Catholic Archdiocese of Denver v. City and County of Denver
| Decision Date | 27 July 1987 |
| Docket Number | No. 85SA172,85SA172 |
| Citation | 741 P.2d 333 |
| Parties | 14 Media L. Rep. 1964 CATHOLIC ARCHDIOCESE OF DENVER, a Colorado non-profit corporation; McGraw Hill Information Systems Co./Dodge Division, a New York corporation; the Colorado Leader, Inc., a Colorado corporation; the Colorado Political Press, Inc., a Colorado corporation; J. Ivanhoe Rosenberg, d/b/a the Herald-Dispatch; Intermountain Jewish News, Inc., a Colorado corporation; Denver Publishing, Inc., a Colorado corporation; Warren Peterson; Hans Leiso; Rosendo Lerma; Stan Boxter; Justin Koseba; Janet Weston; Mary Zachman; and Earnest Zachman, Plaintiffs-Appellants, v. CITY AND COUNTY OF DENVER, a Municipal corporation; and Carl H. Gustafson, Manager of Revenue, City and County of Denver, Defendants-Appellees. The DENVER POST CORPORATION, a Colorado corporation; and the Denver Publishing Company, d/b/a Rocky Mountain News, Plaintiffs-Appellants, v. CITY AND COUNTY OF DENVER; and Carl H. Gustafson, Manager of Revenue for the City and County of Denver, Defendants-Appellees. |
| Court | Colorado Supreme Court |
Cooper & Kelley, P.C., Thomas B. Kelley, Denver, for plaintiffs-appellants.
Eiberger, Stacy & Smith, Rodney L. Smith, Denver, for The Denver Post Corp.
Baker & Hostetler, James A. Clark, Bruce D. Pringle, Denver, for The Denver Pub. Co.
Stephen H. Kaplan, City Atty., Donald E. Wilson, Asst. City Atty., Denver, for defendants-appellees.
Appellants, publishers, retailers, carriers, and consumers of various newspapers in the Denver area, appeal from a judgment of the district court which upheld the Denver retail sales tax ordinance as applied to them, upheld the regulations promulgated thereunder, and affirmed an assessment against the Denver Post Corp. (Post ) and the Denver Publishing Co. d/b/a the Rocky Mountain News (News ). Appellants contend that the trial court misread the ordinance and regulations and that the ordinance and regulations are unconstitutional as applied to them. We affirm the judgment of the trial court on the issue of the constitutionality of the ordinance, but we agree with appellants that the trial court erred in its interpretation of the ordinance and accordingly reverse that part of the judgment.
Prior to 1982, retail sales of newspapers were exempt from the Denver retail sales tax. Denver, Colo. Revised Municipal Code (1950) (Code ), § 166.2-11. In 1981, the Denver City Council repealed and reenacted the retail sales tax article, and, in doing so, repealed the exemption for newspapers effective January 1, 1982. Denver, Colo. Ordinance 81-666 (December 7, 1981) (City Retail Sales Tax Article). 1 Accordingly, newspapers were treated as all other personal property under the retail sales tax ordinance.
The ordinance provided that "there is levied and there shall be collected and paid a tax in the amount stated in this article, ... on the purchase price paid or charged upon all sales and purchases of tangible personal property at retail." Code §§ 166.4 and 166.4-1.
"Retail sale" was defined as any sale other than one at wholesale. Code § 166.2-6. "Wholesale sale" was defined as "a sale by wholesalers to retail merchants, jobbers, dealers or other wholesalers for resale...." Code § 166.2-4. "Wholesaler" was defined as "a person doing a regularly organized wholesale or jobbing business, and known to the trade as such, and selling to retail merchants, jobbers, dealers, or other wholesalers, for the purpose of resale." Code § 166.2-3.
On February 22, 1982, the Denver Department of Revenue promulgated regulations entitled "Rules Regarding the Assessment and Collection of Sales and Use Taxes on the Sales and Use of Newspapers and Other Publications." (Regulations) They provided, in part:
1. Sales-for-resale of such publications to vendors (a) who are licensed as retailers pursuant to said Sales and Use Tax Articles and General Licensing Provisions of the Denver Revised Municipal Code, and (b) who sell such publications to purchasers from commercial locations, such as places of retail business or vending machines, shall be considered to be wholesale sales. All other sales by publishers or vendors of such publication shall be presumed to be retail sales on which the publisher or vendor must collect and remit the Sales Tax ... the presumption may be rebutted by such reasonable proof as the Manager deems adequate.
