Laneco, Inc. v. Com.

• Citation: 103 Pa.Cmwlth. 355,520 A.2d 542
• Parties: LANECO, INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.
• Decision Date: 28 January 1987
• Court: Commonwealth Court of Pennsylvania

Page 542

520 A.2d 542

103 Pa.Cmwlth. 355

LANECO, INC., Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.

Commonwealth Court of Pennsylvania.

Argued Sept. 11, 1986.

Decided Jan. 28, 1987.

Norman A. Peil, Jr., Easton, for petitioner.

Paul Roeder, Harrisburg, for respondent.

Before DOYLE and BARRY, JJ., and KALISH, Senior Judge.

OPINION

BARRY, Judge.

Laneco, Inc., the petitioner, appeals from an order of the Board of Finance and Revenue which affirmed a decision of the Department of Revenue's Board of Appeals that petitioner owed $202,494.78 plus interest to the Commonwealth for use taxes.

The following relevant facts were stipulated: Petitioner is the owner of a number of supermarkets and combination retail food-discount stores in eastern Pennsylvania. As part of its advertising, petitioner has circulars printed in Ohio. These circulars are then distributed by (1) mailing them directly to petitioner's customers in Pennsylvania, (2) placing them in petitioner's own stores for the customers and (3) shipping them from Ohio to a number of newspapers in eastern Pennsylvania where the circulars are inserted by the newspapers' employees prior to regular delivery of the newspapers.

The Department of Revenue assessed petitioner $202,494.78 for use taxes plus interest for the period from January 1, 1979 through December 31, 1981. The Board of Appeals affirmed the assessment as did the Board of Finance and Revenue. This appeal followed.

Petitioner concedes that it owes $33,952.10 plus interest for the circulars that were placed in its own stores. No assessment was ever made on the circulars placed in the mail and addressed to petitioner's customers. The sole issue remaining is whether the use tax is due on those circulars distributed with the local newspapers in eastern Pennsylvania.

At the time in question, Section 204 of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7204, read as follows:

The tax imposed by Section 202 shall not be imposed upon

....

(30) The sale at retail or use of periodicals and publications which are published at regular intervals not exceeding three months, and which are circulated among the general public and containing matters of general interest and reports of current events published for the purpose of disseminating information of a public character or devoted to literature, the sciences, art or some special industry. ¹

The precise question posed is whether the advertising circulars are periodicals and publications within the meaning of Section 204(30). Petitioner asserts that this is a question of first impression in the Commonwealth. Our research indicates that this assertion is correct, as we have been unable to find any Pennsylvania cases deciding this exact issue. There are, however, a number of cases decided in other states which have dealt with a similar issue. Those cases have answered the question differently.

Best illustrative of the opposing positions are Caldor, Inc. v. Heffernan, 183 Conn. 566, 440 A.2d 767 (1981), which held the inserts not exempt from taxation and Sears, Roebuck and Co. v. State Tax Commission, 370 Mass. 127, 345 N.E.2d 893 (1976), which held the inserts were exempt. In neither of the cases did the state legislatures involved define the term "newspaper", although in both jurisdictions newspapers were exempted from the sales and use taxes. Both courts recognized that advertising is an essential part of a newspaper, and we have no quarrel with such an assertion, for it is common knowledge that monies from advertising are a prime source of revenue for newspapers.

In Sears, the court decided that the inserts were exempt from use taxes for three reasons. First, the court reasoned that if the advertisements had been printed by the newspapers themselves, no tax would result; merely changing the identity of the printer should not change that result. Second, it relied on a decision of the Third Circuit Court of Appeals in Friedman's Express, Inc. v. Mirror Transportation Co., 169 F.2d 504 (3d Cir.1948). There, a federal statute exempted from taxation motor vehicles used exclusively for the distribution of newspapers and the precise question was whether automobiles used for the distribution of comic sections to various newspapers for insertion into the Sunday editions of those newspapers fell within the exemption. As the Circuit Court stated:

We shall not attempt a definition [of the term newspaper] other than to say that a typical modern Sunday newspaper embraces not only comic sections but financial sections, news sections, sports sections, magazine sections, and various special supplements.... The field of a modern newspaper is as broad and catholic as the field of its readers....

We think that Congress did not intend to make a fine-spun distinction between the distribution of newspapers and parts or sections of newspapers. The word "newspapers" used in the statute in our opinion was intended to embrace all or any of the component parts of a modern newspaper, each equally important to various public groups and to embrace the whole or any section thereof which is ready in form to be brought into the hands of the public.

Id. at 506-07 (emphasis added) (footnotes omitted). After holding that Friedman's Express was sufficient authority to conclude that advertising supplements were a part of a newspaper and exempt from use taxation, the Sears court finally reasoned that a tax on newspaper revenues would have a devastating effect on freedoms guaranteed by the First Amendment to the United States Constitution.

The Caldor court took a different view. After first recognizing one common characteristic of all newspapers, i.e., being published at short regular intervals generally not exceeding...