Compusa Stores LP v. Dep't of Taxation
| Decision Date | 09 March 2011 |
| Docket Number | No. SCWC–29597.,SCWC–29597. |
| Parties | COMPUSA STORES LP, Respondent/Taxpayer–Appellant, v. DEPARTMENT OF TAXATION, State of Hawai7i, Petitioner/Appellee. |
| Court | Hawaii Supreme Court |
OPINION TEXT STARTS HERE
Ray K. Kamikawa and Leroy E. Colombe (Chun, Kerr, Dodd, Beaman & Wong), Honolulu, for respondent/taxpayer-appellant.
Hugh R. Jones and Damien A. Elefante, Deputy Attorneys General, for petitioner/appellee.
This case arises out of the assessment of the Hawai‘i use tax by the State of Hawai‘i, Department of Taxation (Department) against CompUSA Stores L.P. (CompUSA) on goods that were transported from the mainland to CompUSA's retail stores in Hawai‘i during the period between July 1, 1999 and December 31, 2002. During that period, CompUSA caused consumer electronics goods from various mainland vendors to be shipped to Hawai‘i in order to restock CompUSA's retail stores in this state.
Hawai‘i Revised Statutes (HRS) § 238–2 (1993), quoted infra, governs the applicability of the Hawai‘i use tax. CompUSA appealed the assessment of the tax in the Land and Tax Appeal Court (tax appeal court),1 arguing that it was not subject to the use tax under In re Tax Appeal of Baker & Taylor, Inc. v. Kawafuchi, 103 Hawai‘i 359, 361–62, 372, 82 P.3d 804, 806–07, 817 (2004) (). CompUSA moved for summary judgment. The Department cross-moved, contending that Baker & Taylor was not applicable to the instant case and that the plain language of HRS § 238–2 compelled the assessment of the use tax against CompUSA. The tax appeal court granted the Department's motion and denied CompUSA's motion, holding that Baker & Taylor was distinguishable and that the use tax applied to CompUSA. The court entered a judgment against CompUSA in the amount of $1,705,337.71. CompUSA appealed.
The Intermediate Court of Appeals (ICA) vacated the tax appeal court's judgment and remanded for further proceedings, holding that Baker & Taylor was controlling and that, pursuant to that case, CompUSA was not liable for the tax. The Department seeks review of the ICA's judgment.
As discussed further infra, we conclude that the ICA erred in its analysis of HRS § 238–2 and Baker & Taylor. Specifically, we hold that Baker & Taylor is distinguishable because the taxpayer in that case, a mainland seller, did not “use in this State” the imported goods, as required by HRS § 238–2. SeeHRS § 238–2; Baker & Taylor, 103 Hawai‘i at 361–62, 82 P.3d at 806–07. CompUSA, on the other hand, used the goods in Hawai‘i by “keeping of the property” in this state “for sale[.]” HRS § 238–1 (1993), quoted infra. CompUSA's transportation of the goods to Hawai‘i for resale to Hawai‘i customers also satisfied the other requirements of HRS § 238–2. We, therefore, vacate the ICA's judgment and affirm the tax appeal court's judgment.
The following facts are taken from the record on appeal, including CompUSA's undisputed admissions of fact and answers to the Department's interrogatories. CompUSA's corporate headquarters are located in Dallas, Texas. CompUSA held a Hawai‘i general excise tax license during the relevant period.2 It also maintained two retail stores in Hawai‘i, where it engaged in “retail sale [s] of computers, computer components, consumer electronics, and related other products and services[.]” 3
CompUSA did not manufacture the goods it sold to its Hawai‘i customers. According to CompUSA, mainland vendors shipped products either to its mainland consolidation centers (“cross-dock” shipment) and then to its Hawai‘i retail stores, or directly to its Hawai‘i retail stores (“drop shipment”). In both types of shipment, vendors shipped the goods pursuant to “F.O.B. Origin” contracts, which, according to CompUSA, meant that the title and risk of loss passed to CompUSA on the mainland (the origin of the shipment).4 CompUSA maintained that “[a]ll purchasing decisions and all ordering of inventory sold at the retail stores [were] conducted and managed from” its headquarters in Texas. CompUSA did not pay the use tax at the time of the shipments at issue.
On June 9, 2004, the Department issued tax assessments requiring CompUSA to pay, inter alia, a use tax pursuant to HRS § 238–2(2)(A)5 on CompUSA's “imports for resale.” (Formatting altered). CompUSA filed a notice of appeal of the assessment with the tax appeal court.
