Sharper Image Corp. v. Miller

• Court: Connecticut Court of Appeals
• Writing for the Court: FOTI
• Citation: Sharper Image Corp. v. Miller, 42 Conn.App. 310, 678 A.2d 977 (Conn. App. 1996)
• Decision Date: 19 June 1996
• Docket Number: No. 14499,14499
• Parties: SHARPER IMAGE CORPORATION v. Donald F. MILLER, Commissioner of Revenue Services.

Page 977

678 A.2d 977

42 Conn.App. 310

SHARPER IMAGE CORPORATION v. Donald F. MILLER, Commissioner of Revenue Services.

No. 14499.

Appellate Court of Connecticut.

Argued June 6, 1996.

Decided June 19, 1996.

Martin I. Eisenstein, pro hac vice, with whom was Michael J. Mannion, for appellant (plaintiff).

Anne O'Leary, Assistant Attorney General, with whom, on the brief, was Richard Blumenthal, Attorney General, for appellee (defendant).

Before FOTI, SPEAR and FRANCIS X. HENNESSY, JJ.

FOTI, Judge.

The plaintiff appeals from the judgment rendered by the trial court confirming the imposition of a use tax by the defendant commissioner of revenue services (commissioner) on its catalogs mailed to Connecticut residents. The issue is whether the trial court correctly determined that the mailing of catalogs directly to Connecticut residents advertising the plaintiff's merchandise constituted a taxable use within the meaning of General Statutes §§ 12-411 and 12-407(5), in that Sharper Image "owned" the catalogs in Connecticut, and made a taxable "use" of them under applicable statutes, regulations and court decisions. We affirm the judgment of the trial court.

The parties stipulated to the following facts. Sharper Image is a Delaware corporation with headquarters in San Francisco, California. It is engaged nationally and internationally in the retail sale of merchandise, and makes both in-store and mail order sales.

In Connecticut, Sharper Image maintains one store in Stamford and one store in Hartford. In addition to its store sales, Sharper Image makes sales by means of telephone and mail orders transmitted to its San Francisco office. It collects and remits to the commissioner the Connecticut sales and use taxes levied on sales made at its stores in Connecticut and on its mail order sales. The plaintiff concedes that it has nexus with Connecticut for purposes of sales and use tax collection.

Sharper Image publishes monthly catalogs. The catalogs advertise the products that are available for sale both by catalog orders and at the retail stores, although some products are exclusively catalog order products.

Sharper Image contracts for the printing and distribution of catalogs from its San Francisco headquarters. It has entered into a contract with Mid-American Web Press, Inc., doing business as Foote & Davies of Lincoln, Nebraska, (Foote & Davies) for the printing and mailing of the catalogs to residents of foreign countries and throughout the United States, including Connecticut. All instructions and payments to Foote & Davies are made from Sharper Image's San Francisco headquarters. The numbers of catalogs printed for Sharper Image are as follows: 1988--33.9 million; 1989--40.1 million; 1990--34.3 million. Approximately 2 percent of all catalogs printed for Sharper Image are sent to Connecticut residents. The plaintiff has not contracted with any third parties located in Connecticut for the printing or distribution of the catalogs, and none of Sharper Image's Connecticut employees are involved in any way with the printing or distribution of the catalogs that are the subject of the assessment in this action.

The catalogs are printed and labeled by Foote & Davies. Foote & Davies transports the catalogs to the mail by way of United States Postal Service (postal service) trailers located at the Foote & Davies facility in Nebraska. Sharper Image's San Francisco headquarters provides Foote & Davies with a mailing list, which contains the names of customers and prospective customers to whom catalogs are to be sent. The catalogs are addressed to the person named or the current resident at the address listed on the label, and are sent by third class mail.

Neither Sharper Image nor Foote & Davies can withdraw or redirect the catalogs from the mail once they are placed in the postal service trailers. If catalogs are not delivered to the addressee, the plaintiff does not receive a refund or credit from the postal service for the postage or the value of the catalogs lost. Catalogs that the postal service is unable to deliver are destroyed.

