Inter-State Nurseries, Inc. v. Iowa Dept. of Revenue

• Decision Date: 11 February 1969
• Docket Number: No. 53185,INTER-STATE,53185
• Citation: 164 N.W.2d 858
• Parties: NURSERIES, INC., Appellant, v. IOWA DEPARTMENT OF REVENUE, Director of Revenue, William H. Forst, Substituted Appellees, Formerly: Iowa State Tax Commission, Earl Burrows, Chairman, Lynn Potter and X. T. Prentice, Appellees.
• Court: Iowa Supreme Court

Page 858

164 N.W.2d 858

INTER-STATE NURSERIES, INC., Appellant, v. IOWA DEPARTMENT OF REVENUE, Director of Revenue, William H. Forst, Substituted Appellees Formerly: Iowa State Tax Commission, Earl Burrows, Chairman, Lynn Potter and X. T. Prentice, Appellees.

No. 53185.

Supreme Court of Iowa.

Feb. 11, 1969.

Swift, Brown, Winick & Randall, Des Moines, for appellant.

Richard C. Turner, Atty. Gen., George W. Murray, Sp. Asst. Atty. Gen., and Harry M. Griger, Asst. Atty. Gen., for appellees.

RAWLINGS, Justice.

By action in equity, Inter-State Nurseries, an Iowa corporation, doing business in Hamburg, challenges a State Tax Commission deficiency use tax assessment, defendant being now identified as Department of Revenue. (Chapter 342, Acts of Sixty-Second General Assembly) Trial court sustained the assessment and plaintiff appeals. We affirm.

Appellant is a retail horticultural nursery conducting most of its business by mail. The record discloses over 99% Of Inter-State's sales are generated from spring and fall distributed catalogues and flyers.

This advertising material is printed outside Iowa and shipped by common carrier to Inter-State's office at Hamburg. Special sized envelopes, also purchased out of state, are likewise delivered to appellant's Iowa premises.

Transported to appellant in less than carload lots, the envelopes are timed to arrive at staggered intervals during mailing periods. Upon arrival at Inter-State's plant the envelopes, catalogues and flyers are removed from the delivering carriers, placed in a building on appellant's Iowa premises, where the envelopes are addressed to prospective customers, and the advertising material then inserted in them. That done, the packaged envelopes are tied in bundles, according to zip code or city, and placed in the hands of on-site postal employees for mailing.

Appellant distributed approximately 950,000 catalogues in the spring of both 1965 and 1966, and 750,000 in the fall of each of those years. Approximately 1,000,000 flyers were mailed by appellant in both 1965 and 1966.

The record discloses the catalogues, flyers, and envelopes are held in appellant's plant from one to three days after arrival.

Upon the basis of this factual showing, appellees assessed a use tax and penalty for the period from January 1, 1961, to June 30, 1966. In upholding the assessment trial court found, in substance, 'use' by appellant began when the envelopes and catalogues were removed from interstate channels, and ended when the packaged materials were delivered to postal authorities for mailing. Stated otherwise, the court held, pending ultimate customer distribution, the property was in appellant's possession subject to whatever use it desired.

I. Our review is de novo, but we ordinarily give weight to trial court's findings and conclusions, although not bound by them. See sections 423.16 and 422.55(3), Code 1966; rule 344(f)(7), Rules of Civil Procedure; and Randolph Foods, Inc. v. McLaughlin, 253 Iowa 1258, 1279, 115 N.W.2d 868.

II. The United States Supreme Court dissipated any doubt as to general validity and purpose of the Iowa Use Tax Act in Nelson v. Sears, Roebuck & Co. 312 U.S. 359, 61 S.Ct. 586, 85 L.Ed. 888; and Nelson v. Montgomery Ward & Co., 312 U.S. 373, 61 S.Ct. 593, 85 L.Ed. 897.

After holding in Nelson v. Sears, Roebuck & Co., supra, at 312 U.S. 361, 61 S.Ct. 587, the Iowa Use Tax Act, being a tax on use in Iowa of tangible property, is complementary to our Iowa Retail Sales Tax Act, the court stated, loc. cit., 312 U.S. 363, 61 S.Ct. 588: 'It is one of the well-known functions of the integrated use and sales tax to remove the buyers' temptation 'to place their orders in other states in the effort to escape payment of the tax on local sales.' Henneford v. Silas Mason Co., supra, 300 U.S. (577) at page 581, 57 S.Ct. (524) at page 526, 81 L.Ed. 814. As pointed out in that case (300 U.S. at page 582, 57 S.Ct. at page 526, 81 L.Ed. 814), the fact that the buyer employs agencies of interstate commerce in order to effectuate his purchase is not material, since the tax is 'upon the privilege of use after commerce is at an end.' * * * Use in Iowa is what is taxed regardless of the time and place of passing title and regardless of the time the tax is required to be paid.' See also Chicago, B. & Q. R. Co. v. Iowa State Tax Comm., 259 Iowa 178, 183-185, 142 N.W.2d 407.

