State Bd. of Equalization v. Cheyenne Newspapers, Inc.

• Decision Date: 15 May 1980
• Docket Number: No. 5239,5239
• Parties: STATE BOARD OF EQUALIZATION, Appellant (Respondent), v. CHEYENNE NEWSPAPERS, INC., Appellee (Petitioner).
• Court: Wyoming Supreme Court

Page 805

611 P.2d 805

STATE BOARD OF EQUALIZATION, Appellant (Respondent), v. CHEYENNE NEWSPAPERS, INC., Appellee (Petitioner).

No. 5239.

Supreme Court of Wyoming.

May 15, 1980.

John D. Troughton, Atty. Gen., and Kenneth G. Vines, Asst. Atty. Gen. (argued), for appellant (respondent).

Paul J. Hickey, Horiskey, Bagley & Hickey, Cheyenne, for appellee (petitioner).

Before RAPER, C. J., and McCLINTOCK, THOMAS and ROSE, JJ., and JOFFE, D. J.

RAPER, Chief Justice.

Liability for use taxes on certain supplies used in the process of printing newspapers and on a printing press purchased by appellee, Cheyenne Newspapers, Inc., is the subject dealt with in this appeal. The district court reversed the appellant, State Board of Equalization, which had held the supplies and printing press taxable.

We will affirm the district court.

The issues as stated by appellant are:

"1. Was the District Court in error in holding that chemicals, paste-up pages "2. Was the District Court in error in holding that the press purchased by Cheyenne Newspapers, Inc., was not subject to the Wyoming Use Tax on the basis set forth by the Wyoming State Board of Equalization that Cheyenne Newspapers, Inc., was a contractor pursuant to W.S. 39-335.1(b) and (c)(ii) (1957)?"

aluminum plates, photographic supplies, or other items consumed by Cheyenne Newspapers, Inc., in publishing its newspapers were exempt from the Wyoming Use Tax under W.S. 39-312(e) (1957) which exempts tangible personal property which directly enters into or becomes an ingredient or component part of any manufactured article?

The appellee is a Wyoming corporation publishing several newspapers, the Wyoming State Tribune, The Wyoming Eagle, the Sunday Wyoming Tribune-Eagle, the SUN/day Magazine (a supplement to the Sunday Wyoming Tribune-Eagle), and the Wyoming Stockman-Farmer. Appellee's offices are maintained in Cheyenne. The Wyoming Department of Revenue and Taxation (Department) audited the appellee for the period January 1, 1973 through December 31, 1975 to determine whether appellee was liable for sales or use taxes. As a result of the audit, the Department issued a Deficiency Assessment, Notice and Demand to appellee claiming use taxes due the State of Wyoming in the sum of $13,539.71, including penalty and interest. On hearing before the State Board of Equalization, the action of the Department was approved. Section 39-43.8, et seq., W.S.1957, 1975 Cum.Supp. Appeal to the district court followed. Rule 12, W.R.A.P.

The facts pertinent to the first issue are these. Appellee, in printing its papers, uses what is known as a cold offset method. News copy in the form of words is typed on a keyboard similar to that of a typewriter and transformed into a perforated tape. A device called a photosetter, a type of camera, converts the tape back into words in columns for newspaper format onto photographic paper which is developed in a photographic chemical solution. The resulting photograph is placed on a grid sheet to form a paste-up page of the newspaper in the making. Pictures go through a different process which changes the photoprint into a dot pattern. This is also a chemical developing process. The halftone resulting from this process is pasted onto the grid sheet where desired along with the word copy.

The paste-up on the grid sheet is then photographed and the negative--like the negative in other type photography to which we are accustomed--is laid on a sensitized aluminum plate and exposed to a bright arc light called a plate burner. When developed in a chemical solution the aluminum plate has an etched image of the material appearing on the grid sheet. The plate is installed on a cylinder in the printing press where the image is mechanically transferred onto an inked blanket and thence rolled onto the newsprint paper which is also chemically treated to prevent smearing of the ink.

The printed pages go on through the press where they are eventually folded and come out a complete newspaper for distribution. The end product, the newspaper, is made up only of ink and paper. The Department assessed the appellee a use tax on the cost of chemicals, the photographic supplies, the aluminum plates and other supplies consumed completely--expended, destroyed or rendered useless--in the process, claiming that the only materials forming a part of the manufactured product, the newspaper, were the ink and paper.