Sharper Image has never withdrawn or redirected the catalogs from the mail, or ever taken physical possession of the catalogs mailed to Connecticut residents.

On December 1, 1991, the defendant issued a notice of assessment of use taxes to the plaintiff based on the sales price of catalogs sent by Foote & Davies to Sharper Image's customers and prospective customers who are Connecticut residents. The commissioner imposed the use tax on Sharper Image pursuant to General Statutes §§ 12-411 and 12-407(5). The defendant determined that Sharper Image made a taxable use of the catalogs mailed from out of state to Connecticut residents. On January 21, 1992, Sharper Image filed a protest of the assessment. On March 14, 1994, a department hearing officer upheld the assessment insofar as liability for catalogs mailed to Connecticut. The revised assessment consists of $52,466.70 use taxes, $2218.33 penalty and $45,471.35 interest through March 31, 1994. The revised assessment is based on the sales price of catalogs sent by Foote & Davies of Nebraska to Sharper Image's customers.

In addition to the catalogs mailed to Connecticut residents, Foote & Davies mails catalogs to Sharper Image's Connecticut stores where they are available for employees and customers. Sharper Image paid the use tax on these catalogs because they were received in Connecticut by its Connecticut employees at its Connecticut stores. ¹ Sharper Image does not contest the amount of the taxes assessed on the catalogs at issue, but rather challenges the state's right to levy any taxes on catalogs mailed to Connecticut residents.

This matter was presented to the trial court entirely on the pleadings, stipulations of the parties and a single plaintiff's exhibit. ² Accordingly, our review of the ruling of the trial court is plenary; Morton Buildings, Inc. v. Bannon, 222 Conn. 49, 53-54, 607 A.2d 424 (1992); we must decide whether the trial court's conclusions are legally and logically correct and find support in the facts that appear in the record. Rich-Taubman Associates v. Commissioner of Revenue Services, 236 Conn. 613, 618, 674 A.2d 805 (1996).

As a preliminary matter we examine the pertinent parts of our statutes affecting the use tax in Connecticut. General Statutes § 12-411(1) provides in relevant part: "An excise tax is hereby imposed on the storage, acceptance, consumption or any other use in this state of tangible personal property purchased from any retailer for storage, acceptance, consumption or any other use in this state, the acceptance or receipt of any services constituting a sale in accordance with subdivision (i) to (l ), inclusive, of subsection (2) of section 12-407...." (Emphasis added.)

General Statutes § 12-411(2) provides in pertinent part: "Every person storing, accepting, consuming or otherwise using in this state services or tangible personal property purchased from a retailer ... is liable for the tax...." (Emphasis added.)

General Statutes § 12-407(5) defines "use" as follows: " 'Use' includes the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of that property in the regular course of business."

Our Supreme Court has acknowledged that the use tax had been designed "as a complementary measure [to the sales tax] to insure the equitable diffusion of the tax burden upon both in-state purchases of tangible personal property and out-of-state purchases of tangible personal property where such property is used, stored or consumed within the state...." International Business Machines Corp. v. Brown, 167 Conn. 123, 129, 355 A.2d 236 (1994). " 'A use tax is a tax on the enjoyment of that which was purchased.' ..." (Citation omitted.) Morton Buildings, Inc. v. Bannon, supra, 222 Conn. at 59, 607 A.2d 424.

In order to create tax liability under our use tax statute, three conditions must exist: "First, there must be a purchase of tangible personal property; second, the purchase must have been made for the purpose of storage, use or other consumption in this state; and, third, there must have been such storage, use or other consumption." (Internal quotation marks omitted.) Magic II, Inc. v. Dubno, 206 Conn. 253, 256, 537 A.2d 998, cert. denied, 488 U.S. 819, 109 S.Ct. 59, 102 L.Ed.2d 37 (1988), quoting Stetson v. Sullivan, 152 Conn. 649, 653, 211 A.2d 685 (1965).

The plaintiff claims that it did not own the catalogs when they entered Connecticut because it did not exercise any right or power incident to ownership on which to base the imposition of a use tax. Sharper Image also argues that this...