Cosmair, Inc. v. Director, New Jersey Div. of Taxation

• Decision Date: 17 March 1988
• Citation: 538 A.2d 788,109 N.J. 562
• Parties: COSMAIR, INC., a Corporation of the State of Delaware, Plaintiff-Appellant, v. DIRECTOR, NEW JERSEY DIVISION OF TAXATION, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 562

109 N.J. 562

538 A.2d 788

COSMAIR, INC., a Corporation of the State of Delaware, Plaintiff-Appellant, v. DIRECTOR, NEW JERSEY DIVISION OF TAXATION, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Nov. 30, 1987.

Decided March 17, 1988.

Donald J. Williamson, Westwood, for appellant (Williamson & Rehill, attorneys; Michael F. Rehill, on the briefs).

Herbert K. Glickman, Deputy Atty. Gen., for respondent (W. Cary Edwards, Atty. Gen., attorney; Michael R. Clancy, Deputy Atty. Gen., of counsel).

Hersh Kozlov, Cherry Hill, submitted briefs on behalf of amicus curiae Cosmetic Toiletry and Fragrance Ass'n (Kozlov, Seaton & Romanini, attorneys).

The opinion of the Court was delivered by

GARIBALDI, J.

The issue in this appeal is whether fragrance samples manufactured, stored, and packaged by plaintiff in New Jersey and distributed to plaintiff's customers outside New Jersey are subject to the compensating use tax under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29 (the Act). The Appellate Division, in a per curiam opinion, 9 N.J.Tax 89, affirmed the Tax Court's decision, 8 N.J.Tax 9, imposing a use tax on the samples. We granted certification, 107 N.J. 626, 527 A.2d 451 (1987), limited solely to the issue of whether plaintiff's samples are excepted from use tax under the "mere storage, keeping, retention or withdrawal from storage" exemption in N.J.S.A. 54:32B-6. We now reverse.

I

The following facts are stipulated. Plaintiff, Cosmair, Inc. (Cosmair), is a manufacturer of cosmetic and fragrance products. Cosmair is a Delaware corporation but manufactures all of its products within the State of New Jersey. All finished products are stored in warehouses in New Jersey. Cosmair purchases, in transactions both within and without the State of New Jersey, certain raw materials that are the ingredients of its products. No sales or use tax is paid on those raw materials.

In cooperation with its department store customers, Cosmair conducts marketing programs that involve the distribution to consumers of free samples of its Guy LaRoche and Cacharel fragrances. These samples are the same size as those used by Cosmair in its "purchase-with-purchase" sales promotions. In such promotions, retail customers purchase certain Cosmair products together with another item, such as a canvas bag or umbrella bearing the name of one of Cosmair's product lines.

Cosmair and its department store clients jointly decide the number of samples to be distributed in the clients' stores. Cosmair's New York marketing office or field sales forces then convey this information to Cosmair personnel at the New Jersey warehouses where the inventory is stored. The requisite number of samples for each store is taken from inventory and physically moved to the shipping area of the warehouse. Cosmair employees package the samples for transit together with the other products to be sent to the stores.

Cosmair packages the manufactured samples in the same way that it packages its other products. In the packaging process, Cosmair's employees place all items, including the samples to be sent to each of the department stores, in cartons and other shipping containers together with packaging materials so that such items are not damaged in transit. Cosmair's employees also prepare shipping labels and affix them to the packages. They prepare appropriate documents indicating the number of samples enclosed and insert those documents into the packages. When packaging is completed, a common carrier picks up the cartons at Cosmair's New Jersey warehouse for delivery to the out-of-state department stores.

Cosmair does not charge its department store customers for the samples. The number of samples distributed to a store is not proportionate to the amount of products purchased by the store. Eventually, the department stores distribute the samples without charge to retail customers.

The parties agree that (1) samples distributed to Cosmair's customers located in New Jersey are subject to the use tax, (2) sales of Cosmair's products to out-of-state customers whether shipped by common carrier or in company-owned or -operated vehicles are not subject to sales tax in New Jersey, and (3) samples shipped in company-owned or -operated vehicles to company offices outside New Jersey are not subject to the use tax.

The Director of the Division of Taxation (Director), however, asserts that a use tax is due on samples shipped by common carrier to Cosmair's out-of-state customers. The Tax Court affirmed the Director's use tax assessment and held that Cosmair "used" the samples within the meaning of the Act and that Cosmair's use of the samples in New Jersey was in excess of the "mere storage, keeping, retention or withdrawal from storage" exemption provided in N.J.S.A. 54:32B-6. Cosmair, Inc. v. Director, Div. of Taxation, 8 N.J.Tax 9, 13, 15 (1985). The Appellate Division in an unreported opinion affirmed the judgment of the Tax Court essentially for the reasons stated in the Tax Court opinion.

