                 IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                                  August 24, 2011 Session

  DR. PEPPER PEPSI-COLA BOTTLING COMPANY OF DYERSBURG,
      LLC v. REAGAN FARR, COMMISSIONER OF TENNESSEE
                  DEPARTMENT OF REVENUE

               Direct Appeal from the Chancery Court for Dyer County
                    No. 08-CV-592     Tony Childress, Chancellor


               No. W2010-02445-COA-R3-CV - Filed November 16, 2011


An in-state bottled soft drink manufacturer argues, pursuant to the bottler’s tax statute, that
the in-state distributor to which it sells may pay the bottler’s tax on such sales and utilize its
own franchise and excise tax credit. Absent this flexibility, the manufacturer contends, equal
protection guarantees are offended. The trial court granted summary judgment to the
Department of Revenue, finding that the manufacturer bore the tax burden and that it could
not utilize the distributor’s credit. We affirm.


 Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Affirmed

A LAN E. H IGHERS, P.J., W.S., delivered the opinion of the Court, in which D AVID R. F ARMER,
J., and H OLLY K IRBY, J., joined.

Matthew P. Cavitch, Memphis, Tennessee, for the appellant, Dr. Pepper Pepsi-Cola Bottling
Company of Dyersburg, LLC

Robert E. Cooper, Jr., Attorney General and Reporter; Joseph F. Whalen, Associate Solicitor
General, Gregory O. Nies, Assistant Attorney General, Nashville, Tennessee, for the
appellee, Commissioner of Revenue
                                                 OPINION

                                 I.   F ACTS & P ROCEDURAL H ISTORY

         During the audit period of July 1, 2004 to June 30, 2008, Dr. Pepper Pepsi-Cola
Bottling Company of Dyersburg, LLC1 (“Dr. Pepper”) acted as a “bottling company”–it “(1)
manufactured soft drinks by mixing carbonated water with various syrups, (2) filled bottles
and cans with the finished beverage, and (3) sold cases of bottled and canned soft drinks to
distributors[.]” During this same period, Burks Beverage, LP (“Burks”) operated as a
“beverage distributor.” Burks “(1) purchased cases of bottled and canned soft drinks . . .
from manufacturers and distributors . . . and (2) sold bottled and canned soft drinks to dealers
in [its] franchise territory.”

       Dr. Pepper and Burks are separate legal entities; however, both are housed under one
roof, with a common ownership,2 common office staff and common management staff. In
fact, Dr. Pepper sold approximately 75% of its output to Burks, and Burks purchased
approximately 85% of its inventory from Dr. Pepper. In an apparent attempt to take
advantage of Burks’ greater franchise and excise (“F&E”) tax credits,3 Dr. Pepper reported
“the major portion” of its sales on Burks’ bottler’s tax returns.

       In 2007, the Tennessee Department of Revenue (“the Department”) conducted audits
of the activities of Dr. Pepper and Burks. Following the audits, the Department ultimately
issued a $155,804.10 assessment against Dr. Pepper, reflecting $104,585.34 in tax liability
and $51,218.76 in interest. In contrast, it found that Burks had overpaid its bottler’s tax by
$124,587.59.4

        To challenge the assessment, Dr. Pepper requested an informal taxpayer conference.


        1
            Dr. Pepper was converted from a corporation into a limited liability company on October 19, 2007.
        2
         During the audit period, Dr. Pepper had 1,335 shares of outstanding stock and Burks had 1,336
partnership units outstanding. All shares and units were owned by the same person, W. Eddie Burks, with
the exception of the one additional unit.
        3
          According to the Tennessee Department of Revenue’s audit, “[a] certain portion of the Franchise
and Excise Taxes paid by the same legal entity may be claimed against the [bottler’s] tax calculated on the
sales of [] soft drinks.” “Because Burks Beverage pays much larger amounts of Tennessee Franchise &
Excise Taxes than are paid by Dr. Pepper . . . , Burks Beverage’s (F&E) credits available to be used against
the Bottlers Tax are much larger than the credits available to Dr. Pepper[.]”
        4
        The Department ultimately credited Dr. Pepper for the taxes paid by Burks, but it would not allow
Dr. Pepper to use Burks’ F&E credit.