The facts pertinent to the second issue follow. In 1975, appellee purchased a printing press for $51,715.00. It was installed by the vendor-manufacturer in a building which is leased by appellee. It was permanently attached to the floor and the appellant determined it to be a fixture. A use tax was assessed on the press.

EXPENDABLE SUPPLIES

Section 39-312(e), W.S.1957, 1975 Cum.Supp., in effect during the pertinent time period, provided:

"The storage, use or consumption in this state of the following tangible personal property is hereby specifically exempted from the tax imposed by this act (§§ 39-309 to 39-335):

"(e) Tangible personal property or product which directly enters into or becomes an ingredient or component part of any manufactured article or substance or commodity including any printed publication, and the furnished container, label or the shipping case thereof." (Emphasis added.) ¹

The appellant contends that the materials going into the preparation of the aluminum plates and the aluminum plates themselves are all not exempt from taxation and that the only tangible personal property "which directly enters into or becomes an ingredient * * * of * * * (the) printed publication" is the ink and newsprint.

This is not a new question to this court. In 1935 the legislature enacted the "Emergency Sales Tax Act of 1935." Chapter 74, Session Laws of Wyoming, 1935. By its terms, it was self-repealing and expired on March 31, 1937. Section 2(f) of that Act exempted tangible personal property used in manufacturing:

"(f) Each purchase of tangible personal property or service made by a person engaged in the business of producing, furnishing, manufacturing, or compounding for sale, profit or use, any article, substance, service or commodity which is actually used in the production of, or enters into the processing of, or becomes an ingredient or component part of the article, substance, service, or commodity which he manufactures or compounds, produces or furnishes, or the container, label, or the shipping case thereof, shall be deemed a wholesale sale and shall be exempt from taxation under this act."

This court had occasion to construe that section in State Board of Equalization of Wyoming v. Oil Wells Supply Co., 1937, 51 Wyo. 226, 65 P.2d 1093. The State in that case contended that certain supplies and equipment actually used and consumed in producing crude oil, natural gas and refining, processing and manufacturing of crude oil into gasoline and other petroleum products, were not "actually used in the production of" a commodity within § 2(f) unless it enters into the commodity. This court said:

" * * * The construction contended for would in effect rewrite the section, and eliminate words that were evidently inserted with deliberation for the very purpose of making the exemption apply to sales of property that does not in a physical sense enter into the purchaser's product. Section 2(f) of the bill (H.B. 124, Legislative Session 1935), as introduced in the Legislature, limited the exemption to sales of property 'which enters into and becomes an ingredient or component part' of the product manufactured or compounded by the purchaser. In the Senate the bill was amended by inserting after the word 'which' the words 'is used in the production of or,' by striking the word 'and' and inserting the words 'the processing of or' after the word 'into.' Senate Journal, 1935, p. 432. These amendments were retained in the section as rewritten by the conference committee and passed by the Legislature. House Journal, p. 622; Senate Journal, p. 517. The section cannot be given the meaning plaintiff contends for unless we substitute 'and' for 'or' before the words 'becomes an ingredient or component part.' We cannot assume the right thus to reverse the action of the Legislature." 65 P.2d at 1094-1095. (Emphasis added.)

We, therefore, see that the case turned upon the significance of the word "or." As pointed out by this court, the words "(1) enters into" are separated from "(2) becomes an ingredient or component part" by the word "or," thus expressing the intention that the words "enters into" are not used to denote that they enter into the product "in a physical sense." This court went on to say that though the section is broader than most,

" * * * It has often been suggested, however, that sales as described in this section should not be subject to a tax intended to be imposed on retail sales. (Citing authorities.)" 65 P.2d at 1095.

See also as a matter of interest the companion case to State Board of Equalization of Wyoming v. Oil Wells Supply Co., supra; State Board of Equalization of Wyoming v. Stanolind Oil & Gas Co., 1937, 51 Wyo. 237, 65 P.2d 1095, where § 2(f), ch. 74, Session Laws of Wyoming, 1935, was again the subject of construction. In that case the State Board of Equalization took the position that the pipeline service of transporting the oil from the well to the refiner was subject to sales tax because the purchased service did not become a physical part of the commodity manufactured. This court observed that such an argument was even less tenable than in the companion case which involved sales of tangible property. It was again observed that the exemption is evidently allowed on the theory that in an economic sense the exempted service is resold by the purchaser when he sells the commodity which he produces or manufacturers and the court must give effect to the legislative intention.

This court reiterated that concept in State v. Capital Coal Co., 1...