A.B. Hirschfeld Press, Inc. v. City and County of Denver

• Citation: 806 P.2d 917
• Decision Date: 11 February 1991
• Docket Number: No. 89SC109,89SC109
• Parties: A.B. HIRSCHFELD PRESS, INC., a Colorado corporation, Petitioner, v. The CITY AND COUNTY OF DENVER; Thomas P. Briggs, in his capacity as Manager of Revenue of the City and County of Denver; and Milo E. Scram, in his capacity as Hearing Officer of the Department of Revenue of the City and County of Denver, Respondents.
• Court: Supreme Court of Colorado

Page 917

806 P.2d 917

A.B. HIRSCHFELD PRESS, INC., a Colorado corporation, Petitioner, v. The CITY AND COUNTY OF DENVER; Thomas P. Briggs, in his capacity as Manager of Revenue of the City and County of Denver; and Milo E. Scram, in his capacity as Hearing Officer of the Department of Revenue of the City and County of Denver, Respondents.

No. 89SC109.

Supreme Court of Colorado En Banc.

Feb. 11, 1991.

As Modified on Denial of

Rehearing March 11, 1991.

Vinton, Waller, Slivka & Panasci, P.C., Denis H. Mark, Lentz, Evans and King, P.C., Robert A. Wherry, Jr., Denver, for petitioner.

Patricia Wells, City Atty., Robert F. Strenski, Asst. City Atty., Denver, for respondents.

Holme Roberts & Owen, Charles A. Ramunno, Michael W. Bruzga, Denver, for amicus curiae The Printing Industries Ass'n Mountain States.

Justice KIRSHBAUM delivered the Opinion of the Court.

In A.B. Hirschfeld Press, Inc. v. City and County of Denver, 779 P.2d 1356 (Colo.App.1988), the Colorado Court of Appeals affirmed the conclusion of the District Court for the Second Judicial District that respondent City and County of Denver (the City) properly assessed a use tax against petitioner A.B. Hirschfeld Press, Inc. (Hirschfeld), pursuant to the Revised Municipal Code of the City and County of Denver (the Code), for certain items purchased by Hirschfeld in the course of its business activities. We granted certiorari to consider whether the purchases of the items were purchases for resale and therefore exempt from the imposition of use taxes under applicable provisions of the Code. We affirm the judgment of the Court of Appeals.

I

Hirschfeld is engaged in the business of commercial printing, producing products such as brochures, letterheads and greeting cards in response to orders specified by its customers. Hirschfeld must obtain and use several items of tangible personal property referred to by the parties as "pre-press materials," to produce any particular product.

In December 1983, the City's Department of Revenue (the Department) conducted an audit of purchases of items of pre-press materials made by Hirschfeld during 1980, 1981 and 1982. As a result of that audit, the Department assessed use taxes against Hirschfeld on the basis of some of those purchases. Hirschfeld protested the assessments with regard to its purchases of film, negatives, positives, press plates, transparencies, photographs and color separations. ¹ It asserted, inter alia, that these items had been purchased for resale and, therefore, were exempt from use tax assessment under section 53-95(21)(a) of the Code. ² As a result of Hirschfeld's protest, an administrative hearing was conducted by the Department, pursuant to section 53-118 of the Code. The hearing officer made several findings of fact and, on the basis of those findings, entered an order rejecting Hirschfeld's protest and ordering payment of the delinquent taxes plus penalties and interest. Hirschfeld sought judicial review of the hearing officer's order pursuant to C.R.C.P. 106(a)(4). The district court affirmed the hearing officer's order insofar as it denied Hirschfeld's protest, ³ citing this court's decision in Carpenter v. Carman Distributing Co., 111 Colo. 566, 144 P.2d 770 (1943), as support for its conclusion. On appeal, the Court of Appeals held that Hirschfeld's purchases were not exempt from the imposition of use taxes because Hirschfeld did not purchase the pre-press materials primarily for resale.

II

To determine the applicability of the relevant provisions of the Code to Hirschfeld's purchases of pre-press materials, the following pertinent facts found by the hearing officer must be considered. Hirschfeld's function is to print materials ordered by its customers. Whether and to what extent Hirschfeld must use pre-press materials to fill a customer's order depends upon the situation; for example, customers sometimes provide pre-press materials to Hirschfeld. When Hirschfeld purchases pre-press materials, the materials are acquired for Hirschfeld's use in producing final products ordered by its customers.

The cost of all pre-press materials necessary to complete an order is included in any bid prepared by Hirschfeld and is incorporated into the price ultimately paid to Hirschfeld for the final product. However, Hirschfeld neither itemizes specific charges for pre-press materials nor identifies such materials on its statements to customers. Hirschfeld collects the applicable sales tax or use tax for the sale of a final product to a customer based on the total sales price charged for that product.

