Quad Graphics, Inc. v. North Carolina Department of Revenue
| Decision Date | 23 June 2021 |
| Docket Number | 20 CVS 7449 |
| Citation | 2021 NCBC 37 |
| Court | Superior Court of North Carolina |
| Parties | QUAD GRAPHICS, INC., Petitioner, v. NORTH CAROLINA DEPARTMENT OF REVENUE, Respondent. |
THIS MATTER is before the Court on Quad Graphics, Inc.'s ("Petitioner") First Amended Petition for Judicial Review. ("Amended Petition for Judicial Review," ECF No. 9.) Pursuant to § 105-241.16 of the North Carolina General Statutes (" N.C. G.S.") Petitioner seeks review of the June 24, 2020 Final Decision of the North Carolina Office of Administrative Hearings ("OAH") ("Final Decision," Rec., at pp 938-47).[1]On February 2, 2021, the Court held a hearing on the Amended Petition for Judicial Review.
THE COURT, having considered the Petition, the briefs and supplemental briefs filed in support of and in opposition to the Petition, the official record of proceedings in the OAH the arguments of counsel at the hearing, the applicable law and other appropriate matters of record, concludes that the Petition should be GRANTED and the Final Decision should be REVERSED.
Graebe Hanna & Sullivan, PLLC by Douglas W. Hanna and Akerman, LLP by Michael Bowen for Petitioner Quad Graphics, Inc.
The North Carolina Department of Justice by Terence Friedman and Matthew Sommer for Respondent North Carolina Department of Revenue.
ORDER AND OPINION ON FIRST AMENDED PETITION FOR JUDICIAL REVIEW
1. The facts giving rise to this lawsuit are not in dispute. Petitioner is an S-Corporation headquartered in Sussex, Wisconsin. Petitioner is engaged in the business of the commercial printing of books, magazines, catalogs, and items for direct mail ("printed materials") to customers throughout the United States. (Rec., at pp. 192-93, 200.) Petitioner sold printed materials to customers in North Carolina and to customers who had printed materials delivered to third-party recipients with North Carolina addresses ("direct mail") during the period September 1, 2009 through December 31, 2011 (the "Sales at Issue"). (Id. at pp. 245, 551-56.) Petitioner's customers provided Petitioner with the addresses for the direct mail recipients in North Carolina via mailing lists. (Id. at pp. 200-01, 244.)
2. It is undisputed that Petitioner received the orders for the Sales at Issue from a customer, produced the printed materials at facilities located outside of North Carolina, and then delivered the printed materials to the United States Postal Service ("USPS") or another common carrier at sites outside of North Carolina.[2] (Id. at p. 224.) The USPS or common carrier would, in turn, deliver the printed materials to either the customers or the third-party direct mail recipients inside North Carolina. (Id. at pp. 200-01, 244.) The contracts between Petitioner and its customers stated that title to the printed materials, and risk of loss, passed from Petitioner to the customers when the printed materials were deposited on the carrier's shipping dock.[3] (Id. at pp. 326, 335, 684-85.)
3. In August 2009 Petitioner hired a North Carolina resident, Edward Waters ("Waters"), as a sales representative. Waters "solicited orders for printed materials from North Carolina customers[.]" (Id. at pp. 245, 260, 555.) Waters did not have authority to accept or approve orders, as all orders were approved and accepted at Petitioner's headquarters in Wisconsin. (Id. at p. 244.) Prior to hiring Waters, Petitioner had no employees nor any other physical presence in North Carolina. (Id. at pp. 202, 224, 239.)
4. In or around 2011, Respondent North Carolina Department of Revenue (the "Department") notified Petitioner of its intent to conduct an audit related to Petitioner's business activities within North Carolina. (Id. at p. 480.) On November 12, 2015, the Department issued a Notice of Sales and Use Tax Assessment to Petitioner for uncollected and unremitted sales tax arising from sales of printed materials to North Carolina customers for the period January 1, 2007 to December 31, 2011 (the "Initial Assessment"). (Id. at p. 635.) Petitioner appealed the Initial Assessment by filing a request for Departmental Review. (Id. at p. 43.)
5. During the Departmental Review, the Department received additional information from Petitioner and concluded that certain sales should be excluded from the Initial Assessment. (Id.) Specifically, the Department removed those sales shipped to North Carolina customers for which Petitioner provided sufficient documentation demonstrating that the transactions were sales for resale by those customers. (Id.) The Department also removed those sales that occurred before Petitioner hired Waters in August 2009.[4] (Id.) The Department adjusted the Proposed Assessment to reflect these changes, and on November 30, 2018 issued a Notice of Final Determination. ("NOFD," Rec., at pp. 686-93; upholding the assessment of sales tax on the Sales at Issue.)
