Collins v. J.C. Penney Co., Inc.

• Decision Date: 25 August 1995
• Docket Number: No. A95A1409,A95A1409
• Parties: COLLINS v. J.C. PENNEY COMPANY, INC.
• Court: Georgia Court of Appeals

Page 582

461 S.E.2d 582

218 Ga.App. 405

COLLINS v. J.C. PENNEY COMPANY, INC.

No. A95A1409.

Court of Appeals of Georgia.

Aug. 25, 1995.

Certiorari Granted Jan. 5, 1996.

Michael J. Bowers, Attorney General, Daniel M. Formby, Warren R. Calvert, Senior Assistant Attorneys General, for appellant.

Smith, Gambrell & Russell, E. Kendrick Smith, William B. Wood, Thomas M. Barton, Atlanta, for appellee.

JOHNSON, Judge.

J.C. Penney Company, Inc., brought an action against Marcus E. Collins, Sr., Commissioner of the Georgia Department of Revenue, seeking a refund of assessed use taxes and interest. The Department appeals from the trial court's grant of summary judgment in favor of Penney. The Department's appeal is properly before this court. Collins v. AT & T, 265 Ga. 37, 456 S.E.2d 50 (1995). Because we find that the law of Georgia supports the Department's assessment of use taxes and interest against Penney, we reverse.

In October 1989, the Department conducted a sales and use tax audit of Penney for the period October 1985 through December 1988. Following that audit, the Department assessed Penney $893,162 in use taxes as well as $257,828 in accrued interest. This assessment resulted from the treatment of certain direct mail advertising materials and newspaper inserts as tangible personal property within the provisions of Georgia's use tax statute. Penney conceded the propriety of the Department's imposition of use taxes on a portion of those newspaper inserts which were distributed as "store copies" but filed a Petition for Redetermination for the remaining $1,006,837 in use taxes and interest, which the Department denied. Penney paid the full $1,150,990 in assessed use taxes and interest in November 1989. Shortly thereafter, Penney filed a Claim for Refund, which the Department also denied. Finally, Penney filed the present action for this same refund in Fulton County Superior Court pursuant to OCGA § 48-2-35(b)(4).

The trial court considered the parties' cross-motions for summary judgment based upon the following stipulated facts. Penney is a Delaware corporation qualified to conduct business in Georgia. In the furtherance of its business, Penney advertises its merchandise in numerous ways, two of which are the subject of this action: direct mail advertisements, comprising catalogs and monthly billing notice tear-offs and inserts; and advertising circulars, which are inserted into newspapers. The planning, layout and design for all of these materials were conducted in either Dallas or New York. Penney paid printers located outside of Georgia to produce both the direct mail materials and newspaper inserts. Penney had the printers deliver these materials to Georgia residents and newspapers by common carrier or the United States Postal Service. Penney paid no sales or use tax on any of these materials in the state where they were produced.

Regarding the direct mail materials, Penney supplied to the printers the names and mailing addresses to which catalogs and billing notice tear-offs and inserts were sent. The residents selected by Penney to receive these catalogs were previous customers who had purchased more than a designated dollar amount of merchandise. The billing notice tear-offs and inserts accompanied the monthly billing statements mailed to holders of Penney's credit cards.

Regarding the newspaper inserts, Penney directed the printers to send most of these materials to specific newspapers in Georgia with which Penney had contracts. Some portion of the inserts produced was delivered directly to Penney's retail stores to be distributed as "store copies." Once the printers delivered the inserts to the United States Postal Service or common carrier, title transferred to Penney. Title to these materials remained with Penney even after they were delivered to the newspaper publishers. Penney had control over the date on which the inserts were included in the newspapers and could elect to have the inserts included in newspapers going only to particular geographic zones. Also, at Penney's request, the newspaper publishers could have removed the inserts from the newspaper after insertion up until the point that the newspapers "hit the streets."

In addition to insertion into newspapers, the inserts were distributed by separate mailings and as part of groupings of similar advertising materials. As noted, Penney has conceded for the purposes of this litigation that all of the newspaper inserts distributed other than with a newspaper were properly taxed. Penney had these inserts distributed between 36 and 42 times per year during the audit period. Finally, no newspaper publisher copyrighted the inserts, and only the Atlanta Journal-Constitution microfilmed the inserts for inclusion in its historical record.

