Wisconsin Dept. of Revenue v. J. C. Penney Co., Inc.

• Decision Date: 27 July 1982
• Docket Number: No. 81-1740,81-1740
• Parties: WISCONSIN DEPARTMENT OF REVENUE, Petitioner-Appellant, v. J. C. PENNEY COMPANY, INC., Respondent.
• Court: Wisconsin Court of Appeals

Page 168

323 N.W.2d 168

108 Wis.2d 662

WISCONSIN DEPARTMENT OF REVENUE, Petitioner-Appellant, v. J. C. PENNEY COMPANY, INC., Respondent.

No. 81-1740.

Court of Appeals of Wisconsin.

Submitted on Briefs April 8, 1982.

Opinion Released July 27, 1982.

Opinion Filed July 27, 1982.

Bronson C. La Follette, Atty. Gen., and Gerald S. Wilcox, Asst. Atty. Gen., for petitioner-appellant.

Leonard S. Sosnowski and Foley & Lardner, Milwaukee, for respondent.

James P. Brody and Russell D. Feingold and Foley & Lardner, Milwaukee, on behalf of The Journal Co. and Newspapers, Inc., amicus curiae.

Before GARTZKE, P. J., and BABLITCH and DYKMAN, JJ.

DYKMAN, Judge.

The Wisconsin Department of Revenue appeals from an order affirming the decision of the Wisconsin Tax Appeals Commission. We affirm the order in part and reverse it in part.

J.C. Penney maintains a mail order and retail business in Wisconsin. It mailed free catalogs to Wisconsin residents from September 1, 1969 to January 31, 1975, the period for which the department seeks to assess taxes. The catalogs were produced by a printer in Indiana, which sent them to their Wisconsin destinations by mail or common carrier.

J.C. Penney buys advertising supplements known as "preprints" from a printer in Minnesota. It pays Wisconsin newspapers to distribute preprints with specified editions of the papers and instructs the printer to deliver the preprints to the newspapers. The preprints delivered to the paper bear the words "supplement to" and the name of the newspaper. Because there may be more papers printed than there are preprints to accompany them, not every copy of a newspaper will necessarily include the preprint. The printer sends about five percent of the preprints directly to J.C. Penney's retail stores.

The department seeks to assess a use tax against J.C. Penney on the catalogs shipped from Indiana to Wisconsin and on the preprints distributed with Wisconsin newspapers. The commission determined that J.C. Penney did not "use" the catalogs within the meaning of the statute and that the preprints constitute "newspapers" which are exempt from taxation. The circuit court affirmed the commission's decision.

The following issues are raised on appeal:

1. Is J.C. Penney liable for use tax on catalogs printed out of state and sent without charge to persons in Wisconsin?

2. Does imposition of use tax on catalogs printed out of state and sent to Wisconsin residents violate the commerce clause of the United States Constitution?

3. Is J.C. Penney liable for use tax on preprints which are printed out of state and distributed with Wisconsin newspapers?

Standard Of Review

The facts are substantially undisputed. The application of a statute to a set of facts is a question of law. Kania v. Airborne Freight Corp., 99 Wis.2d 746, 758, 300 N.W.2d 63, 68 (1981). This court therefore accords no special deference to the determinations of the circuit court or the commission as to the applicability of the use tax statutes to these facts. Department of Revenue v. Horne Directory, Inc., 105 Wis.2d 52, 56, 312 N.W.2d 820, 823 (1981).

Catalogs

Section 77.53, Stats. (1975), provides in relevant part:

(1) An excise tax is hereby levied and imposed on the storage, use or other consumption in this state of tangible personal property ....

(2) Every person storing, using or otherwise consuming in this state tangible personal property purchased from a retailer is liable for the tax imposed by this section....

The department contends that J.C. Penney used the catalogs in this state. "Use" is defined by sec. 77.51(15), Stats. (1975), as "the exercise of any right or power over tangible personal property incident to the ownership, possession or enjoyment of that property ...." The statutory definition of use thus includes two elements: (1) the taxpayer must own, possess, or enjoy the property in Wisconsin; and (2) the taxpayer must exercise some right or power over the tangible personal property in Wisconsin. Horne Directory, 105 Wis.2d at 61, 312 N.W.2d at 825.

We need not consider whether J.C. Penney owned, possessed or enjoyed the catalogs in Wisconsin because we conclude that the second element of the "use" test was not met.

Because the catalogs moved by mail or common carrier from Minnesota to Wisconsin, they remained the property of the printer until they were delivered. Sec. 77.51(4r), Stats. (1977). ¹ After delivery, the recipients assumed ownership of the catalogs, and were free to read, store, or destroy them. These facts are indistinguishable from those in Horne Directory, where the court noted that "[t]he only 'right or power' exercised over the directories in this state was exercised by the printer, who had possession and control over them at all times through its delivering agents, and by their ultimate recipients, the subscribers." Horne Directory, 105 Wis.2d at 60, 312 N.W.2d at 824.

