Courier Citizen Co. v. Commissioner of Corporations and Taxation

Decision Date20 January 1971
Citation266 N.E.2d 284,358 Mass. 563
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Harold Hestnes, Boston (Norman G. Stone, Boston, with him), for plaintiff.

William E. Searson, III, Asst. Atty. Gen. (Walter H. Mayo, III, Asst. Atty. Gen., with him), for Commissioner of Corporations and Taxation and another.

John Dane, Jr., and Mark A. Michelson, for Associated Industries of Massachusetts and others, amici curiae, submitted a brief.


CUTTER, Justice.

The plaintiff (Courier) sought declaratory relief in the county court concerning its liability for sales tax (G.L. c. 64H) on its purchase of certain machinery, equipment, and supplies, 'used directly' by it in its 'fully integrated' printing business. The single justice reserved the matter, without decision, for the determination of the full court on the pleadings 2 and statements of agreed facts, which amount to a case stated. The general question presented is whether particular items of materials, machinery, and replacement parts are exempt from sales tax under subsecs. (r) and (s) of c. 64H, § 6 (as amended through St.1968, c. 711, § 1). These provisions are set out in the margin. 3

Courier manufactures in Massachusetts printed material upon orders from its customers. Its operations include every stage of manufacture from receipt of original 'copy' of many types 'through the pressrun and binding of * * * finished products.' Courier makes in its own plants various types of printing plates. These plates, when treated with ink, are used to transfer to paper (through the operation of printing presses) the image to be printed. Such plates are often referred to as 'composition.' Courier uses principally two types of composition, viz. (a) photo-offset plates and (b) molded printing plates.

A. The manufacture of a photo-offset plate involves (1) photographing the original copy with an offset camera; (2) processing the film to produce a 'flat' containing the composite image to be printed, and superimposing that 'flat' upon, and affixing it to, a thin plate treated with a light-sensitive emulsion; (3) exposing the plate to a high intensity lamp; and (4) treating the exposed plate with chemicals to make image areas ink receptive and nonimage areas ink repellant, after which the plate is coated to protect it, and mounted on the plate cylinder of a printing press.

B. Molded printing plates are used on high speed presses for the production of high volume items such as newspapers and telephone directories. Manufacture of this type of plate involves (1) setting the original copy in lead type by linotype or monotype; (2) producing from the pages of assembled type a plastic nonflexible relief image molding mat; and (3) making from this molding mat a flexible raised image plate which is installed on the press. 4

Both photo-offset plates and molded printing plates, with rare exceptions, are scrapped after the pressrun. Once removed from the press, they cannot be reused without adversely affecting the quality of the printed product.

The present controversy arose in the following manner. On May 23, 1968, the Department of Corporations and Taxation notified Courier of its intention to assess a deficiency in sales taxes for a period prior to May, 1968, amounting to $112,129.99, plus interest and penalties. Courier requested a ruling whether '(a) purchases by a printer, and other manufacturers of composition, of machinery and replacement parts therefor, used for the manufacture of composition, and (b) purchases of materials and supplies used and consumed in the manufacture of composition, (are) exempt under the Sales and Use Tax.' The Commissioner ruled that the exemptions under § 6(r) and § 6(s), see fn. 3, supra, 'apply only to materials * * * or machinery * * * 'used directly' in 'the process of the manufacture' or in the 'manufacture' of 'tangible personal property to be sold.' Since the machinery and materials are * * * used (by Courier and other similar concerns) to produce composition for the manufacturer's own use, it is not used directly in the manufacture of any tangible personal property to be sold.' 5 The Commissioner proposes to assess to Courier sales taxes with respect to its purchases of machinery and replacement parts used, and of materials and supplies used and consumed, in the manufacture of composition.