                                                      -2-
Dr. Pepper contended that because Tennessee Code Annotated section 67-4-402, the
“bottler’s tax statute,” allows out-of-state suppliers and in-state sellers to allocate between
themselves the payment of the bottler’s tax, in-state suppliers and in-state sellers should also
be permitted to make such allocation. Specifically, Dr. Pepper argued that Burks should be
allowed to pay the bottler’s tax on Dr. Pepper’s sales to it. The hearing officer upheld the
assessment and affirmed the Department’s interpretation of the bottler’s tax statute as
prohibiting Burks from paying the tax on sales of soft drinks manufactured or produced and
sold by Dr. Pepper in Tennessee.

        On June 23, 2008, Dr. Pepper filed a complaint in the Dyer County Chancery Court,
alleging six counts against the Department. Both parties filed motions for summary
judgment. The trial court entered an order on May 17, 2010, granting the Department’s
motion for summary judgment,5 finding that “an instate manufacturer or producer of bottled
soft drinks bears the tax burden imposed by the Bottler Tax when the instate manufacturer
or producer of bottled soft drinks sells bottled soft drinks within this state to an instate
person.” Additionally, it found no equal protection violation, that Burks was not a
“producer” such that it could pay the bottler’s tax on soft drinks purchased from Dr. Pepper,
and that the plain language of the statute did not permit Dr. Pepper to utilize Burks’ F&E
credit. Dr. Pepper timely appealed.6




        5
          In its motion for summary judgment, Dr. Pepper requested that it be granted summary judgment
regarding the first five counts raised in its amended complaint. The Department’s motion also requested
summary judgment on Dr. Pepper’s first five counts as well as on its counterclaim. Both parties conceded
at the hearing that Dr. Pepper’s sixth count–estoppel–could potentially serve as a defense to the Department’s
counterclaim. Because consideration of the estoppel issue would require the court to make factual
determinations, the Department’s counterclaim was not considered at the summary judgment hearing.
Subsequently, a consent order withdrawing the estoppel claim was entered, and the order granting summary
judgment made final pursuant to Tennessee Rule of Civil Procedure 54.02.
        6
          Burks is not a party to this case and neither Dr. Pepper nor the Department argues that it is a
necessary party. It is important to note that it is Dr. Pepper’s position that Burks and Dr. Pepper should be
"permitted to allocate the tax burden." Dr. Pepper seeks the option of allocating the tax burden, but not a
ruling requiring Burks to pay. Burks would still have to agree to the allocation. Therefore, Burks would
suffer no adverse effect in this case and thus is not a necessary party to the action.



                                                     -3-
                                  II.    I SSUES P RESENTED

       Dr. Pepper presents the following issues, as summarized, for review:

1.     Whether the bottler’s tax allows an in-state manufacturer and in-state distributor to
       allocate the bottler’s tax liability between them;

2.     Whether an in-state distributor of bottled soft drinks may be classified as a “producer”
       under the bottler’s tax;

3.     Whether the bottler’s tax violates the Equal Protection Clauses of the United States
       and Tennessee Constitutions; and

4.     Whether the bottler’s tax statute allows a manufacturer to use a distributor’s franchise
       and excise tax credit.

For the following reasons, we affirm the decision of the chancery court.


                               III.     S TANDARD OF R EVIEW

       The facts in this case are undisputed, and only questions of law are involved. Thus,
our review is de novo upon the record with no presumption of correctness. Union Carbide
Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993) (citing Estate of Adkins v. White
Consol. Indus., Inc., 788 S.W.2d 815, 817 (Tenn. Ct. App. 1989)).

