HJ Wilson Co. v. STATE TAX COM'N

• Decision Date: 30 July 1998
• Docket Number: No. 97-CA-00121-SCT.,97-CA-00121-SCT.
• Citation: 737 So.2d 981
• Parties: H.J. WILSON COMPANY, INC. v. STATE TAX COMMISSION OF the STATE of Mississippi.
• Court: Mississippi Supreme Court

737 So.2d 981

H.J. WILSON COMPANY, INC. v. STATE TAX COMMISSION OF the STATE of Mississippi.

No. 97-CA-00121-SCT.

Supreme Court of Mississippi.

July 30, 1998.

Rehearing Denied March 31, 1999.

Charles L. Brocato, Jackson, Charles A. Trost, Nashville, TN, Attorneys for Appellant.

Brad D. Wilkinson, Bobby R. Long, Jackson, Attorneys for Appellee.

Before PRATHER, C.J., and SMITH and WALLER, JJ.

SMITH, Justice, for the Court:

¶ 1. H.J. Wilson Company, doing business as Service Merchandise in the State of Mississippi (hereinafter Service Merchandise), challenged use tax assessments by the Mississippi State Tax Commission (hereinafter Commission) during the taxable periods from June 1, 1986 through June 30, 1992, inclusive. The Commission, relying on Miss.Code Ann. § 27-67-5, denied Service Merchandise all relief requested, and Service Merchandise paid the assessment levied. Service Merchandise, having exhausted all of its administrative remedies, filed a complaint in the Hinds County Chancery Court seeking a refund of the use tax assessments. ¶ 2. Service Merchandise argued that the use tax assessment violated the First Amendment of the United States Constitution; constituted an unlawful burden on interstate commerce in violation of the Commerce Clause; violated the due process clause of the Fourteenth Amendment; and discriminated against Service Merchandise in violation of the Equal Protection Clause. Service Merchandise additionally challenged whether the appropriate tax base for purposes of the use tax be the gross cost of publication or the net cost of publication of the respective catalogs, fliers, and inserts. The chancery court, Honorable Denise Owens presiding, entered final judgment denying the refund of use taxes on December 23, 1996.

¶ 3. Service Merchandise now appeals to this Court the chancery court's denial of relief and contends that the chancery court erred by concluding that the Commission's examination of periodicals did not constitute a content-based inquiry and, thus, was not violative of the First Amendment; by not requiring the Commission to put forward a compelling justification for its content-based distinction between Service Merchandise's publications and non-taxed newspapers; by not rejecting the Commission's justification to satisfy commercial speech scrutiny; and by taking the unprecedented view that Mississippi could lawfully impose a tax on Service Merchandise's United States postage costs. The Commission contends that the chancery court did not err in finding the Commission's basis for determining whether a publication should be afforded exemption from use tax as a newspaper was contentneutral; even if content-based, Mississippi's use tax scheme survives constitutional scrutiny under a commercial speech analysis; and postage fees were appropriately included in Service Merchandise's tax base.

FACTS

¶ 4. H.J. Wilson Company, the Appellant, was doing business in the State of Mississippi as Service Merchandise (hereinafter Service Merchandise) and is a subsidiary of Service Merchandise Co., Inc. (hereinafter Service Merchandise Company), a Tennessee corporation with its principal place of business and commercial domicile located in Tennessee. Service Merchandise operates in the State of Mississippi as a retail store carrying an extensive line of jewelry and household appliances. Service Merchandise has no advertising department and depends on Service Merchandise Company to obtain advertising for its Mississippi operations.

¶ 5. Service Merchandise Company has for many years contracted with printers to produce an extensive array of catalogs and fliers which it has mailed to its Mississippi customers. During the audit period in question, these catalogs and fliers were used extensively to provide potential customers with prices and descriptions of Service Merchandise's extensive array of products and to notify customers of upcoming sales, discounts and special programs. In order to reach those customers most likely to benefit from receiving Service Merchandise information, Service Merchandise Company carefully compiled lists of Mississippi residents based on the following four criteria: (1) lists compiled of customers based on records of prior purchasers; (2) lists purchased from outside vendors of customer lists; (3) lists rented from outside vendors of customer lists; and (4) customer requests. During the audit period, Service Merchandise Company mailed publications to Service Merchandise customers between twenty-two and twenty-eight times per year.

¶ 6. Service Merchandise Company contracts with printers to produce publications to be sent to Mississippi and other states in which its subsidiaries operate stores. During the audit period, the catalogs sent into Mississippi were all prepared and printed outside Mississippi. Once printed, the publications at issue were placed in the United States Mail at post offices located outside Mississippi and then forwarded directly to Mississippi residents by the United States Postal Service.

