Eagerton v. Dixie Color Printing Corp.

Decision Date17 September 1982
Citation421 So.2d 1251
PartiesRalph P. EAGERTON, Jr., as Commissioner of Revenue of the State of Alabama v. DIXIE COLOR PRINTING CORPORATION and Greater Buffalo Press, Inc., a corporation. 81-318.
CourtAlabama Supreme Court

Charles A. Graddick, Atty. Gen., and Herbert I. Burson, Jr., Chief Counsel Dept. of Revenue, and Asst. Atty. Gen., and John J. Breckenridge, Asst. Counsel Dept. of Revenue, and Asst. Atty. Gen., for appellant.

Walter R. Byars and Wanda D. Devereaux of Steiner, Crum & Baker, Montgomery, for appellees.

SHORES, Justice.

Defendant Ralph P. Eagerton, as state commissioner of revenue, appeals an order of the trial court granting a refund of state and local sales taxes paid by plaintiffs Dixie Color Printing Corporation (Dixie Color) and Greater Buffalo Press, Inc. (Buffalo Press) on the sale of newspaper advertising supplements. We affirm.

Dixie Color, a subsidiary of Buffalo Press, is an independent commercial printer, located in Sylacauga, Alabama. From 1974 to 1976, Dixie Color had an agreement with Moore-Handley, Inc., whereby Dixie Color printed newspaper advertising supplements for Moore-Handley for insertion into various newspapers for distribution with the newspapers. Most of the supplements were printed with the masthead of the newspaper in which they were inserted. All were printed according to specifications supplied by the newspapers. Moore-Handley paid Dixie Color a total of $243,250.08 for the supplements printed during this time. Dixie Color collected no sales taxes from Moore-Handley, contending that the sales of these supplements were exempt from taxation because they were to be inserted and become part of a newspaper and, thus, were for resale. The sale of the newspaper to the public is a retail sale and is, therefore, subject to state and local taxes. Ala.Code 1975, § 40-23-2(1).

In 1977, the Alabama Department of Revenue conducted an audit of the business records of Dixie Color and Buffalo Press. The commissioner determined, based upon § 40-23-26, Ala.Code 1975, that the plaintiffs owed $10,922.48 in state sales tax and $2,730.21 in city sales tax 1 from the sales of newspaper advertising supplements to Moore-Handley. In March, 1978, the plaintiffs made payment in full of all taxes claimed due by the commissioner.

On July 20, 1979, Dixie Color and Buffalo Press filed suit against the commissioner and Moore-Handley, seeking a refund of sales tax payments, or, in the alternative, to recover from the buyer taxes paid. Moore-Handley was later dismissed as a defendant. Plaintiffs also directly petitioned the commissioner in February, 1980, for a refund of taxes paid; the petition was denied.

The trial court, upon a stipulation of facts, found that Revenue Rule P18-031, upon which the commissioner relied in denying a refund, and the department's enforcement thereof resulted in an unconstitutional application of § 40-23-2, Ala.Code 1975, and other relevant Alabama revenue laws. The trial court ordered the commissioner to refund $10,862.16 in state taxes and $2,715.13 in local taxes, plus interest, to the plaintiffs. 2 The commissioner appealed after the trial court refused to vacate the judgment.

The primary issue presented in this appeal is whether Rule P18-031, Printers, creates an arbitrary and discriminatory classification, the enforcement of which creates an unconstitutional application of relevant state revenue laws. Rule P18-031 was promulgated by the Department of Revenue to offer taxpayers and tax administrators an interpretation of the tax laws on sales made by printers. That rule states, in pertinent part, that:

"Sales to consumers of printed matter such as catalogs, books, letterheads, invoice forms, envelopes, folders, advertising circulars, and the like by printers or others engaged in selling printed matter are subject to sales tax....

"Newspaper advertising supplements or circulars inserted in newspapers usually fall in the following categories:

"(1) A buyer enters into a contract with a printer for the printing of advertising circulars, catalogs, etc., and directs the printer to deliver the printed material to a newspaper or several newspapers, or directs that they be delivered to another location, sometimes the buyer's place of business. The buyer then enters into a second contract with the newspaper for distribution of the inserts. The printer has made a retail sale to his customer and the sale is subject to the sales tax.