                                        IV.   D ISCUSSION

     A. Allocation of Bottler’s Tax Between Out-of-State Manufacturer and In-State
                                       Distributor

        Tennessee Code Annotated section 67-4-402 et seq., “the bottler’s tax,” provides
in relevant part, as follows:

       (b) Imposition of Tax. A person manufacturing or producing and selling within
       this state any bottled soft drinks and a person importing or causing to be
       imported bottled soft drinks into this state from outside the state and selling
       such imported bottled soft drinks within this state shall, for the privilege of
       engaging in such business, pay to the state for state purposes an amount equal
       to one and nine-tenths percent (1.9%) of the person’s gross receipts derived

                                               -4-
        from such business.

        ....


        (2) A person located outside this state who distributes bottled soft drinks in
        this state shall, for the privilege of engaging in such business, pay the tax on
        gross receipts derived from bottled soft drinks distributed by the person in this
        state in the same manner as does a person located in this state.


        (3) A person importing or causing to be imported bottled soft drinks into this
        state from outside the state and selling such imported soft drinks within this
        state is not required to pay the tax, if the person's out-of-state supplier of
        bottled soft drinks has paid the tax as stated in subdivision (b)(2).


        The Department contends that the statute imposes the bottler’s tax upon the four types
of bottled soft drink sales: 1) when an in-state manufacturer sells within the state, the in-state
manufacturer is liable for the tax; 2) when an out-of-state manufacturer sells to an in-state
importer, who then re-sells the product, the in-state importer is liable for the tax; 3) when an
out-of-state distributor directly distributes and sells within the state, the out-of-state
distributor is liable for the tax; and 4) when an out-of-state distributor directly distributes and
sells within the state, but also supplies an in-state importer, the in-state importer is not
required to pay the tax if the out-of-state distributor has paid it.7


        Dr. Pepper argues that “the statutory language is not as tight as the Department
suggests”; however, the parties do agree that the statute permits an allocation of the tax
burden between an out-of-state manufacturer and an in-state importer. That is, when an out-
of-state manufacturer sells to an in-state importer, the in-state importer is relieved of the duty
to pay the bottler’s tax when it is paid by the out-of-state manufacturer. Dr. Pepper suggests
that because such an allocation is permissible between an out-of-state manufacturer and an
in-state importer, an in-state manufacturer and in-state importer should likewise be permitted
to allocate the tax burden.




        7
          The Department states that “[t]his fourth and last situation presents the only circumstance in which
the bottlers tax statute implicitly allows for what may be termed an ‘allocation’ of the bottlers tax.”

                                                     -5-
        Dr. Pepper contends that the statute “read as a whole” permits in-state distributor
Burks to pay the bottler’s tax when it imports from in-state manufacturer Dr. Pepper. Dr.
Pepper maintains that because such flexibility is afforded in transactions between out-of-state
manufacturers and in-state distributors and because “it is undeniable that the Tennessee
legislature did not intend to favor foreign business over local business[,]” we should read into
the statute a similar accommodation for in-state manufacturers. Additionally, Dr. Pepper
states that such an interpretation would not thwart the alleged statutory purpose of collecting
at least 1.9% of the soft drink industry’s gross receipts, as it claims “Dr. Pepper and Burks
Beverage pay significantly more than their fair share of Tennessee taxes.”


        The issue of whether the bottler’s tax statute permits an in-state manufacturer and in-
state distributor to select which entity will remit payment has not been addressed by the
courts of this state. However, previous cases discussing the bottler’s tax offer some guidance
with respect to the issue at hand.


