State v. AMERICAN WEST COMMUNITY PROMOTIONS

• Decision Date: 04 June 2002
• Docket Number: No. 20010223.,20010223.
• Citation: 645 N.W.2d 196,2002 ND 98
• Parties: STATE of North Dakota, By and Through its Tax Commissioner, Rick CLAYBURGH, Appellee. v. AMERICAN WEST COMMUNITY PROMOTIONS, INC., Appellant.
• Court: North Dakota Supreme Court

645 N.W.2d 196

2002 ND 98

STATE of North Dakota, By and Through its Tax Commissioner, Rick CLAYBURGH, Appellee. v. AMERICAN WEST COMMUNITY PROMOTIONS, INC., Appellant.

No. 20010223.

Supreme Court of North Dakota.

June 4, 2002.

Stacey C. Tronson (argued), the Tax Law Office, PLLP, Fargo, ND, for appellant.

Daniel Lucian Rouse (argued) and Robert W. Wirtz (appeared), Special Assistant Attorneys General, and Wayne K. Stenehjem (on brief), Attorney General, Bismarck, ND, for appellee. MARING, Justice.

[¶ 1] American West Community Promotions, Inc. appeals from a district court judgment affirming an order of the North Dakota State Tax Commissioner which held American West liable for $20,883.51 in sales tax. We reverse the decision of the district court and remand to the Tax Commissioner for further proceedings consistent with this opinion.

I

[¶ 2] American West Community Promotions, Inc. ("American West") is an advertising and marketing firm that represents approximately 400 retail, food, and service merchants in North Dakota. American West produces promotional coupon books on behalf of its clients and markets the books in various ways, including radio ads, newspaper ads, direct mail, and through a promotional telephone campaign. The books sell for $43.95 each and contain coupons entitling the coupon holders to a variety of discounts and free products and services from participating merchants. In September of 1999, the State, by and through its Tax Commissioner ("Commissioner"), conducted a sales and use tax audit of American West. As a result of the audit, the Commissioner concluded American West had made taxable sales of its coupon books in North Dakota, but failed to pay sales tax. American West challenged this conclusion and requested an administrative hearing.

[¶ 3] At the administrative hearing, American West argued its coupon books are not tangible personal property and, thus, not subject to sales tax under N.D.C.C. § 57-39.2-02.1. Furthermore, American West argued the Commissioner exceeded statutory authority in promulgating N.D. Admin. Code § 81-04.1-01-28, which provides that sales of coupon books are taxable as sales of tangible personal property.

[¶ 4] The Administrative Law Judge ("ALJ") rejected American West's argument and concluded it was liable for $20,883.51 in sales tax to the state of North Dakota. The Commissioner issued an order adopting the ALJ's recommended findings of fact and conclusions of law on February 1, 2001. American West appealed the Commissioner's order to the district court on February 28, 2001. On July 13, 2001, the district court issued a judgment which affirmed the Commissioner's order, and American West appealed to this Court.

II

[¶ 5] Our review of a decision by an administrative agency is governed by N.D.C.C. § 28-32-19. See Ringsaker v. Director, N.D. Dept. of Transp., 1999 ND 127, ¶ 5, 596 N.W.2d 328. We limit our review to the record before the administrative agency, and we do not review the decision of the district court. See id. Section 28-32-19, N.D.C.C., requires us to affirm the agency's decision unless:

1) a preponderance of the evidence does not support the agency's findings; 2) the agency's findings of fact do not support its conclusions of law and its decision; 3) the agency's decision violates the constitutional rights of the appellant; 4) the agency did not comply with the Administrative Agencies Practice Act in its proceedings; 5) the agency's rules or procedures have not afforded the appellant a fair hearing; or 6) the agency's decision is not in accordance with the law.

Dworshak v. Moore, 1998 ND 172, ¶ 6, 583 N.W.2d 799 (quoting Greenwood v. Moore, 545 N.W.2d 790, 793 (N.D.1996)).¹

III

[¶ 6] American West argues the Commissioner erred in concluding it was liable for sales tax because when it sells a coupon book it is not selling tangible personal property, but the intangible right to receive discounts from its clients. The Commissioner responds that the issue in this case is not whether the coupon books are tangible or intangible property, but whether the Commissioner's act in promulgating N.D. Admin. Code § 81-04.1-01-28 was beyond the scope of the Commissioner's statutory authority.

