious import of the language without resorting to subtle and forced constructions for the purpose of either limiting or extending its operation," and this interpretation "must square with common sense and sound reasoning." (Citations and punctuation omitted.) Id. at 792(3), 498 S.E.2d 297.

As a practical matter, we find that in determining whether a retail sale is made in this State, we must look to the location and conduct of the seller, rather than the location of the buyer. Here, all aspects of the retail sales made from Irwin's Peachtree City warehouse to Internet and telephone customers occur in Georgia. Irwin receives telephone and Internet orders at the Peachtree City warehouse, and also receives the payment for such orders at that facility. It thereafter processes the orders in Peachtree City, fills the orders from inventory located in Peachtree City, and packages and ships the orders from that location. Thus, with respect to each of these telephone and Internet retail transactions, all of the seller's conduct occurs in this State. Logically, therefore, these transactions qualify as retail sales occurring in Georgia.

This conclusion is supported by our decision in Apollo, supra, 230 Ga.App. 790, 498 S.E.2d 297. In that case, the taxpayer, Apollo, distributed computer software and hardware to its clients around the country for use in a computer travel reservation system. Apollo owned the computer hardware and leased it to its customers, 97 percent of whom were located outside of Georgia. Apollo stored such equipment at a warehouse in Gwinnett County and sought a freeport exemption for that inventory. On appeal, this Court upheld the denial of the exemption, finding that Apollo's inventory did not meet the definition of "inventory of finished goods" as contemplated by OCGA § 48-5-48.2, because the computers were not "goods being held for shipment to final destinations outside [Georgia] for resale." Id. at 793(4), 498 S.E.2d 297. Noting that Apollo was holding this inventory "merely for shipment to its retail customers," this Court concluded that...