J & B Pub. Co. v. Secretary, Dept. of Rev.

• Decision Date: 15 December 2000
• Docket Number: No. 34,105-CA.,34,105-CA.
• Citation: 775 So.2d 1148
• Parties: J & B PUBLISHING COMPANY OF LOUISIANA, INC., Plaintiff— Appellant, v. SECRETARY, DEPARTMENT OF REVENUE & TAXATION, STATE OF LOUISIANA, Defendant—Appellee.
• Court: Court of Appeal of Louisiana — District of US

775 So.2d 1148

J & B PUBLISHING COMPANY OF LOUISIANA, INC., Plaintiff— Appellant, v. SECRETARY, DEPARTMENT OF REVENUE & TAXATION, STATE OF LOUISIANA, Defendant—Appellee.

No. 34,105-CA.

Court of Appeal of Louisiana, Second Circuit.

December 15, 2000.

Theus, Grisham, Davis & Leigh by Robert J. Bozeman, Monroe, Counsel for Appellant.

Louisiana Department of Revenue, Legal Division by Dwana C. King, Baton Rouge, Frederick Mulhearn, Counsel for Appellee.

Before BROWN, PEATROSS and DREW, JJ.

BROWN, J.,

J & B Publishing Company of Louisiana ("J & B") appeals from a trial court's judgment holding it liable for sales and use taxes on purchases of (1) printing services from an out-of-state printer; (2) a license to obtain and use residential telephone listings from South Central Bell; and (3) a printout of those listings from Century Printing and Direct Micromarketing. In addition to the sales and use tax assessments, the trial court imposed penalties. For the reasons set forth below, we affirm in part and reverse in part.

Facts

The facts are fairly simple and not in dispute. J & B has published an independent telephone directory for the northeast region of Louisiana for the past 18 years. The telephone book contains both residential listings (white pages) and business listings/advertisements (yellow pages). J & B's art department designs most of the ads that J & B sells.

J & B purchases from South Central Bell the residential "white page" listings, or, more accurately, a license to use these listings. J & B then purchases a printout of the residential listings from Century Printing and Direct Micromarketing ("Century Printing"). The telephone directories are printed and bound by the Printing Center, Inc., a Fort Worth, Texas, corporation. The finished books are then shipped to J & B's warehouse in Monroe, Louisiana, from which location J & B distributes the directories free-ofcharge to the public. Approximately 135,-000 telephone books are printed per year and distributed each November. All of J & B's revenue is generated by the sales of advertisements for the yellow pages.

The sales of the yellow page advertisements are not subject to taxation because the applicable statute specifically exempts advertising services rendered by an advertising business. La. R.S. 47:302(D). At issue in the instant case is the imposition of a use tax on the printing and binding of the directories and sales tax on the purchase and printing of the residential listings.

For the audit period of January 1, 1992, through October 30, 1994, the Dept. of Revenue assessed J & B with sales and use taxes totaling $17,355.14. The majority of this amount, $15,580.27, was assessed on the printing and binding services provided by the Texas company. Of the remaining amount, $961.16 was assessed on J & B's purchase of the printout of residential listings from Century Printing and $513.97 was assessed on J & B's purchase of the license granting access to the residential listings from South Central Bell. The Dept. of Revenue calculated penalties of $2,863.07 and interest of $3,525.13 as of April 24, 1995, on the assessments.

The Tax Board's Ruling

J & B appealed the assessments to the Board of Tax Appeals pursuant to La. R.S. 47:1401 et seq. After a hearing on March 4, 1997, the three-member panel dismissed the three assessments at issue by judgment dated August 5, 1997. The Board based its dismissal of the assessment on the out-of-state printing of the directories upon La. R.S. 47:302(D), which exempts from taxation advertising services rendered by an advertising business. While the Board cited no specific statutory authority for its dismissal of the other two assessments, it is reasonable to conclude that the panel determined that the exemption provided by La. R.S. 47:302(D) applied to these transactions as well.

On August 21, 1997, the Dept. of Revenue filed a timely petition for judicial review of the Board's decision. A hearing was held in district court on December 30, 1999.

The District Court's Ruling

The trial court held that the printing services J & B purchased from the Printing Center were clearly distinguishable from the advertising services J & sold to its customers; that the right to obtain a printout of the listings by the license agreement was inseparable from the physical manifestation of the listings, that is, the magnetic tape, and therefore constituted tangible personal property subject to taxation; and, that the printout provided by Century Printing of the residential listings constituted a taxable sale of services as defined by La. R.S. 47:302(D). Thus, the trial court reinstated the assessments and penalties.

J & B has appealed from the trial court's judgment.

