Apple Inc. v. State Tax Assessor

• Decision Date: 18 February 2021
• Docket Number: Docket: BCD-20-112
• Parties: APPLE INC. v. STATE TAX ASSESSOR
• Court: Maine Supreme Court

254 A.3d 405

2021 ME 8

APPLE INC.

v.STATE TAX ASSESSOR

Docket: BCD-20-112

Supreme Judicial Court of Maine.

Argued: November 17, 2020

Decided: February 18, 2021

Aaron M. Frey, Attorney General, Thomas A. Knowlton, Asst. Atty. Gen. (orally), and Kimberly L. Patwardhan, Asst. Atty. Gen., Office of the Attorney General, Augusta, for appellant State Tax Assessor

George S. Isaacson, Esq. (orally), Nathaniel A. Bessey, Esq., and David W. Bertoni, Esq., Brann & Isaacson, Lewiston, for appellee Apple Inc.

Bernard J. Kubetz, Esq., Eaton Peabody, Bangor, for amici curiae Council on State Taxation and Maine State Chamber of Commerce

Panel: MEAD, GORMAN, JABAR, HORTON, and CONNORS, JJ.

HORTON, J.

[¶1] The State Tax Assessor appeals from a summary judgment entered in the Business and Consumer Docket (Murphy, J. ), concluding that the taxable "sale price" of iPhones sold at discounted prices to customers who entered into wireless service contracts at Apple Inc.’s retail stores did not include payments made by the wireless service carriers to Apple in connection with the sales. The court concluded that the carriers’ payments to Apple were not sufficiently linked to the purchases of the phones to constitute reimbursement for the discounts. The Assessor also appeals the court's order sealing portions of the parties’ filings.

[¶2] We agree with the Assessor that amounts paid by the carriers to Apple constitute part of the taxable sale prices for the phones because Apple expected at the time of sale that it would be reimbursed by the carriers for the price discounts granted to customers who entered into wireless service contracts with the carriers. We therefore vacate the grant of summary judgment and remand for entry of judgment in favor of the Assessor. However, we affirm the order sealing portions of the parties’ M.R. Civ. P. 56 filings.

I. BACKGROUND

[¶3] The following recitation of facts is based on the parties’ stipulation of facts and the additional undisputed facts in the summary judgment record. See State Tax Assessor v. Kraft Foods Grp., Inc. , 2020 ME 81, ¶¶ 2, 13, 235 A.3d 837.

[¶4] The State Tax Assessor is the executive responsible for enforcing the state tax laws through Maine Revenue Services (MRS). Apple is a manufacturer and retailer of electronic equipment, including handheld wireless telephones marketed as iPhones. Apple operates online stores and brick-and-mortar retail stores, collectively called Apple Direct Channels, where iPhones are available for purchase by retail customers.

[¶5] This case involves payments made to Apple pursuant to a series of contracts between Apple and three wireless telecommunications carriers during a roughly three-year period. The three carriers are AT & T Mobility, LLC (AT & T), Cellco Partnership d/b/a Verizon Wireless (Verizon), and Sprint/United Management Company (Sprint). All of the contracts called for the carriers to make payments to Apple. A payment was triggered by the purchase of an iPhone at an Apple Direct Channel by a retail customer who also entered into a wireless service contract with one of the three carriers. In nearly every sale at issue, the wireless service contract was for a two-year period. For example, a retail customer could buy for $199 an iPhone regularly priced at $649 if the customer agreed to enter into a wireless service contract with AT & T, Sprint, or Verizon. Apple collected and remitted to MRS sales tax on the reduced price charged to the customer for the phone—$199 in that example—rather than on the regular price of the iPhone. In contrast, a retail customer who purchased the same phone without also entering into a wireless service contract was charged the regular price of $649, and Apple collected and remitted sales tax based on the regular price.

[¶6] In May 2013, MRS commenced a "sales and use tax" and "service provider tax" audit of Apple. The audit period covered May 1, 2010, to April 30, 2013. As a result of the audit, the Assessor determined that, throughout the audit period, Apple had not properly collected and remitted sales tax due on sales of iPhones in Apple Direct Channels in Maine when Apple sold iPhones at reduced prices to retail customers who agreed to enter into wireless service contracts with the carriers. The Assessor concluded that the tax on these transactions should have been collected and remitted based on the regular price of the iPhones rather than the reduced price actually charged because Apple expected full reimbursement by the carrier for the difference between the regular price of the iPhones and the reduced price actually charged to the customers.

[¶7] On October 17, 2014, MRS issued a notice of assessment for the difference between what Apple actually collected and remitted in sales tax during the audit period and what the Assessor determined should have been collected and remitted. It asserted that Apple owed $437,896.32 in tax and $101,342.05 in interest. The total amount owed was $539,238.37.

