Sharper Image Corp. v. Miller

• Decision Date: 22 April 1997
• Docket Number: No. 15486,15486
• Citation: 692 A.2d 774,240 Conn. 531
• Court: Connecticut Supreme Court
• Parties: SHARPER IMAGE CORPORATION v. Donald F. MILLER, Commissioner of Revenue Services.

Page 774

692 A.2d 774

240 Conn. 531

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

No. 15486.

Supreme Court of Connecticut.

Argued Jan. 21, 1997.

Decided April 22, 1997.

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

Aaron S. Bayer, Deputy Attorney General, with whom were Gregory T. D'Auria, Assistant Attorney General, and, on the brief, Richard Blumenthal, Attorney General, and Richard K. Greenberg, Assistant Attorney General, for appellee (defendant).

Before BORDEN, BERDON, NORCOTT, KATZ and PALMER, JJ.

BERDON, Associate Justice.

The dispositive issue in this appeal is whether the plaintiff, under the circumstances of this case, is liable for the payment of a use tax, pursuant to General Statutes §§ 12-411 and 12-407(5), on catalogs advertising the plaintiff's merchandise that were printed and mailed to Connecticut residents from outside the state. After the defendant, the commissioner of revenue services (commissioner), imposed a use tax on the catalogs mailed to Connecticut residents, the plaintiff, Sharper Image Corporation (Sharper Image), challenged the assessment by appealing to the Superior Court. The Superior Court affirmed the commissioner's action, and Sharper Image appealed to the Appellate Court. The Appellate Court affirmed the judgment of the Superior Court, but requested certification for review of its decision to this court pursuant to Practice Book § 4135, ¹ because it found "that a substantial question of law exists that should be reviewed by the Supreme Court...." Sharper Image Corp. v. Miller, 42 Conn.App. 310, 318, 678 A.2d 977 (1996). We granted the Appellate Court's request for certification. ² We affirm the judgment of the Appellate Court, but based in part on different reasons. ³

The facts as stipulated to by the parties were set out in the Appellate Court decision. "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. [Sharper Image] concedes that it has a 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. [Sharper Image] 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, [Sharper Image] 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 commissioner issued a notice of assessment of use taxes to [Sharper Image] 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 commissioner 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 [of revenue services] hearing officer upheld the assessment insofar as liability for catalogs mailed to Connecticut. The revised assessment consists of $52,466.70 in use taxes, a $2218.33 penalty and $45,471.35 in interest through March 31, 1994. The revised assessment is based on the sales price of catalogs sent by Foote & Davies 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. 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." Sharper Image Corp. v. Miller, supra, 42 Conn.App. at 311-13, 678 A.2d 977.

Because the "matter was presented to the trial court entirely on the pleadings, stipulations of the parties and a single plaintiff's exhibit"; id., at 313, 678 A.2d 977; we, like the Appellate Court, conduct a plenary review of the trial court's decision "and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record." United Technologies Corp. v. Groppo, 238 Conn. 761, 767, 680 A.2d 1297 (1996).

This case requires us to examine the purpose and application of the Connecticut use tax, and the statutory scheme attached to that tax. "The Sales and Use Tax[es] Act [General Statutes § 12-406 et seq.] imposes both taxes and places their ultimate burden on the purchaser.... The two taxes are [however] different in conception ... [and] are assessments upon different transactions.... A sales tax is a tax on the freedom of purchase.... A use tax is a tax on the enjoyment of that which was purchased.... [G]enerally a sales tax is imposed on items acquired within the state and a use tax is imposed on items acquired outside the state for use within this state." (Citations omitted; internal quotation marks omitted.) Steelcase, Inc. v. Crystal, 238 Conn. 571, 578, 680 A.2d 289 (1996). "The use tax ... was developed to safeguard [s]tate sales tax revenues from erosion by purchases of goods outside the [s]tate, and to protect local merchants from loss of business to border and other [s]tates that either have no sales tax or whose sales tax rate is lower than that of the merchant's [s]tate." 2 J. Hellerstein & W. Hellerstein, State Taxation (1992) § 16.01, p. 16-2.

"In construing any statute, [including taxing statutes] we seek to ascertain and give effect to the apparent intent of the legislature.... In seeking to discern that intent, we look to the words of the statute itself, to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter." (Citation omitted; internal quotation marks omitted.) Steelcase, Inc. v. Crystal, supra, 238 Conn. at 577-78, 680 A.2d 289.

The general rule is that "when the issue is the imposition of a tax, rather than a claimed right to an exemption or a deduction, the governing authorities must be strictly construed against the commissioner and in favor of the taxpayer." (Internal quotation marks omitted.) Morton Buildings, Inc. v. Bannon, 222 Conn. 49, 54, 607 A.2d 424 (1992). Nevertheless, because "[t]he use tax was created as a complementary measure 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 [otherwise] consumed within the state, thus being, in a certain sense, a gap-filling measure"; International Business Machines Corp. v. Brown, 167 Conn. 123, 129, 355 A.2d 236 (1974); we must liberally construe that tax in order "to achieve such purposes." Id. In other words, a liberal construction of the use tax is necessary to achieve its gap-filling objective of allocating, in an equitable manner, the burden of taxation on goods sold in Connecticut, as well as on those goods purchased outside the state for use in Connecticut. See 2 J. Hellerstein & W. Hellerstein, su...