2012 VT 78


World Publications, Inc. v.
Vermont Department of Taxes (2012-009)
 
2012 VT 78
 
[Filed 02-Nov-2012]
 
NOTICE:  This opinion is
subject to motions for reargument under V.R.A.P. 40 as well as formal revision
before publication in the Vermont Reports.  Readers are requested to
notify the Reporter of Decisions by email at: JUD.Reporter@state.vt.us or by
mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont
05609-0801, of any errors in order that corrections may be made before this
opinion goes to press.
 
 

2012 VT 78

 

No. 2012-009

 

World Publications, Inc.


Supreme Court


 


 


 


On Appeal from


     v.


Superior Court, Washington
  Unit,


 


Civil Division


 


 


Vermont Department of Taxes


June Term, 2012


 


 


 


 


Michael
  S. Kupersmith, J.


 

Harriet Ann King and Robert Johnston King, Legal Intern, of King & King, Waitsfield, for
  Plaintiff-Appellant.
 
William H. Sorrell, Attorney General, and John McAllister,
Assistant Attorney General, 
  Montpelier, for Defendant-Appellee.
 
 
PRESENT:  Reiber, C.J., Dooley, Skoglund,
Burgess and Robinson, JJ.
 
 
¶ 1.            
SKOGLUND, J.   Taxpayer distributes a free weekly
newspaper in central Vermont called The World.  Once a month, the
newspaper includes a coupon book, produced and printed by taxpayer,
that features coupons for local businesses.  The Commissioner of
Taxes concluded that the coupon books are not “component parts” of the
newspaper, and therefore the cost of printing the coupon books is “not exempt
from sales and use tax.”  The superior court affirmed.  We, too,
affirm.
¶ 2.            
 The following facts are drawn from the parties’ stipulation before
the Commissioner.  Taxpayer publishes The World and distributes it
for free to households and newsstands throughout central Vermont.  The
content of The World focuses on central Vermont news; approximately 35%
of the newspaper consists of such content, with the remainder consisting of
advertising.  Substantially all of The World’s revenues are
generated from advertising sales. 
¶ 3.            
Distributed with the newspaper during the first week of each month is a
coupon book, the characterization of which is the sole issue on appeal. 
Taxpayer’s salespersons solicit advertising for the coupon book from current
and new advertisers, just as they do for regular ads within the newspaper
itself.  Taxpayer’s staff then designs the coupon book and sends the files
electronically to the printer.  The printer prints the coupon books and
inserts approximately 90% of them into copies of The World for
distribution.  Any remaining coupon books are distributed through The
World-branded news racks and are available throughout the month.  
¶ 4.            
Newspapers are exempt from Vermont sales and use tax under 32 V.S.A.
§ 9741(15):
  Sales of newspapers and sales
of tangible personal property which becomes an ingredient or component part of
or is consumed or destroyed, or loses its identity in the manufacture of
newspapers, whether sold or distributed without charge [are exempt from the
sales and use tax].  A publication shall not be considered a newspaper
unless, on an average for the taxable year, at least ten percent of its printed
material consists of news of general or community interest, community notices,
editorial comment, or articles by different authors.
¶ 5.            
The Department of Taxes audited taxpayer’s sales and use tax returns and
determined that while The World is an exempt newspaper under
§ 9741(15), the coupon books are not.  Accordingly, the Department
computed unpaid sales and use taxes due and owing on the cost of printing the
coupon book.  Taxpayer timely appealed the assessment.
¶ 6.            
The Commissioner concluded that the coupon books were “additional,
separate publications rather than component parts of the newspapers into which
they are inserted,” and therefore are not exempt from tax.  The
Commissioner began her analysis by noting that tax exemptions are construed
narrowly against the taxpayer,  Hannaford
Bros. Co. v. Dep’t of Taxes, 150 Vt. 6-8, 547 A.2d 1353-55 (1988), and that
taxpayer has the burden of proof in establishing that the coupon books meet the
requirements for an exemption.  In reaching her conclusion, the
Commissioner relied heavily on Hannaford, which held that preprinted
advertising supplements, inserted into newspapers to advertise the products and
prices of a third-party grocery chain (Hannaford) were not integral components
of the newspapers and thus not exempt from sales and use tax.  Id.
at 6-8, 547 A.2d 1354-55.  Though she recognized
factual distinctions between the Hannaford insert and the coupon book in
this case, she concluded that the outcome is the same in both cases.  She
reasoned that although the coupon book is identified with The World’s
logo, the books are separately prepared and printed.  They contain no
content, only advertising.  They “do not contribute to the newspaper’s
character, do not typically command their own following, and are not separately
indexed sections of the publication.”  Moreover, as with the Hannaford
inserts, the coupon books are not distributed solely with the newspaper; they
are also available on news racks.  Even though taxpayer could have placed
identical coupons in the pages of the newspaper itself and not incurred any
tax, the Commissioner concluded that a taxpayer accepts the tax consequences
that flow from its business decisions.  Here, taxpayer made a decision to
print the coupon books separately from the newspaper as a convenience to its
readers.  The Commissioner concluded “the taxpayer’s choice of format and
method of distribution results in a taxable event.” 
¶ 7.            
The superior court agreed with the Commissioner’s decision, adding
nothing significant to the analysis.  The court concluded that the Hannaford
decision controlled and found the record supported the Commissioner’s exercise
of discretion.  Taxpayer now appeals, arguing that the facts of this case
compel a different result from Hannaford.  The essence of