¶ 7. In 1992, the Mississippi State Tax Commission (hereinafter the Commission) assessed a use tax of six percent (6%)¹ against Service Merchandise for the cost of the publications printed and mailed to the residents of Mississippi. In assessing what it claimed to be Service Merchandise's use tax liability, the Commission conducted two audits. During the first audit, the Commission issued an assessment for Service Merchandise Company's publications which, together with lawful interest on the amount assessed through the date Service Merchandise made payment, totaled $263,580.96. In making this assessment, the Commission excluded the cost of mailing the Service Merchandise publications to Mississippi. However, in its second assessment, which totaled $394,569.27 including interest, the Commission included use tax on United States Postal charges totaling $100,965.00 plus interest in the amount of $44,455.00.

¶ 8. Service Merchandise challenged the applicability of the Commission's use tax assessment and further protested the assessment charges incident to the application of the use tax to postage paid, but the Commission denied all relief requested. As a result, Service Merchandise paid the full tax assessment in the amount of $658,150.23 on February 14, 1992 and June 25, 1993. Upon stipulation of both parties, the proper taxpayer in this controversy is Service Merchandise.

¶ 9. Service Merchandise next filed a complaint in the Chancery Court of the First Judicial District of Hinds County, Mississippi on July 2, 1992 alleging the following:

The Sales and Use Tax scheme of Mississippi relative to exemptions for newspapers, television and radio advertising, religious publications, and certain aspects of intrastate printing industries set forth in Rule 51 of the Mississippi Sales and Use Tax Rules results in unlawful, discriminatory taxation against this taxpayer in violation of taxpayers' rights under the First Amendment of the United States Constitution.

At the core of Service Merchandise's contentions before the chancery court was its contentions that the Commission's Sales and Use Tax Rule 51, providing for an exemption to newspapers, was an unconstitutional content-based discrimination in violation of the First Amendment of the United States Constitution and that the Commission was without authority to impose the portion of the use tax assessment pertaining to postage costs applied in the second audit period.

¶ 10. The chancery court, Honorable Denise Owens presiding, entered final judgment finding Service Merchandise's claim for refund of use tax and interest was without merit and, therefore, should be dismissed. The chancery court first held that the Commission's computation of use tax on the inclusion of postage during the second audit was within the statutory authority of the Mississippi Use Tax Law. The chancery court next decided that the appropriate tax base for the use tax assessment was the gross cost of publication and not the net cost for Service Merchandise. The chancery court finally determined that the exemption afforded newspapers under the sales and use tax scheme was not content-based discrimination and, thus, not in violation of the First Amendment of the United States Constitution.

¶ 11. It is from this decision that Service Merchandise appeals to this Court and raises the following issues:

I. WHETHER THE TRIAL COURT ERRED BY HOLDING THAT THE COMMISSION'S EXAMINATION OF PERIODICALS DID NOT CONSTITUTE A CONTENT-BASED INQUIRY AND THUS NOT VIOLATIVE OF

THE FIRST AMENDMENT OF THE UNITED STATES CONSTITUTION.

II. WHETHER THE TRIAL COURT ERRED BY NOT REQUIRING THE COMMISSION TO PUT FORWARD A COMPELLING JUSTIFICATION FOR ITS CONTENT-BASED DISTINCTION BETWEEN SERVICE MERCHANDISE'S PUBLICATIONS AND NON-TAXED NEWSPAPERS.

III. WHETHER THE TRIAL COURT ERRED BY NOT REJECTING THE COMMISSION'S JUSTIFICATION OF A LESSER PROTECTION FOR COMMERCIAL SPEECH AS CONSTITUTIONALLY INADEQUATE.

IV. WHETHER THE APPLICABLE REMEDY UNDER MISSISSIPPI LAW FOR OVERPAYMENT OF USE TAX UNDER AN UNCONSTITUTIONAL TAX SCHEME REQUIRES THE REFUND OF ALL PAYMENTS MADE BY SERVICE MERCHANDISE.

V. WHETHER THE TRIAL COURT ERRED BY NOT REJECTING THE USE TAX IMPOSED ON SERVICE MERCHANDISE'S POSTAGE IN LIGHT OF THE FACT THAT A SIMILAR SALES TAX WOULD NEVER BE IMPOSED ON THE SAME PRODUCT.

VI. WHETHER THE TRIAL COURT ERRED BY TAKING THE VIEW THAT MISSISSIPPI COULD LAWFULLY IMPOSE A USE TAX ON SERVICE MERCHANDISE'S UNITED STATES POSTAGE COSTS.

DISCUSSION OF LAW

I. WHETHER THE TRIAL COURT ERRED BY HOLDING THAT THE COMMISSION'S EXAMINATION OF PERIODICALS DID NOT CONSTITUTE A CONTENT-BASED INQUIRY AND THUS NOT VIOLATIVE OF THE FIRST AMENDMENT OF THE UNITED STATES CONSTITUTION.

¶ 12. The instant case involves the imposition of a use tax on Service Merchandise's importation of certain tangible personal property, i.e., various advertising fliers and sales catalogs, into the ...