        In Kroger Co. v. Tollett, 608 S.W.2d 846, 849 (Tenn. 1980), in-state distributor
Kroger paid the bottler’s tax on soft drinks it imported from a foreign manufacturer and then
resold. See Beaman Bottling Co. v. Huddleston, No. 01-A-01-9512-CH00567, 1996 WL
417100, at *3 (Tenn. Ct. App. July 26, 1996). The Commissioner of Revenue insisted that
Kroger’s tax liability should be determined based upon its own gross receipts from retail
sales, rather than its costs paid to out-of-state bottlers. Kroger, 608 S.W.2d at 848. The
Court held that the tax owed should be determined based upon the manufacturer’s gross
receipts–the amount Kroger had paid to the manufacturer. Id.


        As relevant to the case before us, the Court examined the history of the bottler’s tax,8
noting that when the tax was first levied in 1937, it taxed only in-state bottlers and
manufacturers. Id. at 849. However, in 1947, the tax was applied to out-of-state bottlers and
manufacturers, and in 1957, the statute was revised to provide that in-state importers were
required to remit the tax only “when the [out-of-state] bottler or manufacturer . . . had not
paid the tax[.]” Id. In addressing in-state distributor Kroger’s liability, the Court stated that
“[d]omestic bottlers and manufacturers, of course, pay a tax measured by a percentage of
their gross receipts from the sale of the products.” Kroger, 608 S.W.2d at 848. However,
the court explained that “[t]he statute imposed the tax on Kroger instead of the manufacturer
[because the manufacturer] was beyond Tennessee’s reach and had not [voluntarily] paid the
tax.” Beaman, 1996 WL 417100, at *3 (citing Kroger, 608 S.W.2d at 848). It further stated:


       8
        Specifically, the Court examined Tennessee Code Annotated section 67-4102(b), the precursor to
Tennessee Code Annotated section 67-4-402(b). Kroger, 608 S.W.2d at 848.

                                                 -6-
       It seems apparent to us that the General Assembly intended to exact from [in-
       state] importers or dealers the same tax which would have been paid by out-of-
       state bottlers or manufacturers if those businesses had been subject to the
       state’s taxing power. If they voluntarily paid the tax, then the dealer or
       distributor was not liable therefor, but in the event they did not pay the tax, the
       tax was imposed upon the dealer or distributor selling the products within the
       state.


Kroger, 608 S.W.2d at 848.


       In Beaman Bottling Co. v. Huddleston, No. 01-A-01-9512-CH00567, 1996 WL
417100, at *3 (Tenn. Ct. App. July 26, 1996), this Court found that in-state soft drink
manufacturer and distributor Beaman could not deduct its distribution costs from its gross
receipts prior to calculating its tax obligation. Id. at *5. The court stated, “The record is
clear that Beaman has engaged in the privilege of manufacturing and selling bottled soft
drinks within the State of Tennessee. Therefore, Beaman is subject to the privilege tax.” Id.
at *2.


        Again, neither Kroger nor Beaman addressed whether an in-state manufacturer and
in-state distributor could select which entity would pay the bottler’s tax. However, these
cases seem to demonstrate that the legislature intended to first tax manufacturers; however,
if a manufacturer is beyond the state’s reach and does not voluntarily pay the tax, the in-state
importer or distributor must pay the tax, as calculated based upon the manufacturer’s gross
receipts. Although the legislature expressly exempted in-state importers from bottler’s tax
liability when an out-of-state manufacturer pays such, no comparable provision has been
enacted with regard to in-state manufacturers. We reject Dr. Pepper’s contention that the
legislature’s failure to address the tax liability of an in-state distributor who purchases from
an in-state manufacturer results in an ambiguity which must be resolved in Dr. Pepper’s
favor. Instead, we find that no express exemption of an in-state distributor who purchases
from an in-state manufacturer is necessary, as the in-state manufacturer will necessarily be
liable for the tax. We must presume that the legislature, had it wished to do so, would have
included a similar allocation provision between in-state manufacturers and in-state
distributors. See State v. Edmondson, 231 S.W.3d 925, 927 (Tenn. 2007) (“‘[W]here the
legislature includes particular language in one section of the statute but omits it in another
section of the same act, it is presumed that the legislature acted purposefully in including or
excluding that particular subject.’”) (quoting Bryant v. Genco Stamping & Mfg. Co., 33
S.W.3d 761, 765 (Tenn. 2000)).



