                     IN THE COURT OF APPEALS OF TENNESSEE
                                 AT NASHVILLE
                                           May 4, 2005 Session

  PFIZER, INC. v. RUTH E. JOHNSON, COMMISSIONER OF REVENUE
                   FOR THE STATE OF TENNESSEE

                        Appeal from the Chancery Court for Davidson County
                           No. 01-2385-II   Carol L. McCoy, Chancellor


                       No. M2004-00041-COA-R3-CV - Filed January 23, 2006


Pfizer, Inc. challenges the assessment of the additional rate of business tax under Tenn. Code Ann.
§ 67-4-709(b)(2)(B). It contends the sales in question, which were from one wholesaler to another
wholesaler, were not within the definition of “wholesale sales” as the term is defined in Tenn. Code
Ann. § 67-4-702(a)(19), and thus not subject to the additional business tax. The State of Tennessee
contends sales, whether a “sale at retail” or a “sale at wholesale,” are taxable pursuant to the
percentages set forth in Tenn. Code Ann. § 67-4-709(b)(2)(B). The facts are not disputed. Based
upon a statutory interpretation, we find sales from one wholesaler to another wholesaler are not
subject to the additional business tax under Tenn. Code Ann. § 67-4-709(b)(2)(B).

             Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                                   Reversed and Remanded

FRANK G. CLEMENT , JR., J., delivered the opinion of the court, in which WILLIAM C. KOCH , JR., P.J.,
M.S., and PATRICIA J. COTTRELL, J., joined.

Michael D. Sontag and Christopher L. Haley, Nashville, Tennessee, for the appellant, Pfizer, Inc.

Paul G. Summers, Attorney General and Reporter; Michael E. Moore, Solicitor General; and Gary
R. Hotvedt, Assistant Attorney General, for the appellee, Ruth E. Johnson, Commissioner of
Revenue, State of Tennessee.

                                                   OPINION

        Pfizer, Inc. is a manufacturer and seller of pharmaceutical drugs and other products.1 It is
a Delaware corporation licensed to do business in Tennessee with a warehouse and distribution
center in Memphis, Tennessee. The Memphis facility was used to distribute pharmaceuticals and
other products to a variety of customers in Tennessee, including McKesson Corporation and other


       1
           Pfizer’s corporate headquarters are in New York.
wholesale sellers of pharmaceuticals located in Tennessee, such as Bindley Western Corporation and
Amerisource Corporation.

        Some of Pfizer’s customers in Tennessee were retailers, others of its customers, like
McKesson, were wholesalers.2 Pfizer paid the additional tax on sales to “retailers” in Tennessee,
as it deemed such sales “wholesale sales”; it did not, however, pay the additional tax on sales to
other wholesalers, such as McKesson.

        In December of 2000, the Tennessee Department of Revenue conducted a routine audit of
sales from Pfizer’s Memphis facility for the period of April 1, 1995, through March 31, 2000. From
this audit the Department of Revenue concluded that Pfizer had made significant wholesale sales to
McKesson for which it had not paid the additional business tax pursuant to Tenn. Code Ann. § 67-4-
709(b)(2)(B). The State categorized sales from Pfizer to McKesson as “wholesale sales” pursuant
to Tenn. Code Ann. § 67-4-709(b)(2)(B), and assessed the additional business tax in the amount of
$2,275,523.00. In addition, the State charged interest in the amount of $651,393.08, and a
delinquency fee in the amount of $568,883.00, for a total assessment of $3,495,799.08.

        The Department of Revenue filed the Notice of Assessment upon Pfizer, following which
Pfizer filed this action challenging the assessment, interest, and penalty. The State and Pfizer each
filed motions for summary judgment concerning the core issue, whether Pfizer’s sales to McKesson
qualified as “wholesale sales” as that term is defined in the statue. The Chancery Court granted the
State’s motion and denied Pfizer’s motion for summary judgment. Pfizer appeals. The sole issue
before this court is whether Pfizer’s sales to McKesson are subject to the additional business tax as
“wholesale sales” pursuant to Tenn. Code Ann. § 67-4-709(b)(2)(B).

                                           STANDARD OF REVIEW

        No genuine material factual disputes are presented. The issue presented hinges on the proper
interpretation of Tennessee statutes and their application to the facts of this case. Issues involving
the construction of statutes and their application to facts involve questions of law. Memphis Publ’g
Co. v. Cherokee Children & Family Servs., Inc., 87 S.W.3d 67, 74 (Tenn. 2002); Waller v. Bryan,
16 S.W.3d 770, 773 (Tenn. Ct. App. 1999). Therefore, the trial court’s resolution of these issues is
not entitled to Tenn. R. App. P. 13(d)’s presumption of correctness on appeal. We will review the
issues de novo and reach our own independent conclusions regarding them. King v. Pope, 91
S.W.3d 314, 318 (Tenn. 2002).