Discussion

Retail sales of tangible personal property in Louisiana are subject to a sales tax. It is a tax upon the transaction itself, not the property involved in the transaction. The use tax was intended to affect items purchased out-of-state for immediate importation and use in this state. A use tax in the amount equal to what would have been levied as a sales tax is ordinarily imposed upon a Louisiana resident who purchases goods or services out-of-state. Obviously, the purpose of the use tax is to remove the temptation to buy out-of-state to escape the payment of local sales taxes. Accordingly, if something that is purchased out-of-state would be subject to a sales tax if purchased in state, then it is subject to a use tax. The two taxes are complimentary and codified as a single sales and use tax. La. R.S. 47:301 et. seq.

We are mindful of the limitations on judicial review;¹ however, there are no factual disputes in this matter. The central issue is one of statutory interpretation and application: whether the purchase of printing and binding services from an out-of-state printer, as well as the purchase of residential listings in state, are exempt from the assessment of a use or sales tax by virtue of either La. R.S. 47:302(D) (as an advertising service) or La. R.S. 47:301(10)(a)(i) (as a sale for resale).

Exemptions from taxation must be expressly and clearly conferred and are to be strictly construed against the taxpayer. McNamara v. Central Marine Service, Inc., 507 So.2d 207 (La.1987); A.M.A. Distributors, Inc. v. School Board of Parish of Iberville, 98-0373 (La.App. 1st Cir.04/01/99), 729 So.2d 765; Succession of Smith, 589 So.2d 16 (La.App. 1st Cir.1991), writ denied, 594 So.2d 891 (La.1992). The taxpayer claiming an exemption has a heavy burden to prove his entitlement. An exemption is an exceptional privilege which must be clearly, unequivocally and affirmatively established. Bill Roberts, Inc. v. McNamara, 539 So.2d 1226 (La. 1989); Zapata Haynie Corp. v. Larpenter, 583 So.2d 867 (La.App. 1st Cir.1991), writ denied, 589 So.2d 1071 (La.1991); Gard Ltd. Liability Co. v. Calcasieu Parish School Board, 96-1520 (La.App. 3d Cir.04/02/97), 693 So.2d 10; Cox Cable New Orleans, Inc. v. City of New Orleans, 94-2102 (La.App. 4th Cir.11/16/95), 664 So.2d 742, on reh'g in part, writ denied, 96-0203 (La.02/28/96), 668 So.2d 364, writ denied, 95-3032 (La.02/28/96), 668 So.2d 365; Greater New Orleans Expressway Commission v. Board of Tax Appeals, 96-239 (La.App. 5th Cir.09/18/96), 681 So.2d 957.

Advertising Services Exemption

Section 302(A)(2) of Title 47 provides for the assessment of a tax upon the sale at retail, use, consumption, distribution and storage for use or consumption in this state, of each item or article of tangible personal property based upon the cost price of each item or article of tangible personal property when the same is not sold but is used, consumed, distributed or stored for use or consumption in this state.

There is no dispute that the telephone books are tangible personal property used or consumed in this state. The Board of Tax Appeals found that § 302(D) provided an exemption for the printing and binding costs of the directories. Subsection (D) of La. R.S. 47:302 provides in pertinent part:

Notwithstanding any other provision of law to the contrary, no state sales or use tax nor any such tax levied by a political subdivision shall be levied on any advertising service rendered by an advertising business, including but not limited to advertising agencies, design firms, and print and broadcast media, or any member, agent or employee thereof, to any client whether or not such service also involves a transfer to the client of tangible personal property. (Emphasis added).

The exemption applies to "an advertising service rendered by an advertising business ... to any client ... whether or not such service also includes a transfer to the client of tangible personal property." The district court' disagreed with the Tax Board's determination that the exemption provided by § 302(D) covered the cost of printing and binding that J & B paid to the Texas printer, noting that the Printing Center is not an advertising business, nor is the service it provided to J & B an advertising service.

J & B argues that the printing and binding of the telephone directories are an integral part of the advertising service it provides to its customers and is therefore an advertising service. We disagree. The substance of a transaction, not its form, is controlling for purposes of classifying a transaction as taxable or not. United Companies Printing Co. v. Baton Rouge, 569 So.2d 186 (La.App. 1st Cir.1990), writ denied, 572 So.2d 73 (La.1991); St. Gabriel Industrial Enterprises, Inc. v. Broussard, 602 So.2d 1087 (La.App. 1st Cir.1992). The services provided by the Printing Center were not sales of advertising services, i.e., the sale of advertising space and creative services. Rather, the out-of-state print company provided printing and binding services which it sold to J & B.² For the same reasons, the exemption also does not apply to the license to obtain the white page listings or the printout of those listings. The trial court correctly found...