[¶ 7] The issue of whether the Commissioner correctly interpreted a statute is a question of law which is fully reviewable by this Court on appeal. See Northern X-Ray Co., Inc. v. State ex rel. Hanson, 542 N.W.2d 733, 735 (N.D.1996).² The Commissioner's interpretation of a statute is entitled to some deference if it does not contradict clear and unambiguous statutory language. See Consol. Tel. v. Western Wireless Corp., 2001 ND 209, ¶ 7, 637 N.W.2d 699; Rocky Mountain Oil & Gas Ass'n v. Conrad, 405 N.W.2d 279, 283 (N.D.1987). When the statute at issue is complex and technical in nature, this deference is appreciable, and we will be reluctant to substitute our interpretation for the Commissioner's interpretation. See Consol. Tel., at ¶ 7; NL Indust., Inc. v. N.D. State Tax Comm'r, 498 N.W.2d 141, 146 (N.D.1993). However, an administrative agency's construction of a statute is accorded much less weight when the only issue to be resolved by a court is a nontechnical question of law. See 2B Norman J. Singer, Statutes and Statutory Construction § 49:04, 24 (6th ed. 2000 Rev.); see also Kansas Power and Light Co. v. State Corp. Commission, 237 Kan. 394, 699 P.2d 53, 56 (1985) (stating that deference to administrative agency interpretations is not required where the issue "is not technical, but statutory construction of a question of law"); Matter of Dworman v. N.Y. State Div. of Housing & Community Renewal, 94 N.Y.2d 359, 704 N.Y.S.2d 192, 725 N.E.2d 613, 619 (1999) ("[W]here, as here, the question is one of pure statutory interpretation dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency and its interpretive regulations are therefore to be accorded much less weight." (citation omitted) (internal quotation marks omitted)).

[¶ 8] The issue in this case is whether the Commissioner correctly interpreted the phrase "[t]angible personal property, consisting of goods, wares, or merchandise." See N.D.C.C. § 57-39.2-02.1(1)(a). The interpretation of this phrase is a matter of pure statutory interpretation and presents a nontechnical question of law. See Northern X-Ray Co., 542 N.W.2d at 738 (rejecting the Commissioner's interpretation of the word "contractor"). Thus, the issue in this case does not involve such complex and technical matters as to warrant an appreciable level of deference to the Commissioner's interpretation. See, e.g., Kinney Shoe Corp. v. State ex rel. Hanson, 552 N.W.2d 788, 790 (N.D.1996) (Commissioner's conclusion that inter-company transfers which reduce federal tax liability are not part of a subsidiary's state tax deduction was entitled to appreciable deference); NL Indust., Inc., 498 N.W.2d at 146-47 (Commissioner's method for treating net operating losses of a multi-state corporation was entitled to appreciable deference); Western Gas Resources, Inc. v. Heitkamp, 489 N.W.2d 869, 872 (N.D.1992) (Commissioner's determination that field condensate recovered from natural gas was oil within the meaning of the oil extraction tax was entitled to appreciable deference).

[¶ 9] An administrative agency's interpretation of a statute is also entitled to additional weight if the Legislature reenacts the statute after a contemporaneous and continuous construction of the statute by an administrative agency. See Schmutzler v. Workmen's Comp. Bureau, 78 N.D. 377, 49 N.W.2d 649, 652 (1951); Payne v. Bd. of Trustees of the Teachers' Ins. & Ret. Fund, 76 N.D. 278, 35 N.W.2d 553, 557-58 (1948). In Payne, this Court discussed the deference that should be given to an agency's contemporaneous and continuous interpretation of a statute when the Legislature reenacts the statute subsequent to the interpretation:

It is not disputed that [the agency's interpretation] has been the administrative practice since the adoption of the law. During that time the legislature has met in many sessions and made several amendments to the law but none in regard to this procedure. There is at least a strong presumption that the legislature knew and approved the contemporaneous and practical construction placed upon the [statute] by the officers charged with its administration.

. . . .

"Executive construction is entitled to additional weight where it has been impliedly indorsed by the legislature, as by the reenactment of the statute or the passage of a similar one, in the same or substantially the same terms,...."

See Payne, at 557-58. Similarly, in Schmutzler, this Court stated:

Following the codification and the enactment of [the statute], and its reenactment... the Workmen's Compensation Bureau continued the interpretation of this Act in accordance with the limitations set out in Chapter 260, S.L.1929. The Bureau treated the statute as unchanged. The practical and contemporaneous construction placed upon the statute by the officers charged with its enforcement may be considered in determining the meaning of the law.

Schmutzler, at 652.

[¶ 10] The Legislature has reenacted N.D.C.C. § 57-39.2-02.1 four times since the Commissioner amended N.D. Admin. Code § 81-04.1-01-28 in 1989 to provide for the taxation of sales of coupon books as sales of tangible personal property. However, the 1989 amendments to N.D. Admin. Code § 81-04.1-01-28 were promulgated 54 years after the Legislature first applied the sales tax to sales of "[t]angible personal property, consisting of goods, wares, or merchandise." See 1935 N.D. Sess. Laws ch. 276, § 2 (applying the sales tax to sales of "tangible personal property, consisting of goods, wares, or merchandise,"). Thus, unlike the administrative interpretations at issue in Payne and Schmutzler, we are not concerned with a contemporaneous...