Fairlawn Shopper, Inc. v. Director, Div. of Taxation

• Decision Date: 04 October 1984
• Citation: 484 A.2d 659,98 N.J. 64
• Parties: , 10 Media L. Rep. 2489 FAIRLAWN SHOPPER, INC. and Shopper Distributors, Inc., Plaintiffs-Appellants, v. DIRECTOR, DIVISION OF TAXATION, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 64

98 N.J. 64

484 A.2d 659, 10 Media L. Rep. 2489

FAIRLAWN SHOPPER, INC. and Shopper Distributors, Inc., Plaintiffs-Appellants, v. DIRECTOR, DIVISION OF TAXATION, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Nov. 28, 1983.

Decided Oct. 4, 1984.

Laurence B. Orloff, Newark, argued the cause for appellants (Orloff, Lowenbach, Stifelman & Siegel, Newark, attorneys).

Harley A. Williams, Deputy Atty. Gen., argued the cause for respondent (Irwin I. Kimmelman, Atty. Gen. of N.J., attorney; James J. Ciancia, Asst. Atty. Gen., of counsel).

Thomas J. Cafferty and Alexander F. McGimpsey, Jr., New Brunswick, submitted a letter brief on behalf of amicus curiae New Jersey Press Ass'n (Seiffert, Frisch, McGimpsey & Cafferty, New Brunswick, attorneys).

The opinion of the Court was delivered by

CLIFFORD, J.

In these consolidated tax appeals we address the applicability of the New Jersey Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29 (Act), to the amounts expended by plaintiffs for certain outside printing costs in the plaintiffs' publication of free-circulation newspapers. The Director of the Division of Taxation (Director) seeks to apply the Act to so much of the printers' bills to plaintiffs as represent printing services, as well as to all materials other than newsprint. Plaintiffs allege two grounds of exemption: (1) that receipts from sales of newspapers are exempt from the tax imposed by the Act, see N.J.S.A. 54:32B-8(E) , AND (2)¹ that the sale of the newspapers from the printers to plaintiffs are sales for resale, which are exempt from the Act's tax pursuant to N.J.S.A. 54:32B-2(e)(1)(A). Alternatively, plaintiffs allege that the application of this tax to sales such as those at issue here is unconstitutional under the first amendment, N.J.Const. art. 1, para. 6, and the equal protection clause, U.S.Const. amend. XIV.

The record is embodied in the two-page "Stipulation of Facts" filed in each of these now-consolidated cases. The essential facts are as follows:

1. Plaintiff Fairlawn Shopper, Inc., owns, publishes, and distributes a newspaper entitled the "Fairlawn Shopper" and plaintiff Shopper Distributors, Inc., owns, publishes, and distributes newspapers entitled the "Hawthorne Shopper" and the "Garfield Shopper."

2. For the purposes of this litigation, the "Fairlawn Shopper," the "Hawthorne Shopper," and the "Garfield Shopper," when ultimately distributed to readers, are "newspapers" within the meaning of the Act. ²

3. The newspapers are primarily distributed free-of-charge and their revenues are derived almost entirely from advertising.

4. The newspapers are actually produced by independent contract printing firms, which supply the necessary paper, ink, and dyes, printing the paper with their own machinery and employees. Plaintiffs nonetheless supply most of the substantive content of the newspapers.

5. The finished product is delivered by the printers to plaintiffs, who distribute the newspapers to the public on a weekly basis.

6. The amount of the tax in issue represents sales or use tax on the portions of the printers' bills to plaintiffs that represent the cost of printing services as well as materials other than newsprint.

7. The parties do not dispute the amount of tax that was assessed. ³

On this factual basis the Tax Court found that the exemption afforded by N.J.S.A. 54:32B-8(e) was not intended to exempt newspapers as they pass between printer and publisher. However, Judge Andrew concluded that "the purchases by these plaintiffs of printing services and materials should properly be characterized as sales for the purpose of resale and exempt from sales and use tax. N.J.S.A. 54:32B-2(e)." (Footnote omitted). The Appellate Division, in an unreported decision, reversed the Tax Court judgment "for the reasons expressed in our opinion in Del Val Pennysaver, Inc. v. Director, Division of Taxation, [188 N.J.Super. 108, 456 A.2d 115 (1983) ] * * *." In Del Val Pennysaver the court concluded that neither N.J.S.A. 54:32B-8(e) nor N.J.S.A. 54:32B-2(e) was applicable in circumstances such as these. In so deciding, the court, relying on Princeton Community Phone Book, Inc. v. Director, Div. of Taxation, 145 N.J.Super. 589, 368 A.2d 933 (App.Div.1976), certif. den., 73 N.J. 66, 372 A.2d 331 (1977), stated that "what plaintiff's advertisers were buying was advertising space and not the finished shoppers guides per se. * * * It is equally apparent that what the printer sold to plaintiff was neither purchased by plaintiff for resale as such nor converted into a component part of a product produced for resale by plaintiff." Del Val Pennysaver, supra, 188 N.J.Super. at 114, 456 A.2d 115. We granted certification, 94 N.J. 516, 468 A.2d 175 (1983), to determine the impact of the Act on the free-circulation newspaper industry.