In the tax appeal court, CompUSA moved for summary judgment, arguing, inter alia, that under this court's decision in Baker & Taylor,6 CompUSA was not subject to the use tax on the goods which it owned prior to shipment from the mainland to Hawai‘i. The Department cross-moved for summary judgment, contending that the plain language of HRS § 238–2 and Hawai‘i Administrative Rules (HAR) § 18–238–27 compelled the application of the use tax to CompUSA, and that the facts in Baker & Taylor were distinguishable. At the hearing on the cross-motions, the tax appeal court ruled from the bench, holding that Baker & Taylor did not apply to the facts of the instant case and that CompUSA's transactions were subject to the use tax pursuant to HRS § 238–2. The court stated:
[W]hat we are dealing with is a situation where the legislature is attempting to level the playing field between local vendors or sellers and mainland sellers, and there appears to be a concern that mainland sellers, because they may not be subject to the excise tax, wholesale tax, may have a huge advantage over the local vendors. And so, that could be one of the reasons underlying the use tax in the case at bar.
The Court does agree that the use tax is viewed generally as a tax that compliments [sic] the general excise tax on gross revenues, and I think that this Court is most persuaded by two facts that distinguish the case at bar from the Baker & Taylor case. First of all, the Court does not believe that the Baker & Taylor case involved a sale from the publisher, or manufacturer, of the books to Baker & Taylor. Contrast that with the facts in the case at bar, which clearly shows that CompUSA is not the manufacturer of these products but instead purchases these products from a mainland manufacturer. So, that is one factual distinction of significance.
The second fact of significant distinction in the case at bar is that we do not have a sales transaction comparable to the sale between Baker & Taylor and the library, Hawaii State Public Library System. Instead, we have one retailer that happens to be a national corporation, CompUSA. So, the distribution center of CompUSA does not have to sell any merchandise or inventory to the Hawaii retail stores.
So, we do not have—the two primary distinct—facts distinguishing the case at bar from the Baker & Taylor case is, number one, the existence of a purchase transaction between the manufacturer and CompUSA, and secondly, the absence of a sales transaction between mainland CompUSA and Hawaii CompUSA that is comparable to the transaction of the book sales from Baker & Taylor [sic] to the Hawaii State Library.
Those two facts are critical when we look at Justice Acoba's analysis in Baker & Taylor, because Justice Acoba noted at page 372 of the Hawaii public—Hawaii cite of Baker & Taylor that the books were sold directly from Baker & Taylor [sic] to the library, and therefore, Baker & Taylor [sic] did not import the books from an unlicensed seller. The Court believes that is a significant point that distinguishes Baker & Taylor from the case at bar.
In the case at bar, there does appear to be an unlicensed seller[,] that is all of the component or product manufacturers that sold product to CompUSA for the purpose of retail or resale here at Hawaii.
Justice Acoba went on to say that Baker & Taylor [sic] did not purchase the books and resell the goods to the library. That is also a fact of distinction from the case at bar, where we did have CompUSA purchasing the inventory or products for sale on the mainland. They purchased it on the mainland for the purpose of reselling it here in Hawaii to the ultimate user.
So, we have a situation that does appear to fall within Section 238–2 Subsection 2 Subsection A, which states, “If the importer or purchaser is licensed under Chapter 237 and is a retailer or other person importing or purchasing for the purposes of resale,” et cetera.
The Court does find and conclude that the CompUSA series of transactions fall within Section 238–2 Subsection 2 Subsection A, and therefore, for these and any other good cause shown in the record, the Court will respectfully grant the [Department's] motion for summary judgment and deny [CompUSA's] motion for summary judgment.
On December 22, 2008, the tax appeal court issued its order granting the Department's motion for summary judgment. On that day, the court also issued its order denying CompUSA's motion for summary judgment. Finally, on the same day, the tax appeal court entered a judgment in favor of the Department and against CompUSA, pursuant to the above orders. On January 21, 2009, CompUSA timely filed a notice of appeal.
In its Opening Brief, CompUSA argued that this court's decision in Baker & Taylor precluded the assessment of the use tax against CompUSA. CompUSA contended that the distinctions on which the tax appeal court relied in its oral ruling were non-existent.
Addressing the first purported distinction, CompUSA relied on a stipulation of facts from Baker & Taylor, which CompUSA submitted to the tax appeal court as an exhibit in support of its memorandum in opposition of the Department's motion for summary judgment. Citing the stipulation, CompUSA argued that the taxpayer in that case was a “wholesaler”...
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