                                               -7-
       We cannot agree that the statutory language permits the interpretation Dr. Pepper
advocates–that an in-state manufacturer and an in-state distributor may choose which entity
will pay the bottler’s tax. A finding that the legislature did not intend to favor foreign
commerce does not change this conclusion. Such a finding does not require us to so broadly
interpret the statute to read in an allocation authorization which could have been, but was not,
expressly included. In sum, we find that the statute “read as a whole” does not permit an in-
state distributor, such as Burks, to pay the bottler’s tax when it imports from an in-state
manufacturer, such as Dr. Pepper.


                               B.   Definition of “Producer”


        Tennessee Code Annotated section 67-4-402 imposes the bottler’s tax against persons
“manufacturing or producing and selling” bottled soft drinks within the state. Tenn. Code
Ann. § 67-4-402(b). The statute does not, however, define the term “producer.” According
to Dr. Pepper, being a “producer” means either: “(1) acting as a distributor; or (2) being such
an important customer of a manufacturer that the manufacturer would not otherwise exist
without its demand.” Accordingly, Dr. Pepper maintains that Burks is a “producer” and
therefore that “the bottlers tax could apply to Burks Beverage which could measure its tax
based upon its cost of bottled soft drinks . . . and Dr. Pepper and Burks Beverage could
choose who would pay the tax.”


         In interpreting statutes, we must “give effect to the legislative intent without unduly
restricting or expanding a statute’s coverage beyond its scope.” Owens v. State, 908 S.W.2d
923, 926 (Tenn. 1995) (citing State v. Sliger, 846 S.W.2d 262, 263 (Tenn. 1993)). “‘The
legislative intent and purpose are to be ascertained primarily from the natural and ordinary
meaning of the statutory language, without a forced or subtle interpretation that would limit
or extend the statue’s application.’” Mooney v. Sneed, 30 S.W.3d 304, 306-07 (Tenn. 2000)
(quoting State v. Blackstock, 19 S.W.3d 200, 210 (Tenn. 2000)); see also Gleaves v. Checker
Cab Transit Corp., Inc., 15 S.W.3d 799, 803 (Tenn. 2000) (“[C]ourt must ‘presume that the
legislature says in a statute what it means and means in a statute what it says there.’”)
(quoting Bellsouth Telecomm., Inc., 972 S.W.2d 663, 673 (Tenn. Ct. App. 1997)).


       In support of its argument, Dr. Pepper looks to the term as defined in other statutory
contexts. For example, it points out that a petroleum “producer” includes persons who
import or wholesale petroleum, Tenn. Code Ann. § 47-25-602, and that a natural resources
“producer” includes persons engaged in “the production and/or sale of natural resources
products[.]” Tenn. Code Ann. § 47-26-802. (emphasis added). Dr. Pepper also cites multiple


                                              -8-
dictionary entries for the term “produce,” which allegedly include “to provide, furnish, or
supply,” “to cause to occur or exist[,]” and “a person, company, or country to makes, grows,
or supplies good or commodities for sale.” Based upon these definitions, Dr. Pepper
maintains that “the term ‘producer’ is broad enough and commonly used enough to include
a distributor, especially a distributor who is the raison d’etre of a manufacturer.”
Alternatively, it argues that the term is ambiguous, and therefore, that the statute must be
construed in its favor.


        The trial court found that “manufacturing” and “producing,” as used in the bottler’s
tax statute, have similar, but not identical, meanings. “In seeking to determine the ‘natural
and ordinary meaning’ of statutory language, the usual and accepted source for such
information is a dictionary.” English Mtn. Spring Water Co. v. Chumley, 196 S.W.3d 144,
148 (Tenn. Ct. App. 2005) (citing State v. Givens, No. 01C01-9307-CR-00203, 1994 WL
406187, at *3 (Tenn. Crim. App. Aug. 4, 1994)). Black’s Law Dictionary defines “produce”
as “To give being or form to; to manufacture; to make.” Additionally, other definitions cited
by Dr. Pepper include “to bring forth,” “to cause to occur or exist,” to “cause or bring about,”
and to “cause to happen or come into existence[.]”