2. Sales of newspapers by publishers or licensed retailers to independent news carriers shall be presumed similarly to be sales at retail and taxable transactions. The tax in such cases shall be measured by the purchase price paid by the news carrier to the publisher or licensed retailer. The term "News carrier" as used herein shall mean those hawking newspapers on regularly established routes or at random locations.
....
6. Publications vended through vending machines located within the City are subject to the Sales Tax and the vendor must, regardless of the price of the publication, pay over to the Manager of Revenue an amount equivalent to 3% of gross sales made through vending machines.
In March 1982, the Post was assessed a tax in the amount of $1,200, a 10% penalty, and a 6% interest penalty for a total of $1,360, covering the period from February 22 through February 28. On April 12, the News received an identical assessment. 2 The publishers of both papers filed petitions to cancel the assessment. On June 9, 1982, an evidentiary hearing was held before the Deputy Treasurer acting as hearing officer on behalf of the Manager of Revenue.
There were four witnesses at the hearing: Howard Greenberg and Ronnie Myatt (circulation directors for the Post and News, respectively), Donald Guttenstein (a field audit supervisor for the Department of Revenue), and Dennis McNeill (a professor at the University of Denver Business School).
The testimony of the two circulation directors was substantially the same. Each testified as to the distribution methods used by their respective newspapers, and especially to the relationship between the publishers and the news carriers. Both testified that carriers entered into a contract to buy papers from the publishers and to deliver them to the consumers on their route. At the end of each month, the carrier was billed, at a rate below retail, for the papers he had purchased. Each newspaper also sold to independent distributors who functioned as intermediate wholesalers, buying from the publishers and selling to carriers who, in turn, resold to the public.
Generally, the carriers collected from the consumers, with the differential between the price the consumers paid and the price the carrier paid being the carriers' profit. The publishers would accept payments from customers and credit the payments to the accounts of the carriers. If a paper was not received by the consumer, the consumer had the option of calling the carrier or calling the publisher. If the publisher was called, a salaried employee was sent out with a replacement paper and the carrier's account was charged.
Both directors testified that they were familiar with the newspaper trade, and that the Post and News were recognized as wholesalers within the trade and that the sale from the publishers to the carriers was a wholesale sale.
Professor McNeill, a Ph.D. in marketing and accepted as an expert in the field, also testified that both the Post and News were recognized in the trade as wholesalers. He further testified that sales by the publishers to their respective carriers was wholesale in nature, and not retail.
Guttenstein testified that he had participated in drafting the regulations and it was his job to administer the ordinance and regulations. He testified that the regulations were drafted with efficient tax collection in mind, despite the fact that sales from the publishers to their news carriers were wholesale. Along this line, he noted that since the Post and News together had approximately 1,500 to 2,000 carriers and there was approximately a 100% annual turnover rate, it would be impractical to license the news carriers and require returns to be filed by them.
He also testified that in many circumstances where the marketing of a product was unusual--door-to-door cosmetic sales and girl scout cookies, for example--a deal was usually struck with the wholesaler to facilitate collection. He also testified that items sold for less than 19cents were included in calculating the sales of the merchant in determining the amount of tax he owed.
The hearing officer issued findings of fact and conclusions of law which were adopted by the Manager of Revenue. He found that the news carriers were not employees of either the publishers or the subscribers, but were independent contractors. He also found that the transactions between the publishers and the carriers were "wholesale" in the trade lexicon, and that the resale to the subscribers was a "retail" sale.
The hearing officer found that the regulations created a rebuttable presumption that a sale to an unlicensed news carrier or independent distributor was not a wholesale sale. In determining that the Post and News had not overcome the presumption, he stated that
no proof was offered whatsoever that any news carrier or independent distributor during the audited period was the holder of the City Retail Sales License.
....
The hearing officer does not, of course, foreclose in a proper case before him the news carrier coming forward to demonstrate that he, indeed, does hold a Retail Sales License and his purchases from the publisher should be exempt under the "sales for resale" standard.
Since the presumption was not overcome, the sales to the unlicensed news carriers and independent distributors were "retail" for purposes of the ordinance and, accordingly, the Post and News owed retail tax on those sales. However, the hearing officer determined that sales to independent distributors who resold the papers to licensed retailers were exempt....
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