Hearst Corp. v. Iowa Dept. of Revenue and Finance, 89-1863

• Decision Date: 19 September 1990
• Docket Number: No. 89-1863,89-1863
• Citation: 461 N.W.2d 295
• Parties: 18 Media L. Rep. 1241 HEARST CORPORATION, Appellant, v. IOWA DEPARTMENT OF REVENUE AND FINANCE, Appellee.
• Court: Iowa Supreme Court

Page 295

461 N.W.2d 295

18 Media L. Rep. 1241

HEARST CORPORATION, Appellant, v. IOWA DEPARTMENT OF REVENUE AND FINANCE, Appellee.

No. 89-1863.

Supreme Court of Iowa.

Sept. 19, 1990.

Rehearing Denied Oct. 18, 1990.

As Corrected Oct. 19, 1990.

John V. Donnelly and Harold N. Schneebeck of Brown, Winick, Graves, Donnelly, Baskerville, and Schoenebaum, Des Moines, for appellant.

Thomas J. Miller, Atty. Gen., Harry M. Griger, Sp. Asst. Atty. Gen., and Lucille M. Hardy, Asst. Atty. Gen., for appellee.

Considered by McGIVERIN, C.J., and LAVORATO, NEUMAN, SNELL, and ANDREASEN, JJ.

SNELL, Justice.

Appellant, The Hearst Corporation (Hearst), appeals from an adverse ruling of the district court. The district court affirmed the decision of the Iowa Department of Revenue and Finance (department), holding that the taxed publications of Hearst are not "newspapers" as that undefined term is used in Iowa Code section 422.45(9) (1977) and, therefore, do not qualify for an exemption to Iowa's sales and use tax; that the tax on Hearst's publications is not in violation of the freedom of speech and press provisions of the First Amendment to the United States and Iowa Constitutions; that the tax does not violate the equal protection provisions of the United States and Iowa Constitutions; that the tax is not in violation of the due process provisions of the United States and Iowa Constitutions; that the tax does not violate the commerce clause to the United States Constitution; that Hearst is not entitled to the award of attorneys' fees; and that Hearst is liable for the penalty authorized pursuant to Iowa Code section 423.18 (1983).

I. Background Facts and Proceedings.

Hearst is a Delaware corporation with its principal place of business located in New York, New York. Hearst, among other things, is engaged in the publication and sale of various publications to subscribers and vendors throughout the United States. There are fourteen Hearst publications involved in this case, each of which has a large subscription circulation throughout the United States. These publications are Colonial Homes, Cosmopolitan, Country Living, Good Housekeeping, Harper's Bazaar, Motor, House Beautiful, Motor Boating and Sailing, Popular Mechanics, Science Digest, Sports Afield, Town and Country, Connoisseur, and Redbook.

Between October 1, 1978, and December 31, 1982 (the period in question), Hearst solicited subscription orders by United States mail for its publications from Iowa residents. All subscription solicitations by Hearst originated outside of the State of Iowa, were accepted or rejected by Hearst outside of the State of Iowa, were printed outside of the State of Iowa, and were sent by second class mail directly to Iowa subscribers from points originating outside of the State of Iowa. All of the publications in question were published monthly, except for Colonial Homes which was published bimonthly. During the period in question Hearst collected no Iowa use tax from its Iowa subscribers.

On April 25, 1984, the department issued a notice of assessment for retail use tax relating to the Hearst Corporation's alleged retail use tax liability. This assessment reflects the department's determination that the use tax was due from Hearst by reason of Hearst's failure to collect use tax from its Iowa subscribers for the various publications published by Hearst and sold by subscription to Iowa residents. Hearst filed a timely protest to the assessment with the hearing officer of the department.

On October 27, 1987, a hearing was held before an administrative law judge. In a proposed order, issued July 6, 1988, the administrative law judge upheld the department's assessment for retail use tax. On July 21, 1988, Hearst appealed the proposed order to the director of the department. The director affirmed the proposed order and adopted it in its entirety. Thereafter, on September 23, 1988, Hearst filed a timely petition for judicial review of the director's order with the clerk of the district court for Polk county. The matter was then submitted to the Iowa District Court for Polk County on September 26, 1989, on the record made before the administrative law judge, written briefs, and oral arguments. The district court issued its ruling on November 6, 1989, holding adversely to Hearst and Hearst appeals. We affirm.

II. Scope of Review.

The court may review the decision of the district court pursuant to Iowa Code section 17A.20 (1989), which provides that:

An aggrieved or adversely affected party to the judicial review proceeding may obtain a review of any final judgment of the district court under this chapter by appeal. The appeal shall be taken as in other civil cases, although the appeal may be taken regardless of the amount involved.

