Clark Franklin Press Corp. v. State Tax Commission

• Decision Date: 13 February 1974
• Citation: 364 Mass. 598,307 N.E.2d 566
• Parties: CLARK FRANKLIN PRESS CORPORATION v. STATE TAX COMMISSION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 566

307 N.E.2d 566

364 Mass. 598

CLARK FRANKLIN PRESS CORPORATION v.STATE TAX COMMISSION.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Dec. 5, 1973.

Decided Feb. 13, 1974.

Joseph A. Grasso, Jr., Legal Asst. Atty. Gen. (Walter H. Mayo, III, Asst. Atty. Gen., with him), for the State Tax Commission.

Stephen Wolfberg, Boston, for the taxpayer.

Before TAURO, C.J., and REARDON, QUIRICO, HENNESSEY and WILKINS, JJ.

TAURO, Chief Justice.

This is an appeal by the taxpayer, Clark Franklin Press Corporation(Franklin Press), from the Appellate Tax Board's decision upholding the State Tax Commission's denial of Franklin Press's application for abatement of sale taxes assessed for the period from April 1, 1969, through June 30, 1970.There was no error.

This case raises several questions of interpretation concerning G.L. c. 64H, the sales tax statute.In particular, we must address ourselves to: (1) the meaning of the language, 'sale . . . for . . . resale in the regular course of business,' as contained in § 1(13), ¹ and (2) the scope of the exemptions from taxation under §§ 6(a) and (b).²The meaning of 'sale . . . for . . . resale in the regular course of business' is crucial, since the excise under c. 64H, § 2, applies only to a 'sale at retail,' a term defined in § 1(13) as a 'sale ³ of tangible personal property for any purpose other than resale in the regular course of business.'Yet, even if a transaction is classified as a 'sale at retail,' it is not necessarily subject to tax under c. 64H, § 2, since c. 64H, § 6, exempts from taxation '(a) Sales which the commonwealth is prohibited from taxing under the constitution or laws of the United States,' and '(b) Sales of tangible personal property in transit or stored at points of entry intended for export or import which the vendor is obligated under the terms of any agreement to deliver to a purchaser outside the commonwealth or to an interstate carrier for delivery to a purchaser outside the commonwealth.'We must apply these various and related provisions to certain transaction entered into by the appellant, Franklin Press.

The pertinent facts are summarized.Franklin Press is engaged in the printing and lithograph business.During the period from April 1, 1969, to June 30, 1970, it printed and sold travel brochures to its then parent company American International Travel Service, Inc.(AITS).The presently disputed sales tax concerns those transactions.Both companies are Massachusetts corporations, Franklin Press having a principal place of business in Boston, AITS in Chestnut Hill.AITS is in the business of arranging group travel tours for organizations, at least 90% of which are located outside of Massachusetts.⁴Its business relationships are with the organizations, not with their individual members.AITS's major service to such organizations is the arrangement and coo rdination of airplane landing rights, hotel accommodations, meals, guided tours, car rentals, and other related matters.AITS also supplies the organizations with travel brochures designed to interest group members in a particular trip.No separate charge is made to the organizations for these brochures but their cost to AITS is included in the ultimate selling price of the entire 'service package.'From April 1, 1969, to June 30, 1970, AITS purchased these brochures on order from Franklin Press.Up through September 30, 1969, Franklin Press, at the request of AITS, mailed the brochures directly to the organizations with which AITS was doing business.In October, 1969, the procedure was changed and Franklin Press delivered cartons containing brochures to the AITS office in Chestnut Hill, where mailing labels were affixed.AITS then shipped the cartons to the organizations outside the Commonwealth.At no time did AITS open the cartons or ship brochures to the individual members of the organizations.AITS is listed as the purchaser of the brochures on Franklin Press invoices which were introduced in evidence at the hearing before the Appellate Tax Board(board).

In ruling in favor of the State Tax Commission the board held: (1) the sales of brochures by Franklin Press to AITS were not sales for 'resale in the regular course of business,'G.L. c. 64H, § 1(13), reasoning that '(t)he short answer might be that AITS, Inc. is not in the business of selling brochures. . . .(T)he furnishing of these brochures by AITS, Inc. to its customers is but one of the services of AITS, Inc.'; (2) the exemptions provided under c. 64H, § 6(a) and (b), did not apply to these 'sales at retail' because '(t)he printed matter involved was ordered and purchased by AITS, Inc., a Massachusetts corporation, from the appellant, a Massachusetts printer; the appellant receiving payments from AITS, Inc.'

Franklin Press disputes the board's ruling that the sales of brochures to AITS were not sales for 'resale in the regular course of business' and thus were taxable sales 'at retail.'The argument runs as follows.The transfers of brochures by AITS to its coustomers were 'sales,' as defined by § 1(12)(a)('Any transfer of title or possession . . . of tangible personal property for a consideration . . .').Though AITS did not charge its customers separately for the brochures, their cost was included in the ultimate selling price of the 'service package,' and thus AITS in fact received consideration.Therefore, by definition, the sales of these brochures by Franklin Press to AITS were transfers for resale in the regular course of business.

We reject this rather simplistic approach.The mere fact that AITS eventually delivered these brochures to its customers does not establish that it resold the brochures in 'the regular course of business.'That language must find its meaning in the inherent nature of the business in question.AITS is in the business of selling travel services, not brochures.The transfer of brochures constituted only an insignificant part of AITS's transactions with its customers, and it is obvious that the services provided by AITS were the predominant factor in the charges made to its customers.The fact that no separate charge was listed for the brochures underscores this point.These brochures, provided by AITS to its customers for promotional and advertising purposes, ⁵ in and of themselves had no consumer value.For these reasons, we conclude that AITS was not engaged in the resale of the travel brochures in the regular courses of its business.Thus, their sales by Franklin Press to AITS constituted 'sale(s) at retail' within the meaning of c. 64H, § 1(13).

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