Herald Press, Inc. v. Norberg

• Decision Date: 27 August 1979
• Docket Number: No. 77-249-M,77-249-M
• Parties: The HERALD PRESS, INC. v. John H. NORBERG, Tax Administrator. P.
• Court: Rhode Island Supreme Court

Page 1171

405 A.2d 1171

122 R.I. 264

The HERALD PRESS, INC. v. John H. NORBERG, Tax Administrator.

No. 77-249-M.P.

Supreme Court of Rhode Island.

Aug. 27, 1979.

[122 R.I. 275] Smith & Smith, Inc., Z. Hershel Smith, Providence, for petitioner.

Dennis J. Roberts, II, Atty. Gen., Allen P. Rubine, Asst. Atty. Gen., Perry Shatkin, Chief Legal Officer (Taxation), Providence, for respondent.

OPINION

WEISBERGER, Justice.

This is a petition for certiorari to review a Superior Court judgment affirming a decision of the tax administrator assessing a sales and use tax against The Herald Press, Inc. (Herald), a printing firm in Pawtucket, Rhode Island.

Herald challenges the sales and use tax assessed on two transactions. The first challenge involves the use tax imposed as a result of the alleged purchase by Herald of certain capital assets from Hendrix Electronics, Inc. (Hendrix), a manufacturer of electronic computer systems in New Hampshire. The second challenge involves the sales tax assessed on an advertising flyer printed by Herald for India Imports of Rhode Island, Inc. (India Imports).

On July 18, 1975, Herald was sent a notice of a deficiency determination under the sales and use tax law. The stated deficiency, including interest and penalty, was $8,422.07. A hearing was requested and was later held on November 4, 1975, before a hearing officer of the Division of Taxation. A revenue agent testified he had performed the audit on Herald and that he had mailed the deficiency determination. He went on to testify that the assessment of the portion of the deficiency determination involving the transaction with Hendrix was based on the information contained in a letter received by his supervisor from Hendrix and on an examination of invoices sent to Herald by Hendrix. According to the revenue agent, Herald made three separate purchases of equipment from Hendrix. He stated that the first purchase was in the amount of $31,896 and occurred on August 30, 1974. He stated the second and third purchases were for $14,312 and $5,600 and occurred on January 13, 1975 and January 31, 1975. The agent also testified that according to his supervisor all the items acquired by Herald from Hendrix were fully installed and operating. The revenue agent, however, conceded that "(t)o tell you the truth, I didn't see any of these three pieces of equipment" and that he "did not see the machinery producing a product." He further testified that the system was returned and that all payments were refunded on June 6, 1975. The agent stated that this was the only relevant information utilized in assessing the tax. He likewise stated that he assessed the deficiency because the law requires that the equipment must be returned within 120 days to be excluded as part of the "sale price." G.L.1956 (1970 Reenactment) § 44-18-12(B).

Mr. Walter Rutman (Rutman), the president of Herald, also testified at the hearing. He stated that Herald had not made a decision regarding the purchase of typesetting equipment "when a whole series of containers arrived from Hendrix * * *." Rutman testified that he learned from Mr. Faber (Faber), a sales representative of Hendrix, that the system had been sent without an okay. Rutman, however, also testified that Faber "made some conditions that would make it more attractive to us to enter into an agreement with him." According to Rutman, the equipment was accepted solely on a trial basis and the cost of shipping and insurance was to be assumed by Hendrix.

Rutman also stated that the system was composed of four phases: two terminals and a computer in the first phase; additional terminals in phase two; a disc program in phase three; and a hyphenation and justification program in phase four. Rutman said "it was explained and understood by Mr. Faver (Sic ) that without the last phase, the rest of it was worthless." Rutman further stated that Herald tried to utilize the equipment, "but there were so many hardware failures, that we couldn't even test it properly." According to Rutman, the second phase was received in January 1975. He also stated that he had been told that Hendrix would do their utmost to send the third phase in January or the first of February 1975. Near the end of January, however, Rutman was informed that the model had not even been constructed. As a result, Rutman told Hendrix' eastern regional manager to "pull the whole thing out." Thereafter, Herald received the invoice dated January 31, 1975, and part of the third phase of the system. The material was never unpacked. After January 21, 1975, Herald made constant complaints about the equipment because, as Rutman explained, "(w)e couldn't get anything out of the program." Rutman rejected three alternative plans suggested in a letter dated March 18, 1975, from Hendrix' district sales manager.

