Maryland Pennysaver Group, Inc. v. Comptroller of Treasury

• Decision Date: 01 September 1990
• Docket Number: No. 120,120
• Citation: 594 A.2d 1142,323 Md. 697
• Parties: , 19 Media L. Rep. 1937 MARYLAND PENNYSAVER GROUP, INC. v. COMPTROLLER OF THE TREASURY. ,
• Court: Maryland Court of Appeals

Page 697

323 Md. 697

594 A.2d 1142, 19 Media L. Rep. 1937

MARYLAND PENNYSAVER GROUP, INC. v. COMPTROLLER OF THE TREASURY.

No. 120, Sept. Term, 1990.

Court of Appeals of Maryland.

Sept. 10, 1991.

Evelyn W. Pasquier (Shale D. Stiller, Frank, Bernstein, Conaway & Goldman, on brief), Baltimore, for petitioner.

Gaylin Soponis, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Deborah B. Bacharach, Sheldon H. Laskin, Asst. Attys. Gen., on brief), Baltimore, for respondent.

Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW, KARWACKI and MARVIN H. SMITH, Judge of the Court of Appeals (retired, specially assigned), JJ.

RODOWSKY, Judge.

This is a sales tax refund case. The taxpayer, Maryland Pennysaver Group, Inc. (MPG), publishes opuscules of a type known as shoppers' guides, or shopping advertisers, or pennysavers. MPG claims the statutory exemption for newspapers and that, if excluded from the exemption, its rights under the first and fourteenth amendments of the United States Constitution would be violated. We reject these contentions for the reasons set forth below.

MPG began publishing pennysavers in Maryland during the summer of 1979. There were then no similar publications in Maryland. Businesses pay MPG to place commercial ads in a pennysaver, and individuals pay MPG to place classified ads in a pennysaver. Pennysavers are published weekly for specific areas. ¹ Pennysavers are mailed to every resident and business in the particular edition's specific area, without charge to the recipient. There is no newsstand distribution.

MPG pennysavers are printed on newsprint in quarterfold format, as distinguished from a tabloid or broadsheet. The pages measure 7 3/8 inches by 10 3/4 inches, and they are stitched or glued along the fold. Prior to April 1985 MPG used an outside printer to print pennysavers, and thereafter, MPG has printed in house. The sales tax assessment involved in the instant litigation covers the period December 1, 1982, through November 30, 1986. It includes tax on the cost to MPG of outside printing and tax on the cost to MPG of newsprint and ink for in-house printing.

Copies of four separate pennysavers are included in the record extract as illustrative of pennysavers published during the period covered by the tax assessment. One is the Kent Island/Grasonville Pennysaver for the week of May 18, 1983. The masthead occupies approximately twenty percent of the page at the top, while the balance of that page is an ad for a sports clothing store. The edition consists of fifty-six pages, unnumbered. With the exception of four and one-half pages, the publication is entirely ads, ranging from full page ads to two or three line classified ads. The twenty-sixth and forty-fourth pages are headed "Community News," and the fifty-second page has one column (a half-page) headed "Community News." "Community News" consists primarily of announcements of activities, such as meetings, fundraisers, and social events, to be held by various church, civic, and other community organizations. Each of two pages of the edition contains a chapter of a serialized Western novel. The reader is advised that the book is available in hardcover edition from MPG.

The four illustrative pennysavers reproduced in the record extract total 249 pages. Within that total there are three half-pages consisting of columns written respectively by the Mayor of Annapolis (on national building safety week), by a member of the Maryland House of Delegates (interviewing an Anne Arundel County police officer concerning crime prevention), and by the County Executive of Anne Arundel County (on preserving the Chesapeake Bay).

The retail sales tax is imposed "[f]or the privilege of selling certain tangible personal property at retail ... and for the privilege of dispensing certain selected services defined as sales at retail by § 324(f)...." Maryland Code (1957, 1980 Repl. Vol.), Art. 81, § 325(a). ² During the assessment period, and currently, the tax rate is five percent beginning where the sales price is $.20. § 325(a)(1). For sales tax purposes "the term 'sale at retail' includes ... [a]ny ... printing of tangible personal property on special order for a consideration." § 324(f)(2). MPG had not paid sales tax on the outside printing of its pennysavers. Nor had it paid sales tax on its ink and paper purchases for in-house printing. ³

MPG paid the tax and interest assessed by the Comptroller, obtained a waiver of penalty, and sought a refund. MPG claimed exemption under § 326(n). It provides exemption for

"[s]ales of transportation services, and the printing and sales of newspapers of any and all types, and the sales of any photographic materials used in the composition and printing of newspapers."