6. Petitioner appealed the NOFD by filing a Petition for Contested Tax Case with the OAH. (Id. at pp. 5-12.) Petitioner and the Department both moved for summary judgment, and on June 24, 2020, the OAH issued its Final Decision granting summary judgment in favor of the Department, denying Petitioner's motion for summary judgment, and upholding the assessment of sales tax on the Sales at Issue. (Id. at pp. 938-947.) The OAH concluded that the Petitioner was a "retailer" as defined under N.C. G.S. § 105-164.3(35)(a) (2010)[5] (Id. at p. 942), and that the Sales at Issue were properly sourced to North Carolina under N.C. G.S. §§ 105-164.4B(a)(2) and (d)(2)(b) (2010). (Id. at pp. 944-45.) In addition, while acknowledging that she was "barred" from ruling on Petitioner's constitutional challenges to the NOFD, the administrative law judge ("ALJ") nevertheless opined that the physical presence of Petitioner's sales representative in North Carolina created a sufficient constitutional nexus with the State to support the State's imposition of sales tax on the Sales at Issue.[6] (Id. at pp. 942-44.)
7. On July 24, 2020, Petitioner timely filed its Petition for Judicial Review of the Final Decision pursuant to N.C. G.S. §§ 105-241.16 and 7A-45(b)-(f). (ECF No. 3.) On the same day, the case was designated as a mandatory complex business case, and assigned to the Honorable Louis A. Bledsoe, III, Chief Business Court Judge. (ECF Nos. 1-2.) On August 20, 2020, Petitioner filed the Amended Petition for Judicial Review. (ECF No. 9.)
8. On September 24, 2020, the parties filed the stipulated official record of the proceedings in the Office of Administrative Hearings. (Stipulation Regarding Contents of Record, ECF No. 26; Official Record, ECF Nos. 27-36.)
9. On October 2, 2020, the Court issued an Order and Opinion on various motions filed by Petitioner and the Department which, among other things, denied the Department's motion to dismiss the Amended Petition for Judicial Review. .) [7]
10. On October 26, 2020, Petitioner filed its Brief in Support of Petition for Judicial Review. ("Brief in Support," ECF No. 42.) On November 30, 2020, the Department filed its Response in Opposition to Petitioner's Petition for Judicial Review on the Merits. ("Response Brief," ECF No. 43.) On December 10, 2020, Petitioner filed its Reply Brief. ("Reply Brief," ECF No. 45.)
11. On January 6, 2021, this matter was reassigned to the undersigned. (Reassignment Ord., ECF No. 46.) The parties came before the Court for a hearing on the Amended Petition for Judicial Review on February 2, 2021.
12. On May 27, 2021, the Court issued a Notice to Provide Supplemental Briefing. (ECF No. 49.) On June 11, 2021, Petitioner and the Department filed supplemental briefs. (Respondent's Suppl. Br., ECF No. 50; Petitioner's Suppl. Br., ECF No. 51.)
13. The matter is now ripe for review.
14. Petitioner appeals the Final Decision granting summary judgment in favor of the Department. "A party aggrieved by the final decision in a contested case commenced at the Office of Administrative Hearings may seek judicial review of the decision in accordance with Article 4 of Chapter 150B of the General Statutes." N.C. G.S. § 105-241.16. Under Chapter 150B, the task before this Court is to "determine whether the petitioner is entitled to the relief sought in the petition based on [a] review of the final decision and the official record." N.C. G.S. § 150B-51(c).
15. "In reviewing a final decision allowing . . . summary judgment, the court may enter any order allowed by . . . Rule 56" of the North Carolina Rules of Civil Procedure. N.C. G.S. § 150B-51(d). "Appeals arising from summary judgment orders are decided using a de novo standard of review." Midrex Techs., Inc. v. N.C. Dep't of Revenue, 369 N.C. 250, 257 (2016) (citation omitted). "Under the de novo standard of review, the [Court] 'consider[s] the matter anew[ ] and freely substitut[es] its own judgment for' [that of the lower court]." Id. at 257 (alterations in original) (citation omitted).
16. Under North Carolina law, summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C. G.S. § 1A-1, Rule 56(c). A genuine issue is "one that can be maintained by substantial evidence." Dobson v Harris, 352 N.C. 77, 83 (2000). A material fact is one that "would constitute or would irrevocably establish any material element of a claim or defense." Abner Corp. v. City...
To continue reading
Request your trial