American Exp. Travel Related Services Co., Inc. v. Tax Com'n of State of Idaho, 22385

• Decision Date: 29 July 1996
• Docket Number: No. 22385,22385
• Citation: 128 Idaho 902,920 P.2d 921
• Parties: AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., a New York Corporation authorized to do business in Idaho, Plaintiff-Appellant, v. The TAX COMMISSION OF the STATE OF IDAHO, Defendant-Respondent. Boise, April, 1996 Term
• Court: Idaho Supreme Court

Page 921

920 P.2d 921

128 Idaho 902

AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., a New York Corporation authorized to do business in Idaho, Plaintiff-Appellant, v. The TAX COMMISSION OF the STATE OF IDAHO, Defendant-Respondent.

No. 22385.

Supreme Court of Idaho,

Boise, April, 1996 Term.

July 29, 1996.

Holland & Hart, Boise; Morrison & Foerster, New York, for appellant. Arthur B. Rosen, argued.

Alan G. Lance, Attorney General; Carl E. Olsson, Boise, argued, for respondents.

SCHROEDER, Justice.

This is an appeal by American Express Travel Related Services Company, Inc. (American Express) from a decision of the district court affirming a determination of the Idaho State Tax Commission (Tax Commission) that the distribution of promotional materials by American Express to Idaho residents is subject to "use" tax under section 63-3621(a) of the Idaho Code.

I. BACKGROUND AND PRIOR PROCEEDINGS

American Express, a subsidiary of American Express Company, is a New York corporation authorized to conduct business in the state of Idaho. American Express provides diversified financial services, including travel related services, and in doing so engages in interstate commerce. At all times pertinent to this case, American Express had sufficient contacts with Idaho to subject American Express to the jurisdiction of the Idaho Sales Tax Act, Chapter 36, Title 63, Idaho Code.

American Express regularly sends printed advertisements and promotional materials, consisting of brochures, catalogs and printed sales materials for products and services offered by or through American Express via U.S. mail to individuals in every state in the United States, including Idaho. Most of these mailings are sent by first class mail, although, American Express's Merchandise Services Division sometimes uses third class mail to send printed advertisements and promotional materials to Idaho addresses.

All printed advertisements and promotional materials that are sent to Idaho residents are printed by independent third-party printers and letter shops pursuant to American Express's instructions. These printers and letter shops are located outside of Idaho and send the materials to addresses in Idaho by depositing them in the U.S. mail pursuant to American Express's instructions.

American Express supplies the printers and letter shops with the names and addresses of Idaho residents to whom it wishes the materials be sent. All of American Express's decisions with respect to the mailing of printed advertisements and promotional materials are made outside the state of Idaho, and all aspects of American Express's dealings with the printers and letter shops take place outside Idaho. The parties stipulate that the only connection between the activities the Tax Commission seeks to tax and the state of Idaho is that the printed materials are sent to Idaho addresses.

On or about April 23, 1992, the Tax Commission issued to American Express a Notice of Deficiency Determination seeking use tax, penalty and interest from April 1, 1986, through December 31, 1988. The basis for the notice was American Express's failure to remit use tax to the State of Idaho for printed advertisements and promotional materials sent to Idaho residents. On August 3, 1993, the Tax Commission issued its decision approving and affirming the Deficiency Determination of April 23, 1992, in the amount of $29,511.00. American Express paid the deficiency under protest and appealed the Tax Commission's determination to the district court. The district court affirmed the Tax Commission's deficiency determination.

The district court referred to the use tax statute, which provides that a use tax is imposed upon "every person storing, using, or otherwise consuming, in this state, tangible personal property ..." I.C. § 63-3621(a). The court also referenced the statutory definition of "use." I.C. § 63-3615(b).

The court relied on K Mart v. Idaho State Tax Comm'n, 111 Idaho 719, 727 P.2d 1147

                (1986), cert. denied, 480 U.S. 942, 107 S.Ct. 1597, 94 L.Ed.2d 784 (1987), as establishing that advertisers mailing materials to Idaho residents are subject to the "use" tax.  The court went on to state that, "in Idaho it has already been held by the highest Court that 'use' in Idaho includes advertisements and promotional materials prepared at the direction of the advertiser."   The district court concluded that under K Mart, the Tax Commission has the power to tax American Express for the direct mailings sent to Idaho addresses.  We affirm the determination of the district court
                

II.

THE DIRECT MAILING OF PROMOTIONAL AND ADVERTISING MATERIAL TO IDAHO ADDRESSES IS SUBJECT TO THE "USE" TAX IMPOSED BY I.C. § 63-3621.

In K Mart Corp. v. Idaho State Tax Comm'n, an advertiser had advertising supplements printed out-of-state and paid in-state newspapers to insert and deliver the supplements with the newspapers. 111 Idaho at 720, 727 P.2d at 1148. Through contracts with these newspapers, K Mart designated the number of inserts to be distributed at any given time as well as the dates of distribution. Id. This Court found K Mart's inserts subject to Idaho's use tax and stated the following:

[A]ll advertising is used by advertisers, such as K Mart, for the purpose of making sales and profits. In light of this and the exercise of K Mart, through its contracts, of rights and powers over the inserts incident to their ownership, K Mart uses the inserts within the meaning of the use tax statute.

Id. at 721, 727 P.2d at 1149.

A determination of whether the promotional materials distributed by American Express fall within the use tax involves the interpretation of the applicable statutes:

63-3621. Imposition and rate of use tax--Exemptions.--An excise tax is hereby imposed on the storage, use, or other consumption in this state of tangible personal property acquired on or after July 1, 1965, for storage, use, or other consumption in this state at the rate of five per cent (5%) of the value of the property, and a recent sales price shall be presumptive evidence of the value of the property.

(a) Every person storing, using, or otherwise consuming, in this state, tangible personal property is liable for the tax. His liability is not extinguished until the tax has been paid to this state except that a receipt from a retailer maintaining a place of business in this state or engaged in business in this state given to the purchaser is sufficient to relieve the purchaser from further liability for the tax to which the receipt refers.

....

I.C. § 63-3621 (1995).

The term "use" is defined in section 63-3615(b) of the Idaho Code as follows:

(b) The term "use" includes the exercise of any right or power over tangible personal property incident to the ownership or the leasing of that property or the exercise of any right or power over tangible personal property by any person in the performance of a contract, or to fulfill contract or subcontract obligations, whether the title of such property be in the subcontractor, contractor, contractee, subcontractee, or any other person, or whether the titleholder of such property would be subject to the sales or use tax, unless such property would be exempt to the titleholder under section 63-3622D, Idaho Code, except that the term "use" does not include the sale of that property in the regular course of business.

...