The relevant portion of Georgia's use tax statute provides that "[u]pon the first instance of use, consumption, distribution, or storage within this state of tangible personal property purchased at retail outside this state, the owner or user of the property shall be a dealer and shall be liable for a tax at the rate of 3 percent of the cost price or fair market value of the property, whichever is lesser." OCGA § 48-8-30(c). ¹ "Use" is defined as "the exercise of any right or power over tangible personal property incident to the ownership of the property...." OCGA § 48-8-2(12). "Use tax," however, is defined to include not only the "use," but also the "consumption, distribution, and storage of tangible personal property...." OCGA § 48-8-2(13). Also relevant is Georgia's definition of "retail sale" as being a sale "for any purpose other than for resale...." OCGA § 48-8-2(6)(A).

The trial court concluded that Penney did not exercise sufficient right or power over the direct mail advertising materials such that Penney could be said to have used those materials in Georgia within the statutory definition. The trial court further concluded that the advertising inserts became an integral component of the newspaper itself, were resold as part of the newspaper and, therefore, were not purchased by Penney "at retail." The Department appeals these rulings.

Direct Mail Advertisements

1. The Department argues that the issue of whether direct mail advertisements are subject to use tax is controlled by L.M. Berry v. Blackmon, 231 Ga. 659, 203 S.E.2d 520 (1974), and that the trial court erred in distinguishing this case. As discussed later in this division, we agree with the Department that the trial court's interpretation of L.M. Berry is incorrect. But we find that the unambiguous terms of Georgia's use tax statute more expediently dispose of this issue. Both OCGA §§ 48-8-30(c) and 48-8-2(13) use the word "distribution." Although every tax statute "must be construed liberally in favor of the taxpayer," Telecom*USA v. Collins, 260 Ga. 362, 364(1), 393 S.E.2d 235 (1990), the use tax statute explicitly makes "distribution" a distinct and independent basis for imposing the use tax. When a word in a statute is not defined, that word should be given its commonly understood meaning. OCGA § 1-3-1(b); Oxford v. Chance, 104 Ga.App. 310, 313, 121 S.E.2d 825 (1961). Webster's Third New International Dictionary defines "distribution" as meaning "the spreading out or scattering over an area or throughout a space ... [or] delivery or conveyance (as of newspapers or goods) to members of a group...." It is clear in this case that Penney distributes the direct mail advertising materials through its agent, the printer, to residents of Georgia in order to further its merchandising business.

Penney's argument that only the "use" of the property as defined in OCGA 48-8-2(12) will support an assessment of use taxes is simply inconsistent with the plain language of the statute. While the word "use" may be ambiguous and in need of definition, "use" is only one of four activities that gives rise to tax liability under the use tax statute. If the legislature had intended that the use tax statute be applied in the manner urged by Penney, it would have been unnecessary to explicitly include "consumption, distribution, or storage ..." in the definition of "use tax" and in the use tax enabling statute. OCGA §§ 48-8-2(13); 48-8-30(c). "All the words of a statute are to be given due weight and meaning." [Cit.] Undercofler v. Colonial Pipeline Co., 114 Ga.App. 739, 742, 152 S.E.2d 768 (1966).

Moreover, the Department's assessment of the use tax against Penney comports with the purpose of the use tax statute as articulated in L.M. Berry, supra. "Georgia's statutory scheme for levying and collecting sales and use taxes presents a comprehensive plan to assure fairness in that items purchased and used in Georgia bear no higher tax burden than items purchased elsewhere and used in Georgia. Protections are afforded to those items on which sales tax has been paid elsewhere." Id. at 660(1), 203 S.E.2d 520. Georgia's use tax is thus a compensating tax designed to preclude the avoidance of sales tax. Independent Publishing Co. v. Hawes, 119 Ga.App. 858, 861, 168 S.E.2d 904 (1969). Had Penney used printers in Georgia to produce these direct mail materials for delivery to Georgia residents, we have no doubt that Penney would have owed sales tax on the price of these materials. Allowing Penney to avoid both sales tax and use tax by purchasing the direct mail advertising materials outside of Georgia and then distributing them inside Georgia is contrary to the purpose of the use tax as a compensating tax. See L.M. Berry v. Blackmon, supra at 661(1), 203 S.E.2d 520. If we were to accept Penney's argument, its direct mail materials would escape taxation altogether.

We do not read the specific holding in L.M. Berry as requiring a different result. In L.M. Berry, the Supreme Court considered whether an Ohio corporation that supplied telephone directories printed outside the state to resident telephone subscribers in Georgia was liable for use taxes on the...