[¶8] Apple requested reconsideration of the assessment pursuant to 36 M.R.S. § 151(1) (2020). On July 29, 2016, MRS issued its decision on reconsideration, upholding the assessment in full. That September, Apple appealed the assessment to the Board of Tax Appeals pursuant to 36 M.R.S. § 151-D(10) (2020). The Board issued a decision upholding the assessment. Apple requested that the Board reconsider its decision and submitted additional information in support of its position. After further review, the Board found no error in the decision and upheld it without alteration in an order dated December 12, 2017, pursuant to 18-674 C.M.R. ch. 100 § 305(B) (2020).

[¶9] On February 8, 2018, Apple petitioned for judicial review of the agency action in the Superior Court (Kennebec County), pursuant to 5 M.R.S. §§ 11001(1) and 11002 (2020) ; 36 M.R.S. § 151 ; and M.R. Civ. P. 80C. The case was transferred to the Business and Consumer Docket on March 22, 2018. Apple filed its motion for summary judgment, see M.R. Civ. P. 56(a), on September 16, 2019. The Assessor filed its own motion for summary judgment, see M.R. Civ. P. 56(b), on October 29, 2019.

[¶10] While the case was pending, the court entered a confidentiality order at Apple's request prescribing procedures for protecting confidential material from disclosure in the public record. See M.R. Civ. P. 79(b)(1). Apple asked the court to seal a considerable quantity of the material filed with the Assessor and the Board and of the material filed in connection with the parties’ motions for summary judgment. The court requested that the parties confer on Apple's request, but the parties were unable to reach complete agreement. Following the dispute resolution procedures contained in the confidentiality order, the court issued an order broadly sealing references to the carrier contract provisions from the public record.

[¶11] After holding a hearing on the pending motions, on March 10, 2020, the court issued an order granting Apple's motion for summary judgment and denying the Assessor's motion. The Assessor timely appeals from the judgment and also appeals from the court's order sealing the parties’ filings, arguing that it is overbroad.¹ See 14 M.R.S. § 1851 (2020) ; 5 M.R.S. § 11008 (2020) ; M.R. App. P. 2B(c)(1). The Assessor asks us to vacate the judgment and the order sealing filings and to remand for the court to enter judgment in the Assessor's favor and to unseal at least some portions of the filings. Apple asks us to affirm both the judgment and the order sealing filings.

II. DISCUSSION

[¶12] We begin with the Assessor's appeal of the court's entry of summary judgment in favor of Apple. The issue involves statutory interpretation, which we review de novo as a question of law, see Irving Pulp & Paper, Ltd. v. State Tax Assessor , 2005 ME 96, ¶ 8, 879 A.2d 15, and the application of law to undisputed facts.

[¶13] The parties presented a stipulation to certain facts, and many other assertions of fact are extensively set forth in the parties’ statements of material fact. Although it would have been desirable for the parties to have presented the case on a fully stipulated record, neither party asserts that there are any disputed material facts nor additional material facts that are not set forth in the record, although they disagree on how certain undisputed facts should be interpreted. Neither party contends that the trial court should not have entered summary judgment based on the record presented, although they disagree as to which party was entitled to judgment. Given that the material facts are not in dispute, "[t]he propriety of the court's entry of summary judgment ... turns on whether, as a matter of law, [payments made to the retailer] fall within the definition of ‘sale price’ " pursuant to 36 M.R.S. § 1752(14). Flik Int'l Corp. v. State Tax Assessor , 2002 ME 176, ¶ 9, 812 A.2d 974.

A. Sales Tax

[¶14] Because the trial court's review of the Tax Board's decision was de novo, see 36 M.R.S. § 151-D(10), we review the trial court's interpretation of the applicable statutes directly, without deference to the Board's legal determinations. See Warnquist v. State Tax Assessor , 2019 ME 19, ¶ 12, 201 A.3d 602.

1. Statutory and Precedential Framework

[¶15] By statute, sales tax "is imposed on the value of all tangible personal property ... sold at retail in this State." 36 M.R.S. § 1811 (2013).² "Value is measured by the sale price" of the property sold. Id. "Sale price" is defined as "the total amount of a retail sale valued in money, whether received in money or otherwise." 36 M.R.S. § 1752(14) (2020).³ "Sale price" includes

(1) Any consideration for services that are a part of a retail sale; [and]

(2) All receipts, cash, credits and property of any kind or nature and any amount for which credit is allowed by the seller to the purchaser, without any deduction on account of the cost of the property sold, the cost of the materials used, labor or service cost, interest paid, losses or any other

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