        The primary rule of statutory construction is "to ascertain and give effect to the intention and
purpose of the legislature." Carson Creek Vacation Resorts, Inc. v. Dep’t of Revenue, 865 S.W.2d
1, 2 (Tenn. 1993); McGee v. Best, 106 S.W.3d 48, 64 (Tenn. Ct. App. 2002). Our duty is to seek a
reasonable construction “in light of the purposes, objectives, and spirit of the statute based on good


        2
          McKesson is a wholesaler of pharmaceutical products and one of the world’s largest suppliers of healthcare
related products and services.

                                                        -2-
sound reasoning." Scott v. Ashland Healthcare Ctr., Inc., 49 S.W.3d 281, 286 (Tenn. 2001), citing
State v. Turner, 913 S.W.2d 158, 160 (Tenn. 1995). To determine legislative intent, we must look
to the natural and ordinary meaning of the language in the statute. We must also examine any
provision within the context of the entire statute and in light of its over-arching purpose and the goals
it serves. State v. Flemming, 19 S.W.3d 195, 197 (Tenn. 2000); T.R. Mills Contractors, Inc. v. WRH
Enters., LLC, 93 S.W.3d 861, 867 (Tenn. Ct. App. 2002). The statute should be read "without any
forced or subtle construction which would extend or limit its meaning." Nat’l Gas Distrib., Inc. v.
State, 804 S.W.2d 66, 67 (Tenn. 1991).

        We are to "give effect to every word, phrase, clause and sentence of the act in order to carry
out the legislative intent." Tidwell v. Collins, 522 S.W.2d 674, 676-77 (Tenn. 1975); In re Estate
of Dobbins, 987 S.W.2d 30, 34 (Tenn. Ct. App. 1998). We must also presume the General Assembly
selected their words deliberately, Tenn. Manufactured Hous. Ass'n. v. Metro. Gov't., 798 S.W.2d
254, 257 (Tenn. Ct. App. 1990), and the use of their words conveys some intent and carries meaning
and purpose. Tennessee Growers, Inc. v. King, 682 S.W.2d 203, 205 (Tenn. 1984); Clark v. Crow,
37 S.W.3d 919, 922 (Tenn. Ct. App. 2000).

        Courts ascertain a statute's purpose from the plain and ordinary meaning of its language. See
Westland West Cmty. Ass'n v. Knox County, 948 S.W.2d 281, 283 (Tenn. 1997); Riggs v. Burson,
941 S.W.2d 44, 54 (Tenn. 1997). We are to give effect to unambiguous statutes. See Spencer v.
Towson Moving & Storage, Inc., 922 S.W.2d 508, 510 (Tenn. 1996). Therefore, there is no room
for construction when the language of a statute is clear. See Pursell v. First Am. Nat'l Bank, 937
S.W.2d 838, 842 (Tenn.1996); Anderson v. Outland, 360 S.W.2d 44, 47 (Tenn. 1962). Therefore,
when the words of a statute clearly mean one thing, the courts cannot give them another meaning
under the guise of construing them. See Henry v. White, 194 Tenn. 192, 198, 250 S.W.2d 70, 72
(1952); State ex rel. Barksdale v. Wilson, 194 Tenn. 140, 144-45, 250 S.W.2d 49, 51 (1952); Mathes
v. State, 173 Tenn. 511, 516, 121 S.W.2d 548, 550 (1938).

                                              ANALYSIS

         Pfizer is subject to the minimum business tax under Tenn. Code Ann. § 67-4-709(a). The
issue is whether Pfizer is also subject to the additional rates of tax imposed pursuant to Tenn. Code
Ann. § 67-4-709(b).

        Additional taxes under this particular scheme are based upon the statutory classification of
the business in question. Pfizer, as a seller of pharmaceuticals falls under Classification 2. See
Tenn. Code Ann. § 67-4-708(2)(D) (listing those engaged in the business of making sales of
prescription drugs and patent medicines as falling under Classification 2). Accordingly, in addition
to the minimum business tax, those in Classification 2 must pay “[o]ne tenth (1/10) of one percent




                                                  -3-
(1%) of all the retail sales of the business; and [o]ne fortieth (1/40) of one percent (1%) of all the
wholesale sales of the business.”3 Tenn. Code Ann. § 67-4-709(b)(2)(A),(B).