Courier contends that machinery used at any stage of an integrated printing process We reject the suggestion in the Commissioner's ruling (see fn. 6, supra, and related text of this opinion) that printing plates and other forms of composition are made for the 'manufacturer's own use.' The plates are not reusable tools, for they normally are discarded after the pressrun. They have no purpose except in connection with a particular printing job. They are made as the necessary first stage of a long process, culminating in a specifically ordered finished printed product. The Commissioner's ruling thus appears to rest only upon the circumstances that the typesetting, photographic, and other machinery and various materials employed in making the plates are not at any time placed immediately in contact with any material going into the finished product.

                is 'used directly * * * in the manufacture * * * of tangible personal property to be sold' within the meaning of c. 64H, § 6(s). 6  See fn. 3, supra, The Commissioner's ruling would deny the statutory exemption to purchases of photo-offset cameras, linotype and monotype machines, and photo-composing machines (see Appendix A), even though they are used in a continuous production flow of which the end product (printed material) is to be sold. 7

Section 6(r) and 6(s) were recognized early in the history of the sales tax as being difficult of interpretation. See Dane, The New Sales and Use Tax Law, 51 Mass.L.Q. 239, 258, 8 where it was said in 1966, 'Massachusetts belongs to the minority of sales tax states which excludes sales of machinery and replacement parts. However, to qualify for such exclusion, the machinery must be used directly in one of The same article points out (p. 255) that a 'retail sales tax * * * is a levy on consumer expenditures' and 'not a turnover tax imposed at each step of the production and distribution process.' This purpose to tax only ultimate sales at retail explains why the term 'Sale at retail' is defined in § 1(13) as 'a sale of tangible personal property for any purpose other than resale in the regular course of business' (emphasis supplied). This definition and the provisions of c. 64H, § 3 (as amended by St.1967, c. 797, § 2; see later revision by St.1970, c. 683), 5, 8, and 23, all indicate the legislative intention to have the sales tax passed on to the final retail consumer, even though the registered vendor must pay the excise in the first instance (see, however, third sentence of fn. 6, supra) and even though the 'incidence' of the tax (despite its reimbursement to the registered vendor) has been ruled to be on the registered vendor, at least in situations where Federal immunity from State taxation is not involved. See SUPREME COUNCIL OF ROYAL ARCANUM V. STATE TAX COMMN., MASS., 260 N.E.2D 822.A See also Barrett and Bailey, Taxation (1970 supp.) §§ 1310--1312, 1320, 1339--1340 where (§ 1310) the purpose of excluding sales for resale is said to be 'to avoid pyramiding the sales tax upon successive buyers and sellers.' See also, Due, Retail Sales Taxation in Theory and Practice, 3 Natl.Tax.J. 314, 317--318, 322.

the specified activities listed above in connection with the exclusion of materials, tools and fuel. * * * While this exclusion is highly desirable to promote industrial expansion in the state and to prevent the removal of industry to other states granting this exclusion, it is anticipated that serious problems will arise in the interpretation of the words 'used directly."

The effect of the Commissioner's ruling is to impose a sales excise at a pre-retail stage of the production of the ultimate product, viz. the printed material. The amici curiae (fn. 8) point out that a tax so imposed inevitably enters into the cost of the final product to be sold at retail, and that the tax is subject to the normal markup on final resale just as much as any other cost. The cost of such a tax to the consumer is hence greater than the amount of revenue collected by the government.

The amici also argue that, if Courier (instead of producing the plates itself) had bought them from a supplier, the purchase would have been exempt from sales tax under c. 64H, § 6(s), as 'replacement parts' for machinery, i.e. the printing presses (to which the plates are attached), 'used directly * * * in an industrial plant in the manufacture * * * of tangible personal property to be sold.' This, the amici say, results (if the Commissioner's position is correct) in a discrimination against integrated producers, and tends to repel integrated industry (with such industry's employment opportunities) from Massachusetts.

Our own cases do not resolve the present controversy concerning an ambiguous statute. In Wakefield Ready-Mixed Concrete Co. Inc. v. State Tax Commn., 356 Mass. 8, 10--12, 247 N.E.2d 867, 870, we said (a) that the 'legislative history affords no assistance in the interpretation of § 6(s)'; and (b) that the 'purpose of § 6(r) and § 6(s) is to exclude entirely certain items from the impact of the sales * * * tax on the basis of the nature of the items.' Consequently, we regarded these provisions as not being 'the type of exemption concerning which a special burden rests upon a taxpayer, claiming the benefit of the provision, to bring himself within its scope,' i.e. there is no requirement that this type of exemption be interpreted narrowly. 9 The present issues did not then arise.


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