Bellsouth Advertising and Pub. v. Johnson

• Decision Date: 12 March 2003
• Citation: 100 S.W.3d 202
• Parties: BELLSOUTH ADVERTISING AND PUBLISHING COMPANY v. Ruth JOHNSON, Commissioner of Revenue, State of Tennessee.
• Court: Tennessee Supreme Court

100 S.W.3d 202

BELLSOUTH ADVERTISING AND PUBLISHING COMPANY v. Ruth JOHNSON, Commissioner of Revenue, State of Tennessee.

Supreme Court of Tennessee, at Nashville.

February 5, 2003 Session.

March 12, 2003.

James W. McBride, Washington, D.C., and Brigid M. Carpenter, Nashville, Tennessee, for the appellant, BellSouth Advertising and Publishing Company.

Paul G. Summers, Attorney General and Reporter; Michael E. Moore, Solicitor General; and Wyla M. Posey, Assistant Attorney General, for the appellee, Ruth Johnson, Commissioner of Revenue, State of Tennessee.

OPINION

FRANK F. DROWOTA, III, C.J., delivered the opinion of the court, in which E. RILEY ANDERSON, ADOLPHO A. BIRCH, JR., JANICE M. HOLDER, and WILLIAM M. BARKER, JJ., joined.

In this use tax case, we address the issue of whether or not the plaintiff should receive a credit under Tennessee law for sales tax it paid to the State of Alabama on the purchase of photocompositions used in printing telephone directories that were later distributed in Tennessee. Under Tennessee Code Annotated section 67-6-203(a) (1998), a use tax

is levied at the rate of six percent (6%) of the cost price of each item or article of tangible personal property when the same is not sold but is used, consumed, distributed, or stored for use or consumption in this state; provided, that there shall be no duplication of the tax. (Emphasis added). To avoid duplication of the tax, Tennessee Code Annotated section 67-6-507(a) (1998) provides a credit for like taxes paid to other states on tangible personal property. The trial court and the Court of Appeals both found that the plaintiff was not owed a credit for sales tax paid to Alabama for the photocompositions, since there was no "like tax" paid on the telephone directories. We conclude that the plaintiff is entitled to a credit because the cost of the photocompositions on which the Alabama sales tax was paid is included in the cost of the directories on which Tennessee is seeking to impose a use tax. Accordingly, we reverse the judgments of the trial court and the Court of Appeals and grant summary judgment to the plaintiff.

Factual Background

The plaintiff in this sales and use tax case is BellSouth Advertising and Publishing Corporation ("BAPCO"), a Georgia corporation and a registered dealer with the defendant, the Tennessee Department of Revenue (the "Department"). BAPCO produces and distributes telephone directories, which are provided to telephone customers free of charge. BAPCO derives its revenue from selling advertising space in the directories.

BAPCO compiles information to be included in the directory, including advertising data, white pages listing data, customer page data, and community interest page data. This information is then typed onto photocompositions, which are used to transfer the text to printing plates. The plates are then used to print the directories.

During the time period in question, BAPCO purchased the photocompositions from TechSouth, an Alabama company. TechSouth used information supplied by BAPCO to create the photocompositions and then sold the photocompositions to BAPCO. BAPCO paid 1.5% sales tax to Alabama on these purchases, totaling $165,413.72. The photocompositions were used by another company, Steven Graphics, Inc., to print the directories; Steven Graphics also bound the directories and prepared them for distribution. The photocompositions were destroyed following their use.

The Department conducted an audit of BAPCO in 1997 for the period of January 1, 1989, through December 31, 1994. At the conclusion of this audit, the Department issued an assessment for sales and use tax liability against BAPCO in the amount of $125,179.87. During the audit, BAPCO realized that it had not claimed a credit for the sales tax paid in Alabama on the photocompositions; it asked the auditor to allow such credit under Tennessee Code Annotated section 67-6-507(a) as part of the audit. If allowed, the credit would have been sufficient to offset the tax assessment. The auditor refused, and BAPCO filed a claim for a refund with the Department on June 27, 1997.

The Department denied the claim, and BAPCO filed a complaint on August 7, 1997, challenging the assessment. BAPCO filed a second complaint on March 11, 1998, claiming a refund for the amount of Alabama sales tax paid on the photocompositions. The cases were consolidated in June 1998. Both parties filed motions for summary judgment in July 2000, and the Special Chancellor granted the Department's motion for summary judgment.

