Indiana Dept. of State Revenue v. L.S. Ayres & Co.

• Decision Date: 16 December 1985
• Docket Number: No. 4-185A10,4-185A10
• Citation: 486 N.E.2d 563
• Parties: INDIANA DEPARTMENT OF STATE REVENUE, Appellant (Defendant Below), v. L.S. AYRES & COMPANY, Appellee (Plaintiff Below).
• Court: Indiana Appellate Court

Page 563

486 N.E.2d 563

INDIANA DEPARTMENT OF STATE REVENUE, Appellant (Defendant Below), v. L.S. AYRES & COMPANY, Appellee (Plaintiff Below).

No. 4-185A10.

Court of Appeals of Indiana,

Third District.

Dec. 16, 1985.

Linley E. Pearson, Atty. Gen., Dan S. Larue, Deputy Atty. Gen., Indianapolis, for appellant.

J.B. King, Thomas G. Stayton, Baker & Daniels, Indianapolis, for appellee.

Richard W. Cardwell, Gen. Counsel, Indianapolis, for amicus curiae.

HOFFMAN, Judge.

Appellant, the Indiana Department of State Revenue (the Revenue Department herein), seeks review of the trial court's judgment which awarded a refund for sales and use taxes paid by appellee L.S. Ayres & Company (Ayres herein) on its purchases of newspaper advertising inserts during the year 1976. On appeal from that judgment the Revenue Department asserts that the trial court erred by granting Ayres a refund. The sole issue which is dispositive of this appeal is as follows:

whether advertisers' purchases of advertising inserts are subject to sales and use taxes, when the inserts are printed by private printers, bearing the name of the newspaper which they are inserted into and the date of the newspaper's edition, and are delivered directly to the newspaper publisher who stuffs the inserts into, and distributes them with the newspapers.

The taxing statute in effect at the time of the subject events, IND.CODE Sec. 6-2-1-41, provided:

"the use tax, is hereby imposed on the storage, use or other consumption in this state of tangible personal property purchased in a transaction, in this state or elsewhere at retail from a retail merchant, wherever located, for storage, use or other consumption in this state ...."

In addition, IND.CODE Sec. 6-2-1-43 provided that the use tax does not apply to the storage, use or other consumption in Indiana of tangible personal property sold in a transaction exempt from gross retail tax. Further, IND.CODE Sec. 6-2-1-39(b)(3) stated that the gross retail tax does not apply to the sale of newspapers. Therefore, this Court must initially determine whether the sale of the advertising inserts in question here, is a sale of newspapers.

This question is new to Indiana, but has been addressed in several other jurisdictions. The case with the facts most similar to those presented here, and with statutes most similar to Indiana's, is Sears, Roebuck and Co. v. State Tax Commission (1976), 370 Mass. 127, 345 N.E.2d 893.

The text of Sears reveals that those advertising supplements were produced by an independent printer, bearing the newspaper's logo and the date of the newspaper's edition, and were shipped by the printer directly to the newspaper publisher. The publisher inserted the supplements into the designated edition and distributed them with the newspapers. In its opinion the Supreme Judicial Court of Massachusetts stated:

"Under G.L. c. 64H, Sec. 6(m), sales of 'newspapers' are exempt from sales tax, and under G.L. c. 64I, Sec. 7(b), use of property by the purchaser is exempt from use tax if the sale is exempt from sales tax. The board said that if the advertising material of Sears had been 'printed directly by the newspapers involved and sold to the public as part of...