       Because we must presume that the legislature “used each word purposely and that
those words convey some intent and have a meaning and a purpose,” Auto Credit of
Nashville v. Wimmer, 231 S.W.3d 896, 900 (Tenn. 2007) (citing Eastman Chem. Co. v.
Johnson, 151 S.W.3d 503, 507 (Tenn. 2004); Tennessee Growers, Inc. v. King, 682 S.W.2d
203, 205 (Tenn. 1984)), we agree with the trial court’s conclusion that the terms
“manufacturing” and “producing,” as used in the bottler’s tax statute, do not have identical
meanings. Even so, we are not convinced that the term “producing” can be expanded to
reference an entity which creates a demand for the manufacturing of bottled soft drinks or
which purchases and distributes such drinks. We reject the idea that the existence of
competing interpretations requires us to accept the taxpayer’s proffered definition. Applying
this conclusion to the instant case, we find that Burks is not a “producer” within the meaning
of the bottler’s tax.


                                C. Equal Protection Clause


        As we stated above, the parties do not dispute that the bottler’s tax statute permits an
allocation of the tax burden between an out-of-state manufacturer and an in-state importer.
Having found that such allocation is not available between an in-state manufacturer and an
in-state importer, and that an in-state importer cannot itself pay the tax as a “producer,” we


                                              -9-
must address Dr. Pepper’s contention that this lack of flexibility violates the Equal Protection
Clauses of both the United States and Tennessee Constitutions.


        The Equal Protection Clause of the United States Constitution provides that “No state
shall . . . deny to any person within its jurisdiction the equal protection of the laws.” U.S.
Const. amend. XIV, § 1. Likewise, article I, section 8 and article XI, section 8 of the
Tennessee Constitution “guarantee equal privileges and immunities for all those similarly
situated.” Tenn. Small Sch. Sys. v. McWherther, 851 S.W.2d 139, 152 (Tenn. 1993).
Because our Supreme Court has “consistently held that the state equal protection guarantee
is co-extensive with the equal protection provisions of the . . . U.S. Constitution[,]” Calaway
ex rel. Calaway v. Schucker, 193 S.W.3d 509, 518 (Tenn. 2005) (citing Tenn. Small Sch.
Sys., 851 S.W.2d at 152), we will consider together Dr. Pepper’s arguments regarding both
alleged violations.


        Our Supreme Court has adopted an analytical framework for analyzing equal
protection challenges pursuant to the Tennessee Constitution similar to that used by the
United State Supreme Court. Gallaher v. Elam, 104 S.W.3d 455, 460 (Tenn. 2003) (citing
State v. Robinson, 29 S.W.3d 476, 481 (Tenn. 2000)). “Under this framework, one of three
standards of scrutiny applies, depending upon the nature of the right asserted or the class of
persons affected: (1) strict scrutiny; (2) heightened scrutiny; or (3) reduced scrutiny, applying
the rational basis test.” Id. (citing Robinson, 29 S.W.3d at 481). Because this case does not
involve a suspect class, a quasi-suspect class, or a fundamental right, we must use the rational
basis test to analyze Dr. Pepper’s equal protection claim. See id. at 461. “‘[T]he burden of
showing that a classification is unreasonable and arbitrary is placed upon the individual
challenging the statute; and if any state of facts can reasonably be conceived to justify the
classification or if the unreasonableness of the class is fairly debatable, the statute must be
upheld.’” Beaman, 1996 WL 417100, at *4 (quoting Harrison v. Schrader, 569 S.W.2d 822,
826 (Tenn. 1978)). Accordingly, “any plaintiff seeking to challenge the constitutionality of
a tax statute bears a heavy burden.” Admiralty Suites and Inns, LLC v. Shelby County, 138
S.W.3d 233, 240 (Tenn. Ct. App. 2003) (quoting Nolichuckey Sand Co., Inc. v. Huddleston,
896 S.W.2d 782, 788 (Tenn. Ct. App. 1994)).