The department seeks to distinguish Horne Directory by noting that J.C. Penney maintains a copyright interest in its catalogs. It argues that the copyright gives J.C. Penney a right or power over the catalogs. It cites no authority for this proposition, and its argument misapprehends the nature of copyrights. "Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied." 17 U.S.C. sec. 202. The recipients of the catalogs are free to sell or dispose of them without the permission of the copyright owner. 17 U.S.C. sec. 109(a). J.C. Penney therefore exercises a right only over the intangible intellectual property protected by the copyright. It has no right or power over the "tangible personal property" on which the use tax is levied. Sec. 77.53(1), Stats. (1975).

The department argues that J.C. Penney stored the catalogs in Wisconsin. "Storage" is defined as "any keeping or retention in this state for any purpose except sales in the regular course of business or subsequent use solely outside this state of tangible personal property purchased from a retailer." Sec. 77.51(14), Stats. (1975). By application of sec. 77.51(4r), Stats. (1975), the catalogs were in the custody of the printer through its agents while the catalogs were in transit. Ownership passed to the recipients upon delivery to them. J.C. Penney's actions in arranging for the transfer of the catalogs from the printer to the recipients did not constitute "keeping or retention" of the catalogs in Wisconsin. Horne Directory, 105 Wis.2d at 60, 312 N.W.2d at 824.

The department also argues that J.C. Penney "otherwise consumed" the catalogs in this state. " 'Consumption' goes further than 'use' in that the exercise of consumptive rights or powers over the property renders it, through destruction or deterioration, less useful to others for the same purpose." Dept. of Revenue v. Milwaukee Refining Corp., 80 Wis.2d 44, 51, 257 N.W.2d 855, 859 (1977). J.C. Penney did not exercise a consumptive right or power over the catalogs in Wisconsin. Accord, Horne Directory, 105 Wis.2d at 62, 312 N.W.2d at 825.

The department contends that it is inconsistent to impose use tax on catalogs printed and delivered in Wisconsin but not on catalogs printed outside Wisconsin and delivered to Wisconsin consumers. This contention is more appropriately directed to the legislature.

We need not decide whether the commerce clause has been violated.

Preprints

J.C. Penney contends, and the commission and circuit court concluded, that its preprints fall within the newspaper exception. Section 77.54, Stats. (1975), provides:

There are exempted from the taxes imposed by this subchapter:

....

(15) The gross receipts from the sale of and the storage, use or other consumption of newspapers and periodicals regularly issued at average intervals not exceeding 3 months.

"Newspaper" is not defined by statute. The common meaning of a word used in a statute may be established by reference to a recognized dictionary. In Interest of B. M., 101 Wis.2d 12, 18, 303 N.W.2d 601, 605 (1981). "Newspaper" is defined in Webster's Third New International Dictionary (1976) as "a paper that is printed and distributed daily, weekly, or at some other regular and usually short interval and that contains news, articles of opinions (as editorials), features, advertising, or other matter regarded as of current interest."

The preprints contain only advertising for J.C. Penney products. Standing alone, they do not fit the definition of "newspaper." J.C. Penney argues that the preprints are component parts of a newspaper. We disagree. Tax exemptions are matters of legislative grace and tax statutes are to be strictly construed against granting exemptions. The taxpayer "must point to an express provision granting such exemption and bring [itself] clearly within the terms of the exemption" before we may construe the exemption in its favor. Ramrod, Inc. v. Department of Revenue, 64 Wis.2d 499, 504, 219 N.W.2d 604, 607 (1974).

J.C. Penney relies on Sears, Roebuck and Co. v. State Tax Commission, 370 Mass. 127, 345 N.E.2d 893 (1976), to support its argument that preprints are component parts of newspapers. The Sears holding relied on Friedman's Express v. Mirror Transp. Co., 71 F.Supp. 991 (D.N.J.1947), aff'd, 169 F.2d 504 (3d Cir. 1948). The Friedman's Express court held that comic supplements fell within the definition of "newspaper." It concluded that comic supplements are part of the "melange ... known as special sections of the paper." Friedman's Express, 71 F.Supp. at 992.

The collection in its entirety is recognized as a Newspaper and is carried and distributed as such without distinction as to sections. Each section is thus an integral part of the newspaper, made so not because it is physically folded in a news section, but because it has assumed the character of the journal of which it is a part; and each bears at its masthead the name of the publication of which it is a part.

Id...