III. On appeal Inter-State contends, in effect, (1) the catalogues, flyers and envelopes, not having been purchased for use or used in Iowa, are not subject to a use tax, and (2) they are exempt from such tax by section 423.4(2) as tangible personal property used in interstate commerce or transportation.

This means the broad question to be resolved is whether advertising material, purchased out of state by appellant, delivered in Iowa by common carrier, removed from the delivering carriers at Hamburg, where the envelopes are addressed, and catalogues inserted therein, with the packaged material subsequently mailed to prospective customers residing in states other than Iowa, is purchased for use or used in Iowa, and if so is that use statutorily exempt from imposition of the tax?

Relevant provisions of the Act, chapter 423, Code 1966, as amended, provide:

Section 423.1(1)--"Use' means and includes the exercise by any person of any right or power over tangible personal property incident to the ownership of that property, * * *.'

Section 423.2--'An excise tax is hereby imposed on the use in this state of tangible personal property purchased on or after April 16, 1937, for use in this state, at the rate of three percent of the purchase price of such property.'

Section 423.4--'The use in this state of the following tangible personal property is hereby specifically exempted from the tax imposed by this chapter:

'2. Tangible personal property used (a) in interstate transportation or interstate commerce, * * *.'

Appellant first argues, the definition of 'use' in Code section 423.1(1), quoted supra, should not be so literally construed as to have the effect of imposing a property tax rather than an excise tax. This argument is based upon the premise the term 'use' should be limited to a real or ultimate utilization of the property, rather than the exercise of any right or power over tangible personal property, and to hold otherwise would serve, in effect, to impose a property tax.

In that regard the legislature may be its own lexicographer, and in construing any statute courts are ordinarily bound by the definition of terms specified by the General Assembly. Graham v. Worthington, 259 Iowa 845, 853, 146 N.W.2d 626, 632; and Sandberg Co. v. Iowa State Board, 225 Iowa 103, 107, 278 N.W. 643, 281 N.W. 197.

At the outset we direct attention to the contention, the statutory definition of 'use', as here applied by defendants, serves to create a property rather than an intended excise tax.

The California Supreme Court, dealing with this subject in Douglas Aircraft Co. v. Johnson, 13 Cal.2d 545, 90 P.2d 572, 575-576, stated: 'The determination of whether a particular tax is a property or excise tax is not always an easy matter. In discussing this problem in Ingels v. Riley, supra, 5 Cal.2d (154) page 159, 53 P.2d (939) page 941, 103 A.L.R. 1, it is stated:

"The distinction between a tax on a privilege and a property tax is many times a close one. Generally speaking, the function of a property tax is to raise revenue. Such a tax does not impose any condition nor does it place any restriction upon the use of the property taxed. A privilege tax, although also passed to raise revenue, and as such is to be distinguished from the license tax or regulatory charge imposed under the state's police powers, is imposed upon the right to exercise a privilege, and its payment is invariably made a condition precedent to the exercise of the privilege involved. 37 Cor.Jur., p. 171, § 9, and cases cited.

"It is impossible to lay down any positive rule by means of which the character of any given tax may be ascertained. In each case the character of the given tax must be ascertained by its incidents and from the natural and legal effect of the language employed in the statute.'

'Applying this test to the statute here under consideration we have no hesitancy in holding that the tax imposed is an excise tax, for revenue purposes, levied on the privilege of use, * * *. In the first place, as indicated by the quotations from the statute, supra, the legislature has denominated the levy an excise tax. Although not conclusive this is entitled to considerable weight in ascertaining the nature of the tax. (Cases cited.)

'In the second place it is obvious, from a reading of the act, that the tax here levied is not imposed on the ownership of property as such. It does not apply to the use of property to be resold. It does not recur annually, but falls due only once. It is not imposed on a fixed day, although it is collectible quarterly--in short, it does not fall upon the owner because he is the owner, regardless of the use or disposition he may make of the property. It is imposed on certain of the privileges of ownership, but not on all of them.

'* * * There is a long line of authorities most of them of recent date, holding that use taxes, including taxes imposed on the privilege of use, or storage, or withdrawal from storage, are excise taxes and not property taxes.' See also in this respect, Connecticut Light & Power Co. v. Walsh, 134 Conn. 295, 57 A.2d 128, 134, 1 A.L.R.2d 453, and St. Paul & Tacoma Lumber Co. v. State, 40 Wash.2d 347, 243 P.2d 474, 478.

As quoted supra, Code section 423.2 expressly labels the measure an excise tax. The levy is on the exercise in Iowa of any right or power over tangible personal property, not on ownership as such. The Act serves to impose a tax but once. It does not recur regularly as do property taxes. Nor is it assessed on a fixed day although collectible quarterly. In...