The term "newspaper" is not defined in the statutes. Regulations of the Comptroller set forth standards for determining whether a publication is a newspaper. See Md.Regs.Code (COMAR), Title 3, § 06.01.05 (1990). This regulation specifically excludes a "shopping advertiser" from "newspapers." Applying the regulation, the Comptroller denied the refund.

MPG appealed to the Maryland Tax Court. Its petition, to the extent here relevant, averred that the Comptroller had erred because pennysavers were entitled to the § 326(n) exemption for newspapers, and because Regulation .05, both facially and as applied by the Comptroller, violated MPG's rights under the first and fourteenth amendments of the United States Constitution. The Tax Court held that MPG's pennysavers were not newspapers of any type intended to be embraced within § 326(n), that Regulation .05 was valid, and that the pennysavers were "shopping advertisers," excluded from the exemption. Nor was there any constitutional violation, in the Tax Court's opinion, because MPG's publications were "not within the class (newspaper)" with which MPG sought to have its publications associated.

The Circuit Court for Anne Arundel County, on MPG's appeal, affirmed the Maryland Tax Court. MPG appealed to the Court of Special Appeals. Before consideration of the matter by that court we granted MPG's petition for certiorari. It raises two questions, the presentation of which we reorder below.

" Do the Sales Tax Regulations improperly limit the scope of the statutory exemption from sales tax for 'the printing and sales of newspapers of any and all types'?

" Does the Comptroller's refusal to allow the Pennysaver an exemption granted by statute for 'the printing and sales of newspapers of any and all types' violate the Petitioner's fundamental rights of free speech under the First and Fourteenth Amendments of the United States Constitution?"

I

The Tax Court's conclusion that MPG's pennysavers are shopping advertisers is well supported by the record and MPG does not attack that factual finding implicit in the Tax Court's holding. Rather, MPG's argument is that Regulation .05's exclusion of shopping advertisers from the newspaper exemption violates § 326(n) which exempts newspapers "of any and all types." The evolution of the regulation and of the exemption statute, and the regulation's status as a legislative rule, negate MPG's argument.

The Maryland Retail Sales Tax and Use Tax Acts were first enacted by Chapters 281 and 681 of the Acts of 1947, and codified as Md.Code (1939, 1947 Cum.Supp.), Art. 81, §§ 259-307 and §§ 308-336. The 1947 enactment contained no exemption for the printing or sale of newspapers, and did not define that term. ⁴

The original sales tax statute "authorized and empowered" the Comptroller, "[i]n addition to the powers granted to the Comptroller" in the sales tax sub-title

"[t]o make, adopt and amend such rules and regulations as he shall deem necessary to carry out the provisions of this sub-title and to define any terms used herein."

Code (1947 Cum.Supp.), § 301(a). That conferral of rulemaking power remained unchanged to and through the assessment period involved here. See § 365(a).

Rule 5, Retail Sales and Use Tax Rules, adopted by the Comptroller in 1947, exempted receipts from the sale of newspapers. With the advent of COMAR in 1976, Rule 5 became COMAR § 03.06.01.05. Set forth below is original Rule 5, with numerals in brackets indicating the paragraph numbering which conformed original Rule 5 to the COMAR style.

"[.05] NEWSPAPERS

"[A.] Receipts from the sale of newspapers are not subject to the tax.

"[1.] In order to constitute a newspaper, the publication must contain at least the following elements:

"(a) It must be published at stated short intervals (usually daily or weekly).

"(b) It must not when its successive issues are put together constitute a book.

"(c) It must be intended for circulation among the general public.

"(d) It must contain matters of general interest and reports of current events.

"[2.] Notwithstanding the fact that the publication may be devoted primarily to matters of specialized interest, such as legal, mercantile, political, religious or sporting matters, if in addition to the special interest it serves, the alleged newspaper contains general news of the day, information of current events and news of importance and of current interest to the general public, it is entitled to be classified as a newspaper.

"[B.] Press clipping services are exempt from tax.

"[C.] Sales of mailing lists are taxable.

"[D.] Subscriptions to magazines or periodicals are not taxable, newsstand sales of the same are taxable." ⁵

The exemption for newspapers in § 326(n) was enacted by Chapter 112 of the Acts of 1956. As introduced, the bill would have added to the exemption in Code (1951), § 322(n) for "[s]ales of transportation and communication services," the language "including the printing and sales of newspapers and periodicals of any and all types." Periodicals were amended out of the bill, and the effective date was postponed one year to June 1, 1957.

Thereafter, in 1957, the Comptroller amended Rule 5 to add a paragraph...