Once processed, pre-press materials are usable only for a particular order and become the property of the customer at the time the final product is delivered to the customer. However, Hirschfeld often reuses processed pre-press materials to print reruns of a final product. Hirschfeld typically retains possession of a customer's pre-press materials, but delivers them to the customer when so directed by the customer.

III

The Code authorizes the imposition of use taxes only upon property purchased at retail. Hirschfeld argues that its purchases of pre-press materials were wholesale purchases as defined by the Code and therefore were not subject to the imposition of use taxes. ⁴ The City contends that the purchases were purchases at retail as defined by the Code and therefore were subject to the imposition of use taxes. We agree with the City.

Use taxes are imposed for the privilege of using property and are distinct from, though complementary to, sales taxes. See Howard Elec. and Mech., Inc. v. Department of Revenue, 771 P.2d 475 (Colo.1989). Section 53-92(a) of the Code sets forth the general policy of the City respecting the imposition of use taxes as follows:

(a) It is hereby declared to be the legislative intent of the city, acting through its duly elected representatives, that, for the purposes of this article, every person who stores, uses, distributes or consumes in the city any article of tangible personal property or who consumes or stores a service subject to the provisions of this article, purchased at retail, is exercising a taxable privilege.

Denver, Colo.Rev.Mun.Code § 53-92(a) (1984).

Section 53-96 of the Code authorizes the imposition of use taxes in the following pertinent language:

There is levied and there shall be collected and paid a tax in the amount stated in this article, by every person exercising the taxable privilege of storing, using, distributing, or consuming in the city ... any article of tangible personal property, purchased at retail, for said exercise of said privilege ... [o]n the purchase price paid or charged upon all sales and purchases of tangible property....

Denver, Colo.Rev.Mun.Code § 53-96 (1984).

A "retail sale" is defined in sweeping terms as any sale "except a wholesale sale." Denver, Colo.Rev.Mun.Code § 53-95(12) (1982). As applicable here, a wholesale sale is defined as a sale "by wholesalers to licensed retail merchants, jobbers, dealers or other wholesalers for resale, and does not include ... a sale by wholesalers to users or consumers not for resale...." Denver, Colo.Rev.Mun.Code § 53-95(21)(a) (1984).

In interpreting a comprehensive legislative scheme, we must give meaning to all portions thereof and construe the statutory provisions to further the legislative intent. Martinez v. Continental Enterprises, 730 P.2d 308 (Colo.1986); Johnston v. City Council, 177 Colo. 223, 493 P.2d 651 (1972). A party challenging a tax assessment assumes the burden of establishing the invalidity of the assessment. See, e.g., County Bd. of Equalization v. Board of Assessment Appeals, 743 P.2d 444 (Colo.App.1987); Majestic Great Western Sav. & Loan Ass'n v. Reale, 30 Colo.App. 564, 499 P.2d 644 (1972).

The Code reflects a broad legislative intent to impose sales taxes or use taxes upon the great majority of purchases of tangible personal property. See Rocky Mt. Prestress, Inc. v. Johnson, 194 Colo. 560, 565, 574 P.2d 88, 91-92 (1978). The definition of retail sale is broadly inclusive, encompassing all sales except wholesale sales. The use tax is to be imposed on the purchase price of all tangible personal property that is purchased at retail for use, storage, distribution or consumption.

Hirschfeld argues that because the pre-press materials became the property of customers and were paid for by customers, its purchases of those materials must be deemed purchases "for resale" within the definition of wholesale sale contained in section 53-95(21)(a) of the Code. Under Hirschfeld's view, any purchase of an item of tangible personal property that is ultimately resold would be exempt from the imposition of a use tax, no matter how long the item might be stored or how extensively the initial purchaser might make use of the item. If a purchase of property used, stored, distributed or consumed by an initial purchaser can be insulated from the imposition of a use tax simply because of a subsequent transfer of title to the property, the broadly inclusive purposes of the Code would be severely undermined. We reject this construction of section 53-95(21)(a) of the Code.

The structure and language of the code support adoption of a primary purpose test. The Code authorizes taxation of every purchase "at retail," and then defines retail sale to mean all sales other than wholesale sales "for resale" (emphasis added). Such language invites examination of a purchase at the time it is made, while recognizing that in some circumstances events subsequent to the purchase may provide evidence of the true nature of the transaction. We thus conclude that, for purposes of the Code, a purchase of an item of tangible personal property is a purchase for resale and therefore not a purchase at retail if the primary purpose of the transaction is the acquisition of the item for resale in an unaltered condition and basically unused by the purchaser.

This primary purpose standard does...