McClure Newspapers, Inc. v. Vermont Dept. of Taxes, 47-73

• Decision Date: 05 February 1974
• Docket Number: No. 47-73,47-73
• Citation: 315 A.2d 452,132 Vt. 169
• Parties: McCLURE NEWSPAPERS, INC. v. VERMONT DEPARTMENT OF TAXES.
• Court: Vermont Supreme Court

Page 452

315 A.2d 452

132 Vt. 169

McCLURE NEWSPAPERS, INC. v. VERMONT DEPARTMENT OF TAXES.

No. 47-73.

Supreme Court of Vermont.

Feb. 5, 1974.

Lawrence A. Wright, of Gravel & Shea, Burlington, for plaintiff.

Kimberly B. Cheney, Atty. Gen., and Georgiana O. Miranda, Asst. Atty. Gen., for defendant.

Before SHANGRAW, C. J., and BARNEY, SMITH, KEYSER and DALEY, JJ.

DALEY, Justice.

This is an appeal by the Vermont Department of Taxes from an order of the Washington County Court overruling the Tax Commissioner's decision to assess a sales and use tax on items used in the production of a daily newspaper. The issue framed for consideration is whether or not the Washington County Court correctly ruled that the taxed items came within the statutory exemption.

McClure Newspapers, Inc., hereinafter referred to as McClure, is a Vermont Corporation, with its principal place of business at Burlington, Vermont; it publishes a daily newspaper, 'The Burlington Free Press'. The Vermont Department of Taxes, the appellant, sent an auditor to the McClure place of business for a tax audit. Thereafter a tax deficiency was claimed by the State, alleging therein that there was no sale and use tax paid on flashbulbs, photographic film and perforated tapes, items used in the production of the 'Free Press'. The tax sought to be imposed is a compensating use tax, 32 V.S.A. § 9773.

McClure appealed to the Tax Commissioner, who subsequently held a hearing. The hearing before the Commissioner, the only time at which testimony was taken, was largely a theoretical discussion between representatives of the Department of Taxes and the newspaper as to whether or not the items at issue fell within the parameters of 32 V.S.A. § 9741(14). McClure gave testimony as to how the newspaper production occurred at its place of business. At the conclusion of the hearing, the Commissioner found that the items were properly assessed the tax pursuant to Chapter 233 of Title 32 of the Vermont Statutes Annotated and upheld the original assessment.

McClure appealed to the Washington County Court. That court, in an opinion which reiterated the facts, coupled with its interpretation of the exemption statute, stated that the items in question were within the purview of the purpose of the enactment. Specifically, films, flashbulbs, and perforated tapes used by the appellant (McClure) are consumed or destroyed in the manufacturing process; and the manufacturing process commences in the business of producing the appellant's newspaper with the mechanics and art of newsgathering. An order was issued vacating the tax assessment.

The Vermont Department of Taxes appealed to this Court, claiming the lower court erred in determining that the tapes used in the transcription of the news stories are destroyed; the manufacturing process of the newspaper begins with the gathering of raw material; and lastly, the films and the flashbulbs used in the production of the newspaper are used in the manufacturing phase.

Relevant facts as to the production of the newspaper found by the Commissioner are as follows:

The news is gathered from various sources, one being the reporter, who also doubles as photographer; and another is the extraction of news from the wire service.

The reporter takes many pictures of one incident or event in hopes of obtaining one reprintable photograph. The very nature of the occurrence requires many attempts in order to capture that impressionable event which is later used to convey to the conscience of the public that which was perceived by the reporter. The photograph serves to freeze the event into a form which can, by other means, be reproduced in such a way as readers of the newspaper can judge for themselves, at a much later time, the event portrayed.

McClure purchases the film in bulk and makes its own individual rolls for the reporters to take into the field. The flashbulbs are expended in order to produce adequate light to aid in the exposure of the film, thereby consumed in their function. The film is processed, and when prints are made, the actual film is destroyed, leaving only negatives which are a resulting product of treating the film with various processing methods.

The photographs are trimmed, culled, and cut to fit the correct column width for the next phase of production. Only about ten (10) per cent of the total pictures that are received are actually used.

The perforated tapes are purchased by McClure and used to extract news from the wire service initially; and then they are run directly into a photon unit. The emerging matter is the perforated tapes in a photographic state.

This composition, together with other material and the cut photographs, is laid out and a photographic negative is taken. This negative is converted by a process into an aluminum offset plate. The plate is put into a press in such a way as when paper is mechanically passed over it, a printed page of the newspaper results. All these steps along the way are expendable.

It is agreed that the items in question are tangible personal property within the meaning of Chapter 233 of Title 32. In addition, it is undisputed that in order for the items to be exempt, they must come within the statutory exemption found in 32 V.S.A. § 9741(14):

Receipts from the following shall be exempt from . . . the use tax imposed under section 9773 of this title.

(14) Tangible personal property which becomes an ingredient or component part of, or is consumed or destroyed or loses its identity in the manufacture of tangible personal property for later sale but does not include fuel and electricity.

The appellant points to testimony from the transcript to support its first claim of error that the tapes were not destroyed in the process but could be reused. It suggests the test should be whether the tapes could be used again, not whether they would be used.

We do not need to pass on the soundness of the test here, for upon a careful reading of the testimony, we find that there is no evidence to support the appellant's contention of reusability. The discussion on reusability refers to another newspaper's process, and it is not a party to this appeal. Further reading of the testimony reveals that a representative of the Department of Taxes concedes that there is no issue taken with the McClure perforated tapes because these activate the press which therefore would easily come within the narrow interpretation that the Department of Taxes wants this Court to take in construing the word 'manufacture'. The Tax Commissioner was in error in assessing the tax on the perforated tapes.

The appellant agrees that the production of a newspaper is a manufacturing process, but disagrees as to when it begins. It wants this Court to take a very narrow view which would have a commencement begin with the mechanical activation of the press. This would exclude the films and flashbulbs as a step prior to manufacturing.

No argument of any...