II

The Legislature adopted the New Jersey Sales and Use Tax Act on April 27, 1966. The Act applies "to sales and services of tangible personal property and the use, storage or consumption of such property...." ...." L.1966, c. 30, § 31. Under the Act, the State imposes a compensating use tax on the use within this state of any tangible personal property purchased at retail for which no New Jersey sales tax has been or will be paid. N.J.S.A. 54:32B-6; Diamondhead Corp. v. Director, Div. of Taxation, 4 N.J.Tax 255, 257 (1982); Hoffman-LaRoche v. Director, Div. of Taxation, 5 N.J.Tax 154, 159, aff'd in part, rev'd in part, 192 N.J.Super. 552, 471 A.2d 786 (App.Div.1983). The tax imposed on a "sale" is paid by the purchaser and merely collected by the seller; the tax imposed on a "use" is paid by the user of the property. N.J.S.A. 54:32B-6 provides in pertinent part:

Unless property or services have already been or will be subject to the sales tax under this act, there is hereby imposed on and there shall be paid by every person a use tax for the use within this State ...

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(B) of any tangible personal property manufactured, processed or assembled by the user, if items of the same kind of tangible personal property are offered for sale by him in the regular course of business....

The parties stipulated that the samples are tangible personal property, manufactured, processed or assembled by Cosmair, and of the same kind and size of tangible personal property offered for sale in the regular course of Cosmair's business. Thus, N.J.S.A. 54:32B-6(B) encompasses Cosmair's fragrance samples.

Cosmair, ¹ however, asserts that it has not "used" the samples within the statutory definition of that term, N.J.S.A. 54:32B-2(h), ² and that even if it has, such a use falls within the statutory exemption granted to manufacturers in N.J.S.A. 54:32B-6. ³

First, Cosmair argues that the samples are not subject to the use tax since the definition of "use" contained in N.J.S.A. 54:32B-2(h), by its terms, limits its definition to a "purchaser." Cosmair maintains that the phrase "[t]he exercise of any right or power over tangible personal property by the purchaser" must be limited to purchasers, as a manufacturer exercises rights of power over tangible personal property at every stage of the process from receipt of the raw materials to delivery to its customer. We reject taxpayer's contention and find that the statutory definition of "use" may be equally applicable to a manufacturer, processor or assembler.

There is a "dearth of legislative history behind the enactment" of the Sales and Use Tax Act. N.J. Bell Tel. Co. v. Director, Div. of Taxation, 152 N.J.Super. 442, 447, 378 A.2d 38 (App.Div.1977). ^{4 4} Accordingly, there is no legislative history concerning the definition of "use" within the Act. Nonetheless, based on the well-recognized rule of statutory construction that statutes are to be construed to give effect to each provision of the statute, we conclude that the Legislature did not intend to exclude manufacturers from use tax liability by referring to "purchaser[s]" in the definition of use. See McGlynn v. N.J. Public Broadcasting Auth., 88 N.J. 112, 129-30, 439 A.2d 54 (1981); Passaic v. Local Fin. Bd., 88 N.J. 293, 298, 441 A.2d 736 (1981); Gabin v. Skyline Cabana Club, 54 N.J. 550, 555, 258 A.2d 6 (1969); N. Singer, 2A Sutherland Statutory Construction § 46.06 at 104 (Sands 4th ed. 1984) (hereinafter Sutherland ). Manufacturers are plainly not excluded from the Act's definition of "purchaser" as "[a] person who purchases property or who receives services." N.J.S.A. 54:32B-2(c). Moreover, the Act specifically provides in N.J.S.A. 54:32B-6 for the imposition of the compensating use tax on manufacturers. That same provision also declares that "the mere storage, keeping, retention or withdrawal from storage of tangible personal property shall not be deemed a taxable use by him." N.J.S.A. 54:32B-6. This limited exemption is necessary only if manufacturers are in the category of persons subject to the compensating use tax. See 2A Sutherland, § 47.11, at 145.

The inclusion of the phrase "by the purchaser" in the statutory definition of "use" does not itself serve to insulate a manufacturer from use tax liability. A manufacturer is liable for use tax when it purchases property and exercises "any right or power" over it. Thus, when a manufacturer treats a manufactured product as if it purchased that product, rather than simply manufactured it, and uses that product in New Jersey, it would be liable for the use tax.

Notwithstanding the expression "including but not limited to," however, the statutory definition of "use" does circumscribe the scope of the definition. The specific conduct enumerated is "receiving, storage or any keeping or retention for any length of time, withdrawal from storage, any installation, any affixation to real or personal property, or any...