Furthermore, pursuant to Iowa Code section 17A.19(8) (1989):

The court may affirm the agency action or remand to the agency for further proceedings. The court shall reverse, modify, or grant any other appropriate relief from the agency action, equitable or legal and including declaratory relief, if substantial rights of the petitioner have been prejudiced because the agency action is:

a. In violation of constitutional or statutory provisions;

b. In excess of the statutory authority of the agency;

....

e. Affected by other error of law;

....

g. Unreasonable, arbitrary or capricious or characterized by an abuse of discretion or a clearly unwarranted exercise of discretion.

The scope of this review is at law, not de novo, therefore we are limited to those issues considered in the record made before the agency. Hussein v. Tama Meat Packing Corp., 394 N.W.2d 340, 341 (Iowa 1986); Taylor v. Iowa Dep't of Job Serv., 362 N.W.2d 534, 537 (Iowa 1985).

Hearst challenges the agency action based on the above-enumerated provisions.

III. The Taxation Scheme.

Under Iowa's sales and use taxation scheme, a sales tax is imposed on the retail sales of magazines while retail sales of "newspapers" are exempt from taxation. See Iowa Code §§ 422.43, 422.45(9) (1977); see also Iowa Code § 423.4(4) (1977).

Iowa Code section 422.43 (1977) provides in part that:

There is hereby imposed a tax of three percent upon the gross receipts from all sales of tangible personal property, consisting of goods, wares, or merchandise, except as otherwise provided in this division, sold at retail in the state to consumers or users....

The Code, pursuant to section 422.45(9) (1977), further provides that:

There are hereby specifically exempted from the provisions of this division and from the computation of the amount of tax imposed by it the following:

9. Gross receipts from the sales of newspapers, free newspapers or shoppers guides and the printing and publishing thereof.

Likewise, the "use" of such tangible personal property is exempt from Iowa use tax by virtue of Iowa Code section 423.4(4) (1977) which also provides in part that:

The use in this state of the following tangible personal property is hereby specifically exempted from the tax imposed by this chapter:

4. Tangible personal property, the gross receipts from the sale of which are exempted from the retail sales tax by the terms of section 422.45....

When interpreting these statutes we are guided by familiar principles of statutory construction. Of course, the polestar is legislative intent. Iowa Dep't of Revenue v. Iowa Merit Employment Comm'n, 243 N.W.2d 610, 614 (Iowa 1976). Our goal then, is to ascertain that intent and, if possible, give it effect. Isaacson v. Iowa State Tax Comm'n, 183 N.W.2d 693, 695 (Iowa 1971). To ascertain the legislative intent we must look to what the legislature said, rather than what it should or might have said. State v. Hesford, 242 N.W.2d 256, 258 (Iowa 1976). Words are given their ordinary meaning unless defined differently by the legislature or possessed of a particular and appropriate meaning in law. Id. However, we must avoid legislating in our own right and placing upon statutory language a strained, impractical or absurd construction. Doe v. Ray, 251 N.W.2d 496, 501 (Iowa 1977). Weight should be given to the department's interpretation of the statutes, particularly when they are of long standing, but the court is not bound by that interpretation. Sommers v. Iowa Civil Rights Comm'n, 337 N.W.2d 470, 473 (Iowa 1983).

It is the contention of the Hearst Corporation that its publications fall within the purview of the "newspaper" exemption of Iowa Code sections 422.45(9) (1977) and 423.4(4) (1977). Otherwise, Hearst argues, the tax is discriminatory and cannot withstand constitutional challenges.

IV. Are the Subject Publications "Newspapers?"

Whether the Hearst publications may be considered "newspapers" depends upon the meaning of that term as it is used in Iowa Code section 422.45(9) (1977), a tax exemption statute that must be strictly construed against the taxpayer and in favor of taxation. Goergen v. State Tax Comm'n, 165 N.W.2d 782, 786 (Iowa 1969). The term "newspaper" is not defined in the statute. In fact, the department was without a rule defining the term until January 28, 1981, when it adopted the following definition:

A newspaper is defined as a paper that is printed and distributed daily, weekly, or at some other regular and usually short interval and that generally contains news, articles of opinion (editorials), features, advertising, or other matter regarded as of current interest.

701 Iowa Admin.Code 18.42(1) (1981) (amended 1982 striking "generally" from definition); see also Webster's Third New Int'l Dictionary 1524 (1976) (defining "Newspaper" in exactly the same terms).

Webster's Third New International Dictionary defines a "magazine" as "a periodical containing special material directed at a group having a particular hobby, interest or profession...." Id. at 1357. The dictionary also defines a "periodical" as "a magazine or other publication of which the issues appear at stated or regular intervals--usu. used...