       “It is well settled that the equal protection clause does not require absolute equality
from the State and its political subdivisions.” Posey v. City of Memphis, 165 S.W.3d 575,
578-79 (Tenn. Ct. App. 2004) (citing Gray’s Disposal Co. v. Metro. Gov’t of Nashville, 122
S.W.3d 148, 162-63 (Tenn. Ct. App. 2002)). Equality between differently situated classes
is not guaranteed, as the equal protection clause requires only “‘that persons similarly
situated be treated alike.’” Id. at 579 (quoting Gallaher, 104 S.W.3d at 461). Thus, as a

                                              -10-
threshold determination, a court must first consider whether classes are “similarly situated
so as to warrant application of the protection of the equal protection clause.” Id. If similarly
situated, but differentially treated, the court must then determine whether a rational basis
exists for such differential treatment. Id; see also Phelps v. Tenn. Dept. of Corr., No.
M1999-02109-COA-R3-CV, 2000 WL 1038115, at *2 (Tenn. Ct. App. July 28, 2000)
(“While the equal protection clause states that all persons similarly situated must be treated
alike, the legislature may treat a class of persons differently so long as the classification has
a rational relationship to a legitimate state interest.”). Again, under a rational basis analysis,
“‘[i]f any possible reason can be conceived to justify the classification, or if the
reasonableness be fairly debatable,’ then the legislation will not be struck down.” Admiralty
Suites and Inns, LLC v. Shelby County, 138 S.W.3d 233, 240 (Tenn. Ct. App. 2003) (noting
that the constitutionality of a tax statute is analyzed using the rational basis standard)
(quoting Estrin v. Moss, 430 S.W.2d 345, 349 (Tenn. 1968)).


        The parties apparently agree that in-state and out-of-state bottled soft drink
manufacturers are “similarly situated.” However, Dr. Pepper seems to suggest that because
the two types of manufacturers are similarly situated, differential treatment is necessarily
impermissible. According to Dr. Pepper, “[w]hen a law is challenged under the rational basis
standard, the law is constitutionally valid if the government had a reasonable basis for
determining that the classes were not similarly situated.” Dr. Pepper misinterprets the
rational basis test’s application. Because the equal protection clause protects only similarly
situated persons, its rational basis test, consequently, tests whether a rational basis exists for
the differential treatment of similarly situated persons.


        The Department contends that the bottler’s tax does not treat similarly situated persons
differently. The Department correctly points out that the bottler’s tax imposes a 1.9% tax
rate on all persons who manufacture or produce and sell bottled soft drinks within Tennessee;
on all persons who import and sell bottled soft drinks within Tennessee; and on all persons
who cause to be imported and who sell bottled soft drinks within Tennessee. Tenn. Code
Ann. § 67-4-402(b). Similarly, the statute equally alleviates the tax burden of all out-of-state
manufacturers or producers who do not directly distribute or sell within the state. Id.


        Furthermore, the Department claims that any differential treatment of in-state
manufacturers as compared to out-of-state manufacturers is rationally related to a legitimate
state interest. Specifically, the Department argues that the statute is designed to avoid double
taxation. Because the statute requires both an in-state importer and an out-of-state distributor
who directly distributes and sells within the state to pay the tax, the Department claims that
both entities would be required to pay the bottler’s tax on the same bottled soft drink sales

                                              -11-
but for the exception provided in subsection (b)(3).