BAPCO appealed to the Court of Appeals, asserting that the trial court erred in granting summary judgment to the Department and in not granting summary judgment to BAPCO, and that the Department's refusal to allow a credit violates the Commerce Clause of the federal Constitution by discriminating against BAPCO as an out-of-state vendor. The Court of Appeals upheld the decision of the trial court, characterizing Tennessee Code Annotated section 67-6-507 as an exemption statute and finding that to "come within the exemption described in Tenn.Code Ann. § 67-6-507(a) the property must be the same property on which a tax is paid in another state. The directories are not the same as the photocompositions." Furthermore, the Court of Appeals held that the Department's refusal to allow a credit did not violate the Commerce Clause.

We granted BAPCO's application for permission to appeal and now reverse the judgment of the Court of Appeals. We find that the trial court should have granted summary judgment to BAPCO.

Standard of Review

"Our review of a trial court's award of summary judgment is de novo with no presumption of correctness, the trial court's decisions being purely a question of law." Scott v. Ashland Healthcare Ctr., Inc., 49 S.W.3d 281, 285 (Tenn.2001) (citing Mooney v. Sneed, 30 S.W.3d 304, 306 (Tenn.2000)). Summary judgment is appropriate where there is no genuine issue of material fact relevant to the claim or defense and where the movant is entitled to judgment as a matter of law on the undisputed facts. See Tenn. R. Civ. P. 56.03; Bain v. Wells, 936 S.W.2d 618, 622 (Tenn.1997); Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn.1995).

Analysis

Tennessee's use tax is imposed by Tennessee Code Annotated section 67-6-203 (1998), which states,

Property used, consumed, distributed or stored. — (a) A tax is levied at the rate of six percent (6%) of the cost price of each item or article of tangible personal property when the same is not sold but is used, consumed, distributed, or stored for use or consumption in this state; provided, that there shall be no duplication of the tax.

(Emphasis added). "[C]ost price" is defined in Tennessee Code Annotated section 67-6-102(6) (2001) as the "actual cost of articles of tangible personal property without any deductions therefrom on account of the cost of materials used, labor, or service costs, transportation charges, or any expenses whatsoever."

The mandate in Section 67-6-203(a) that there shall be no duplication of the tax is implemented by Tennessee Code Annotated section 67-6-507(a) (1998), which provides as follows:

The provisions of this chapter do not apply with respect to the use, consumption, distribution or storage of tangible personal property for use or consumption in this state, upon which a like tax equal to or greater than the amount imposed by this chapter has been paid in another state, the proof of payment of such tax to be according to rules and regulations made by the commissioner. If the amount of tax paid in another state is not equal to or greater than the amount of tax imposed by this chapter, then the dealer shall pay to the commissioner an amount sufficient to make the tax paid in the other state and in this state equal to the amount imposed by this chapter.

(Emphasis added.)

In this case, the Department is imposing a use tax on directories distributed by BAPCO in Tennessee. The tax is based on the cost price of the directories, which consists of the cost of the photocompositions as well as the cost of printing and other expenses. BAPCO contends that the trial court and Court of Appeals erred by finding that BAPCO did not deserve a credit under Section 67-6-507(a) because a "like tax" paid on "tangible personal property" was not paid on the directories. BAPCO argues that because the cost of the photocompositions was included in the cost price of the directories, it has paid a "like tax" on that part of the cost of the directories that is attributable to the cost of the photocompositions.

A brief review of the purpose of use taxes is necessary for the proper application of the tax laws to this case. As the language of Tennessee Code Annotated sections 67-6-203 and 67-6-507(a) indicates, the use tax is a complement, not a supplement or an addition, to the sales tax. In Young Sales Corp. v. Benson, 224 Tenn. 88, 450 S.W.2d 574 (1970), this Court stated,

Professor Paul J. Hartman, in the January, 1961 Bulletin, Section of Taxation, American Bar Association, p. 32, has aptly characterized the nature and purpose of use taxes as `... a levy on the privilege of using within the taxing state property purchased outside the state, if the property would have been subject to the sales tax had it been purchased at home.'

This same dominant theme of the Use Tax was expressed by this Court in Broadacre Dairies v. Evans (1952), 193 Tenn. 441, 246 S.W.2d 78, as follows: `The Use Tax is a tax on the enjoyment of that which was purchased after a sale has spent its interstate character. McLeod v. J.E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304. It is a compensating tax to place Tennessee manufacturers and merchants on a parity with nonresidents doing business in the State. It prevents undue discrimination against local retailers. Its chief function is to prevent the evasion of the Tennessee Sales Tax by persons purchasing tangible personal property outside...