taxpayer’s argument is that there are differences between its coupon book and
the insert taxed in the Hannaford case, and because the coupon book and insert
contributes to the character of the newspaper, it must be considered a
component part of The World.  We disagree for the reasons that
follow.
¶ 8.            
We review this on-the-record appeal of the Commissioner’s decision
directly, independent of the superior court’s conclusions.  In re Williston Inn Group, 2008 VT 47, ¶ 11, 183 Vt.
621, 949 A.2d 1073 (mem.).  Moreover,
because we are “traditionally reluctant to substitute our judgment for the
experience and expertise of an agency,” Lemieux v. Tri-State Lotto Comm’n, 164 Vt. 110, 112, 666 A.2d 1170, 1172 (1995), we apply a deferential standard of review to agency
decisions.  See, e.g., Gasoline Marketers of Vt., Inc. v. Agency of
Natural Res., 169 Vt. 504, 508, 739 A.2d 1230, 1233 (1999) (“[A]bsent a clear and convincing showing to the contrary,
decisions made within the expertise of administrative agencies are presumed to
be correct, valid, and reasonable.”).  We therefore uphold the
Commissioner’s interpretation of tax statutes absent “compelling indication of
error.”  Williston Inn Group, 2008 VT 47, ¶ 12.  See also
In re Picket Fence Preview, 173 Vt. 369, 371, 795 A.2d 1242, 1244 (2002)
(“[W]e will not set aside the Commissioner [of Taxes]’s findings of fact unless
clearly erroneous.”).  Combining this deferential standard of review with
our mandate to construe tax exemptions strictly against the taxpayer, taxpayer
has a difficult burden to overcome in showing why the coupon book should be
exempt from taxation.  Our Lady of Ephesus House of Prayer, Inc. v.
Town of Jamaica, 2005 VT 16, ¶ 14, 178 Vt. 35, 869 A.2d 145; see also Ragland
v. K-Mart Corp., 624 S.W.2d 430, 432 (Ark. 1981) (“Any tax exemption
provision must be strictly construed against the exemption, and to doubt is to
deny the exemption; the taxpayer has the burden of clearly establishing the
exemption beyond a reasonable doubt.”).
¶ 9.            
The coupon books in question are not “consumed or destroyed” nor do they
lose their “identity in the manufacture of newspapers, whether sold or
distributed without charge. . . .”  32
V.S.A. § 9741(15). Thus, the only way the coupon books can be considered
exempt from the sales and use tax is if they are found to be a “component part
of” the newspaper.  Taxpayer’s argument is primarily that its coupon book
can be factually distinguished from the grocery store flyers at issue in Hannaford. 
The inserts in that case were produced by a grocery chain that contracted with
independent printers to print the flyers.  The grocery chain then
contracted with newspapers to have them inserted in their papers. 
Approximately 8% of the flyers were distributed directly to consumers at the
grocery stores, or through direct mail.  Hannaford, 150 Vt. at 6-7,
547 A.2d at 1354.  By contrast, as noted above, The
World solicits advertisements from its current or prospective advertisers,
designs the coupon books itself, and then contracts to have them printed along
with the newspapers.  Approximately 10% of the coupon books are also
distributed directly to consumers through The World-branded news
racks.  Thus, there are significant distinctions between the Hannaford
inserts and the coupon books in this case.  However, these distinctions
are of no moment, as they do not change the conclusion that the printing of the
coupon books is subject to sales tax.
¶ 10.         A
thorough review of the Commissioner’s determination reveals no “compelling
indication of error.”  Williston Inn Group, 2008 VT 47,
¶ 12.  The Commissioner  explained that, while nothing in 32
V.S.A. § 9741(15) specifies what constitutes a “component part” of a
newspaper, “[c]ommon understanding” dictates that
newspapers are generally comprised of various sections such as sports,
entertainment, classifieds, and comics.  Advertisements have traditionally
appeared through the various sections, but more recently, advertising inserts
have become commonplace.  She then synthesized our holding in Hannaford—that
advertising inserts preprinted by a third party and contractually inserted in a
newspaper (but also available through direct mail or in grocery stores) are not
integral components of the newspaper.  She conceded that the coupon books
at issue in this case are closer to being tax-exempt component parts of the
newspaper than the Hannaford inserts, but reasoned that they are still
fundamentally different from the newspaper itself.  The coupon books
differ in size, format, and distribution from The World.  They are
separately prepared and printed; they are not part of the “print run” of The
World.  They consist solely of advertising with no content.  They
do not typically command their own following, and they are not separately
indexed sections of the paper.  Based on the record before us, none of
these findings appear erroneous, so our case law urges deference to the
Commissioner’s determination.  
¶ 11.         Having
printed the coupons in a separate book and then inserted that book into the
newspaper does not make it a component part of a newspaper.  It is the
Commissioner’s duty to interpret the tax laws with her experience and
expertise.  Some states have statutes that specifically include
advertising inserts printed by the newspaper within the definition of a
tax-exempt newspaper.  See Eagerton v.
Dixie Color Printing Corp., 421 So.2d 1251, 1253 (Ala. 1982) (explaining
that state tax rule mandates that advertising inserts printed by newspaper are
tax-exempt). While  clarification of 32 V.S.A. § 9741(15) as it
pertains to inserts would probably assist the Commissioner in the task of
deciding what constitutes a component part of a newspaper, we can find no error
in the Commissioner’s determination, based on our statutes and prior cases,
that the coupon books are not component parts of The World. 
Accordingly, the coupon books are not afforded the exemption enjoyed by
newspapers. 
Affirmed.

 
 


 


FOR THE COURT:


 


 


 


 


 


 


 


 


 


 


 


Associate
  Justice

 