        In response, Dr. Pepper argues that the tax allocation between an out-of-state
manufacturer and an in-state importer is unnecessary to avoid double taxation. Instead, Dr.
Pepper maintains that double taxation could be avoided by simply imposing the bottler’s tax
upon the in-state importer. As an alternative means to afford equal protection, it claims, “the
non-discriminatory solution is to . . . simply give all persons the same flexibility.” Dr.
Peppers states that “[i]f a legitimate state purpose can be served by a discriminatory solution
and a non-discriminatory solution, then nothing is served by choosing the discriminatory
solution; it is per se arbitrary and unconstitutional for the state to choose the discriminatory
solution.” Dr. Pepper provides no authority for this statement and we have found none.
Instead, as we stated above, the appropriate test for determining whether differential
treatment is permissible is the rational basis test. See Beaman, 1996 WL 417100, at *4
(citations omitted). The standard is not, as Dr. Pepper suggests, a “least restrictive means”
test.


        We find that the statute’s flexibility with regard to out-of-state and in-state
manufacturers has “some relevance” to its objective of avoiding double taxation. See
Beaman, 1996 WL 417100, at *4 (“‘[T]he Equal Protection Clause does not require absolute
equality or precisely equal advantages.’ The constitution requires only that there be ‘some
relevance to the purpose for which the classification is made.’”) (citations omitted).
Accordingly, we find that to the extent the bottler’s tax imposes differential treatment of out-
of-state and in-state manufacturers, it does not violate the Equal Protection Clauses of the
United State or Tennessee Constitutions.


                D. Whether Dr. Pepper may Utilize Burks’ F&E Credit


        The bottler’s tax provides that “[a]ny taxes paid pursuant to the [franchise and excise
tax] provisions . . . on the business taxed by this section shall be a credit against the
[bottler’s] tax imposed by this section. The credit taken on any return shall not, however
exceed seventy-eight and ninety-five hundredths percent (78.95%) of the tax liability shown
on any tax return.” Tenn. Code Ann. § 67-4-402(d) (emphasis added). Dr. Pepper states
that “[t]his language does not literally require that the payor of the bottlers tax use its own
[F&E] Credit[,]” and it essentially argues that a bottler’s tax payor may utilize the F&E credit
of any entity in the same business. Dr. Pepper suggests that if the legislature had wished to
restrict a bottler’s tax payor to using its own F&E credit, it would have referred to the
“taxpayer” taxed rather than to the “business taxed” and it would not have alluded to the


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credit appearing on “any” tax return.


        Again, in construing this statute, we must “give effect to the legislative intent without
unduly restricting or expanding a statute’s coverage beyond its scope.” Owens, 908 S.W.2d
at 926 (citing Sliger, 846 S.W.2d at 263). Additionally, we must presume that the legislature
“used each word purposely and that those words convey some intent and have a meaning and
a purpose,” Auto Credit of Nashville, 231 S.W.3d at 900 (citing Eastman Chem. Co., 151
S.W.3d at 507; Tennessee Growers, Inc., 682 S.W.2d at 205).


        Bearing the above principles in mind, we simply cannot agree that the statute allows
the credit-trading scheme that Dr. Pepper advances. Instead, we agree with the Department’s
interpretation that the plain and ordinary meaning of the statute is that the “business taxed”
is the entity whose activities subject it to the taxes referenced. We likewise agree that the
statutory reference to “any tax return” does not imply an ability to utilize another entity’s
F&E credit, but instead it simply acknowledges that all bottler’s tax payors are entitled to the
credit, notwithstanding the type of return being made. This issue is without merit.


                                      V.   C ONCLUSION


        For the aforementioned reasons, we affirm the decision of the chancery court. Costs
of this appeal are taxed to Appellant, Dr. Pepper Pepsi-Cola Bottling Company of Dyersburg,
LLC, and its surety, for which execution may issue if necessary.


                                                     _________________________________
                                                     ALAN E. HIGHERS, P.J., W.S.




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