According to Rutman, in the latter part of April an agreement was made to remove the equipment but the actual removal did not occur until June 6, 1975.

Rutman's testimony was mirrored by the affidavit of Faber who was no longer employed by Hendrix as of January 21, 1975. In his affidavit Faber stated he had assured Rutman that if the entire system did not work to Rutman's satisfaction, Hendrix would take back all of the equipment and refund all payments.

The tax administrator, in his final decision, approved and adopted the findings of fact and conclusions of law made by the hearing officer who had previously found that Herald had made three separate purchases from Hendrix. The hearing officer had also found that Herald had been dissatisfied with the operation of the system and had returned the entire unit and received a refund on June 6, 1975. He concluded that the transactions were "sales" under § 44-18-7 and that the merchandise had not been returned within 120 days of the date of sale or purchase. See § 44-18-12(B); Regulations and Rules Issued by the Tax Administrator under the Sales and Use Tax Law at 104 (1977). ¹ Therefore, the hearing officer had recommended that the deficiency determination be accepted as correct. The tax administrator approved and the trial justice affirmed.

The basic facts of the second transaction are undisputed. Herald printed certain advertising flyers for India Imports. The flyers, however, were delivered to T.C.S. Inc. of Providence for the insertion of order blanks before being sent to Mailways of Manchester, New Hampshire, for bulk mail delivery outside of Rhode Island. The hearing officer determined that Herald exercised the right and power over the flyers and directed shipment to T.C.S. The fact that the flyers were subsequently placed in interstate commerce did not, in the view of the hearing officer, alter the fact that the sale was made by Herald and delivery was made in Providence at the direction of the customer. Accordingly, the hearing officer recommended that the deficiency be upheld and the tax administrator adopted this conclusion. The trial justice also upheld this portion of the sales tax deficiency assessment. He stated that the tax administrator could have opted to overlook the technicality of control but did not. Thus, the trial justice concluded that while he might have been inclined to view the problem differently, he would not substitute his view for that of the tax administrator.

In the present case the tax administrator's decision was reviewed in the Superior Court pursuant to the provisions of G.L.1956 (1977 Reenactment) § 42-35-15, as amended by P.L.1966, ch. 112, § 1. Herald asserts, however, that it was entitled to a de novo hearing in the Superior Court under the provisions of § 44-19-18. This section was first enacted in P.L.1947, ch. 1887, art. 2, § 41, and was on the books when Herald's complaint in the Superior Court was filed on May 25, 1976. ² That section provided in pertinent part that upon petition by an aggrieved person the Superior Court

"shall proceed to hear said petition and to determine the correct amount of the tax, interest, and penalties."

However, Herald did not question the standard of review in the Superior Court. Indeed, Herald's complaint specifically states that the action was brought under the provisions of § 42-35-15, the section of the Administrative Procedures Act dealing with the judicial review of contested cases. We can only say that we believe Herald properly instituted its complaint under § 42-35-15.

The relationship between § 42-35-15 and § 44-19-18 has never been considered by this court. We observe, however, that § 44-19-18 was in effect when chapter 35 of title 42 became effective on January 1, 1964. The Legislature also provided in § 42-35-18 that the chapter applied to all agencies and agency proceedings not expressly exempted and that all acts and parts of acts "inconsistent herewith shall stand repealed." Accordingly, we have consistently stated that in enacting § 42-35-15(a) the Legislature intended to provide a single and exclusive method of obtaining judicial review of agency action excluding only the decisions of specifically exempt agencies. Colonial Hilton Inns of New England, Inc. v. Rego, 109 R.I. 259, 284 A.2d 69 (1971); New England Telephone & Telegraph Co. v. Fascio, 105 R.I. 711, 254 A.2d 758 (1969); Yellow Cab Co. v. Public Utility Hearing Board, 101 R.I. 296, 222 A.2d 361 (1966).

We considered an analogous issue in Sterling Shoe Co. v. Langton, 103 R.I. 688, 240 A.2d 727 (1968). There we held that the Administrative Procedures Act supplanted certain portions of § 44-10-11 and § 44-19-17. We have also recently stated that review of a tax administrator's decision is properly sought under the provisions of § 42-35-15. Rice Machinery, Inc. v. Norberg, R.I., 391 A.2d 66, 69 n. 2 (1978); See Prospecting Unlimited, Inc., v. Norberg, R.I. 376 A.2d 702 (1977). Although the issue presented may not have been raised in the foregoing cases, we believe that the statements in those cases were correct. This court must assume that the Legislature...