I

This appeal poses two entangled issues concerning tax exemptions. On the one hand we must determine what constitutes a "newspaper" for purposes of the Act and thereafter apply that determination to the publications at issue here. On the other hand we must review the "sale for resale" exemption of the Act to discern its effect on free-circulation publication. The resolution of these questions begins with an examination of the pertinent provisions of the Act.

N.J.S.A. 54:32B-8(e) provides that "[r]eceipts from the following shall be exempt from the tax on retail sales imposed under subsection (a) of section 3 and the use tax imposed under section 6: * * * (e) Sales of newspapers, magazines and periodicals * * *." The parties have stipulated that the publications at issue, when ultimately distributed to readers, were "newspapers" within the meaning of the Act. However, disagreement remains as to whether the newspapers in these circumstances should receive the tax exemption afforded by N.J.S.A. 54:32B-8(e).

Judge Andrew observed that the "newspapers" exemption was "aimed at the transfer of the publication between the publisher and the reader. This is so even though the product transferred is identical in form when it passes between printer and publisher as when it passes from publisher to reader." In support of this conclusion the Tax Court relied on the decision of the Supreme Court of Virginia in Jefferson Publishing Corp. v. Forst, 217 Va. 988, 234 S.E.2d 297 (1977). That case involved the imposition of sales tax on the total invoice charge made by a printer to a publisher of a free-circulation weekly booklet containing assorted tourist information. The Supreme Court of Virginia explained the mechanics of Virginia's taxing scheme as follows:

[I]n the case of a periodical which may be printed by one person and published by another, two potentially taxable events occur. First, there is a bulk transfer, for a consideration, of the printed matter from the printer to the publisher; and, second, there is a subsequent sale of the periodical to members of the public. * * * Consequently, the first taxable event under these circumstances is a sale of printed matter, to which Regulation 1-86 [of the Virginia Retail Sales and Use Tax Rules and Regulations] speaks. The statutory exemption bears upon the second transaction, as we have said, and exempts non-newsstand sales. [217 Va. at 992, 234 S.E.2d at 300 (emphasis in original).]

Thus, the decision in Jefferson Publishing Corp. identified two statutory provisions that affected publishing industries. Under the Virginia statutes the sale of "custom printing" was taxable under section 1-86 of its Regulations, while under Code § 58-441.6(k) of the Virginia Retail Sales and Use Tax Act "[a]ny publication issued daily, or regularly at average intervals not exceeding three months" was exempt from the sales tax. Despite the fact that the nature of the "publications" involved in Jefferson Publishing Corp. differs from the newspapers at issue here--the former being geared to "inform tourists, visitors, and newcomers to the area of dining and entertainment facilities," 217 Va. at 989, 234 S.E.2d at 298, while the latter contain news stories as well as advertisements--it is clear that the statutory-construction analysis undertaken by the Supreme Court of Virginia supports an analogous resolution of the issue here.

Although we recognize a certain persuasiveness in plaintiffs' reliance on Greenfield Town Crier, Inc. v. Commissioner of Revenue, 395 Mass. 692, 433 N.E.2d 898 (1982), and its conclusion that "if the Town Crier was a newspaper when it was distributed to its readers, it was also a newspaper when it was purchased by Greenfield from Shaw Press, Inc.," id. at ---, 433 N.E.2d at 901, we cannot ignore the fact that the "newspapers" exemption was not intended to extend beyond the exemption afforded the ultimate sale to the reader of the newspaper. No place is this evidenced more clearly than in the Act itself. The exemption found in N.J.S.A. 54:32B-8(e) cannot be read in a vacuum. Just as the Supreme Court of Virginia acknowledged the existence and applicability of a separate statutory provision for taxing the printing process, we cannot avoid reference to N.J.S.A. 54:32B-3(b)(1), which provides for the imposition of sales tax on

(b) The receipts from every sale, except for resale, of the following services:

(1) Producing, fabricating, processing, printing or imprinting tangible personal property, performed for a person who directly or indirectly furnishes the tangible personal property, not purchased by him for resale, upon which services are performed.

Thus, while the "Fairlawn Shopper," the "Hawthorne Shopper," and the "Garfield Shopper" may be "newspapers" in the definitional sense when they pass from printer to publisher, the printing costs incurred in that process remain taxable within the provisions of the Act. The existence of this separate taxing provision supports the conclusion that for purposes of the Act the "newspapers" exemption applies to newspapers only as they pass from publisher to reader.

However, the fact...