Mart Realty, Inc. v. Norberg

• Decision Date: 18 April 1973
• Docket Number: No. 1737-M,1737-M
• Citation: 303 A.2d 361,111 R.I. 402
• Parties: MART REALTY, INC. v. John H. NORBERG, Tax Administrator. P.
• Court: Rhode Island Supreme Court

Page 361

303 A.2d 361

111 R.I. 402

MART REALTY, INC. v. John H. NORBERG, Tax Administrator.

No. 1737-M.P.

Supreme Court of Rhode Island.

April 18, 1973.

Tobin, Decof, LeRoy & Silverstein, Michael A. Silverstein, Matthew T. Marcello, III, Providence, for plaintiff

Richard J. Israel, Atty. Gen., W. Slater Allen, Jr., Sp. Asst. Atty. Gen., Perry Shatkin, Chief Legal Officer, Div. of Taxation, Providence, for defendant.

OPINION

PAOLINO, Justice.

Mart Realty, Inc. filed this petition for certiorari under G.L.1956 (1969 Reenactment) § 42-35-16, to review a judgment entered by a justice of the Superior Court affirming a decision of the respondent tax administrator which upheld a tax assessed by the Rhode Island Division of Taxation against the petitioner. We granted the writ and pursuant thereto the pertinent records have been certified to this court.

The facts are not in dispute. We shall refer only to such facts as are pertinent to the determination of this case. Mart Realty, Inc., the taxpayer here, is the wholly-owned subsidiary of Mammoth Mart, Inc., a Delaware corporation, hereinafter referred to as 'Mammoth,' with executive offices in East Bridgewater, Massachusetts. During the period April 1, 1967 to August 31, 1970, Mammoth's advertising department in East Bridgewater ordered from a printer doing business in Lowell, Massachusetts, certain advertising circulars. After the circulars were printed, they were sent by the printer via an independent carrier chosen by the printer, to Mailways, Inc., hereinafter 'Mailways,' a direct mailing firm in Manchester, New Hampshire, for the purpose of being mailed to Rhode Island residents who reside in the taxpayer's area. At Mailways the circulars were addressed to 'Occupants'-not to specific individuals-followed by such occupant's address in Rhode Island. The mailing lists from which the addresses were taken are the exclusive property of, and are controlled by Mailways. Neither the taxpayer nor Mammoth possessed any ownership interest in or exercised any dominion or control over those mailing lists. Mammoth does reserve the right to limit the geographical area or areas to be covered by any one mailing distribution. After the circulars were addressed, they were delivered by Mailways directly to the United States post office in Manchester, New Hampshire, postmarked third-class mail, and sent under bulk mailing rates to the Rhode Island residents. When the circulars were delivered to the United States post office and deposited in the United States mail in Manchester, they were beyond the control of Mammoth, the taxpayer and Mailways, but are subject, however, to postal regulations in effect at such time of delivery and deposit. Once a circular is placed in the post office box of the boxholder or delivered to the rural free delivery box, or put in the mail slot at the house, neither Mammoth nor the taxpayer owns the circular.

The requisitioning, printing, and sending of the circulars were done under the sole direction of Mammoth at East Bridgewater. All of the costs for the circulars were billed initially to Mammoth who subsequently billed taxpayer the full costs thereof. This amounted to $177,842.83 and is the tax base upon which the Division of Taxation levied a use tax in the amount of $10,724.87, exclusive of interest and penalties.

The taxpayer, being aggrieved by the assessment made by the Division of Taxation, requested a hearing in accordance with the provisions of G.L.1956 (1970 Reenactment) § 44-19-17. ¹ After such hearing the tax administrator filed a written decision in compliance with the requirements of § 42-35-12. On the basis of certain findings of fact made by him, he held that the excise tax imposed by §§ 44-18-20 and 44-18--21 ² is a tax imposed on the use, storage or other consumption, and that in this case it was not imposed on storage or use, but on consumption. He affirmed the tax assessed by the Division of Taxation.

Thereafter the taxpayer, being aggrieved by the decision of the tax administrator, filed a petition in the Superior Court under § 42-35-15 alleging that the assessment was erroneous and praying for relief therefrom. In his decision affirming the action of the tax administrator, the trial justice said that each of the following would constitute consumption, namely, (1) the receipt and reading of these circulars by an occupant, (2) the receipt and discarding of the circulars, and (3) the receipt and tearing up or destruction of the circulars by the ultimate occupant. He held that the tax administrator was correct in determining that consumption took place in the state.

He then said that the real issue was whether this consumption was sufficiently related to this taxpayer to bring about a taxable event for which the taxpayer would be responsible.

He also stated that the following were questions of fact, namely, (1) whether these materials were otherwise consumed in Rhode Island, (2) whether the taxpayer exercised dominion or control over these materials within the state of Rhode Island, and (3) whether this taxpayer was a part of the consumption process within the state of Rhode Island.

The trial justice then went on to say that one may consume within a state materials which are under his or its control, without direct physical contact with those materials; that in this case the printer, Mailways, and the United States mails were all acting as agents of the taxpayer in bringing about ultimate delivery of these materials to an occupant residing in this state where the ultimate consumption would be obtained; and that the fact that Mammoth, the parent corporation, set these proceedings in motion was also not determinative because it was acting for and on behalf of its subsidiary, which was ultimately billed for this service.

The trial justice said further that the taxpayer here brought about a consumption for its benefit, directed through its agents each step of the proceeding, with an ultimate end in view which was in every respect within its authority and control; that the selection of the occupants and determination of the method of delivery were basically made by the taxpayer through its agents; and that its agents followed the instructions of the taxpayer without substantial deviations therefrom in relation to matters in which the taxpayer had an interest.

He concluded that the consumption by the taxpayer consisted of bringing about this delivery to Rhode Island occupants; that its method of achieving this, in utilizing out-of-state agents, was not determinative; and, therefore, he sustained the finding of the tax administrator that these materials were otherwise consumed within this state by the taxpayer through and by the use of its various out-of-state agents.

The taxpayer brought this petition for certiorari to review the final judgment entered in the Superior Court.

The petitioner has briefed and argued this case under three main points. The first raises the narrow issue whether the trial justice erred in finding that there had been a consumption in this state by the taxpayer of the materials in question sufficient to warrant the assessment of the tax imposed by § 44-18-20. Under its second and third points petitioner raises certain constitutional questions which we will not reach because of our conclusion that the trial justice erred in finding that there had been a consumption in this state by the taxpayer. For the reasons which follow we reverse the judgment entered in the Superior Court.

We noted at the outset that the 'use' and 'storage' provisions of §§ 44-18-20 and 44-18-21 do not apply here. The only question before us is whether there has been 'other consumption' in this state of tangible personal property purchased from any retailer by the taxpayer. Sections 44-18-9 and 44-18-10 define the words 'storage' and 'use,' but contain no definition of the words 'other consumption.'

We agree with the trial justice's statement that the following situations would constitute consumption, namely, 'the receipt and reading,' 'the receipt and discarding' and 'the receipt and tearing up or destruction of the circulars by the ultimate occupant.' In each of these instances receipt of the materials, that is, physical possession, is an integral part of the consumption. While all of these definitions may apply to the ultimate recipient, the question remains whether they apply to petitioner here. In other words, even if we assume there was a consumption in Rhode Island, the question remains whether there was a consumption in this state by petitioner who never 'received,' 'tore up,' 'destroyed,' 'discarded' or 'wore away the advertising circulars.' Since petitioner never received the circulars in this state, we fail to see how petitioner could be a 'person * * * otherwise consuming in this state.'

The trial justice referred to ...