        In assessing taxes against Pfizer, the State contended the sales from Pfizer to McKesson
constituted “wholesale sales.” Pfizer had not paid this tax on sales to McKesson, believing the sales
to McKesson were not “wholesale sales” because wholesale sales are defined as sales by a
wholesaler to a retailer, and McKesson was not a retailer.

        The statute provides that “wholesale sale” or “sale at wholesale” pertains to “the sale of
tangible personal property or services rendered in the regular course of business to a licensed retailer
for resale, lease or rental as tangible personal property in the retailer’s regular course of business to
a user or consumer.” Tenn. Code Ann. § 67-4-702(a)(19).4

         The statute further provides that a “retailer” is one “engaged in the business of making sales
at retail. . . .” Tenn. Code Ann. § 67-4-702(a)(10).5 The statute defines “retail sales” or “sales at
retail” as “a sale of tangible personal property or services rendered to a consumer or to any person
for any purpose other than for resale . . . ; provided, that sales for resale must be in strict compliance
with rules and regulations.” Tenn. Code Ann. § 67-4-702(a)(11).6

       The State insists the legislature intended for all sales to be subject to the additional business
tax, and there will always be two business taxes under Tenn. Code Ann. § 67-4-709: the $15
minimum business tax pursuant to § 67-4-709(a) plus an additional tax pursuant to § 67-4-709(b).
Based upon this premise that there will always be the two taxes, the State contends Pfizer’s sales to
McKesson constituted “wholesale sales”; making Pfizer subject to the additional tax in § 67-4-
709(b)(2)(B).

        The problem with this argument lies in the statutory definition of “wholesale sales.” To
constitute a “wholesale sale” the sale had to be to a retailer who in turn would sell to the consumer.
Pfizer, however, sold the pharmaceuticals to McKesson, which in turn sold them to a retailer, who


         3
            These rates reflect the rates that existed from 1995-2000, the tax years at issue in this dispute. This citation
is also the cite to the code section that existed in 1995-2000. The citation for the current statute is also Tenn. Code Ann.
§67-4-709(b)(2), but the rates have changed. The rates are presently “[t]hree-twentieths of one percent (3/20 of 1%) of
all the retail sales of the business; and [t]hree-eightieths of on percent (3/80 of 1%) of all the wholesale sales of the
business; . . . . The applicable tax rates are not at issue in this case; we use the ones that were applicable from 1995-
2000.

         4
          This is the citation that existed for this statute in 1995-2000, the tax years at issue in this case. Currently, this
same statute is found at Tenn. Code Ann §67-4-702(a)(22).

         5
        This is the citation that existed for this statute in 1995-2000. Currently, this same statute can be found at Tenn.
Code Ann. §67-4-702(a)(15).

         6
        This is the citation that existed for this statute in 1995-2000. Currently, this same statute can be found at Tenn.
Code Ann. §67-4-702(a)(14).

                                                             -4-
in turn sold them to a consumer. Consequently, McKesson’s sales to retailers were “wholesale
sales,” as defined by Tenn. Code Ann. § 67-4-702(a)(19); thus, Pfizer’s sale to McKesson was one
step removed from being subject to the additional tax.

       Statutes imposing a tax are to be construed strictly against the government. Prodigy Services
Corp., Inc. v. Johnson, 125 S.W.3d 413, 416 (Tenn. Ct. App. 2003)(citing SunTrust Bank v.
Johnson, 46 S.W.3d 216 (Tenn. Ct. App. 2000). Moreover tax statutes “will not be extended by
implication beyond the clear import of the language used, nor will their operation be enlarged so as
to embrace matters [or persons] not specifically named or pointed out.” Prodigy at 416 (quoting
Nat’l Gas Distribs. v. State, 804 S.W.2d 66, 67 (Tenn. 1991)). “Where there is doubt as to the
meaning of a taxing statute, the doubt must be resolved in favor of the taxpayer.” Commercial
Standards Ins. Co. v. Hixson, 133 S.W.2d 493, 494 (Tenn. 1939).

        To subscribe to the State’s contention, we would have to extend by implication the language
used in Tenn. Code Ann. §§ 67-4-702 and 709, and we are not permitted to do so. Considering the
statutory language at issue, we fail to see how Pfizer’s sales to wholesalers such as McKesson fall
within the statutory definition of “wholesale sales” when the definition of such a sale expressly
requires the sale be to a retailer.

        The judgment of the trial court is reversed and this matter is remanded to the trial court for
entry of a judgment consistent with this opinion. Costs of appeal are assessed against the State of
Tennessee, Department of Revenue.




                                                       ___________________________________
                                                       FRANK G. CLEMENT, JR., JUDGE




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