"(2) Newspaper advertising supplements and inserts which are inserted into newspapers and sold as part and parcel of the newspaper, the retail sales of which are subject to the sales tax no sales tax arises where such advertising supplements or inserts are (1) printed by the publishers of the newspaper and inserted into and sold as part and parcel of the newspaper published by such publishers or (2) printed by another printer for the newspaper publisher and paid for by the newspaper publisher for insertion into and sold as part and parcel of the newspaper."

Department of Revenue Sales and Use Tax Rule P18-031, Printers.

Rule P18-031 divides the sale of newspaper advertising supplements into three categories. Supplements printed by printers and sold to advertisers are taxed; inserts printed by printers and sold to newspapers are exempt, as are inserts printed by the newspaper. The commissioner argues, in support of the rule, that he is within his regulatory authority to treat newspapers differently from printers, on the grounds that they serve different functions. We do not question the commissioner's authority to classify different groups; however, "classifications for the purpose of taxation must not be arbitrary, but must be based on a real and substantial difference and there must be no discrimination in favor of one against the other." Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 48 S.Ct. 553, 72 L.Ed. 927 (1928).

The commissioner argues under the facts in this case that the sales of supplements by Dixie Color were retail sales and, therefore, properly subject to sales tax. Ala.Code 1975, § 40-23-2(1). The Code defines "retail sale" to include "all sales of tangible personal property except those ... defined as wholesale sales." § 40-23-1(a)(10). Section 40-23-1(a)(9)(a), in turn, defines "wholesale sale," inter alia, as a "sale of tangible personal property ... for resale." The commissioner contends that the supplements were never resold by Moore-Handley, but simply distributed to the public by the newspapers, and that Moore-Handley was the...

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13 cases
  • Dept. of Revenue v. GREAT WESTERN PUB., 1 CA-TX 98-0019.
    • United States
    • Court of Appeals of Arizona
    • September 23, 1999
    ...a matter not at issue in this case. See Appeal of K-Mart Corp., 238 Kan. 393, 710 P.2d 1304, 1310 (1985); Eagerton v. Dixie Color Printing Corp., 421 So.2d 1251, 1254 (Ala.1982); Sears, Roebuck & Co. v. State Tax Comm'n, 370 Mass. 127, 345 N.E.2d 893, 896 (1976); Indiana Dep't of State Reve......
  • Appeal of K-Mart Corp., K-MART
    • United States
    • United States State Supreme Court of Kansas
    • December 6, 1985
    ...exempt from the tax, there was no tax owed by Sears on the supplements shipped directly to the newspapers. In Eagerton v. Dixie Color Printing Corp., 421 So.2d 1251 (Ala.1982), the court found that the subscriber or purchaser of a newspaper was the ultimate consumer, stating, "The individua......
  • Mervyn's v. Arizona Dept. of Revenue, TX
    • United States
    • Tax Court of Arizona
    • January 21, 1993
    ...the results have gone both ways. Courts that have held advertising supplements are part of a newspaper include: Eagerton v. Dixie Color Printing Corp., 421 So.2d 1251 (Ala.1982); Indiana Dep't of State Revenue v. L.S. Ayers & Co., 486 N.E.2d 563 (Ind.App.1985); Appeal of K-Mart Corp., 238 K......
  • Sears, Roebuck & Co. v. Woods, 85-15-I
    • United States
    • Supreme Court of Tennessee
    • February 24, 1986
    ...of the newspaper are: Sears, Roebuck & Co. v. State Tax Commission, 370 Mass. 127, 345 N.E.2d 893 (1976); Eagerton v. Dixie Color Printing Corp., 421 So.2d 1251 (Ala.1982); and Daily Record Co. v. James, 629 S.W.2d 348 (Mo.1982). Other courts have held that the supplements do not fall withi......
  • Request a trial to view additional results

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