CHECK PRINTERS, INC.
DAVID GERREGANO ET AL.
May 8, 2019
from the Chancery Court for Davidson County No. 15-598-IV
Russell T. Perkins, Chancellor
case involves the Commissioner of Revenue for the State of
Tennessee's audit and subsequent adjustment of sales tax
due from Appellant, Check Printers, under the Tennessee
Retailers Sales Tax Act, Tennessee Code Annotated section
67-6-101, et seq. The trial court granted the
Commissioner's motion for summary judgment finding that,
although Appellant manufactured the disputed products in
Tennessee and ultimately exported the products outside the
state, under Appellant's standard contract language,
title passed to the customer in Tennessee at the time the
product was tendered for shipping. Based on this intervening
taxable event, i.e., the "sale," as that term is
defined in Tennessee Code Annotated section 67-6-102(80)(A),
the trial court concluded that the products were not excluded
from taxation under either the manufactured-for-export
exemption, Tennessee Code Annotated section 67-6-313(a), or
the sale-for-resale exemption, Tennessee Code Annotated
section 67-6-102(75)(a). Because there is a dispute of
material fact concerning whether Appellant's sale of
blow-in cards to its customer, AMI, was consummated in
Tennessee, we vacate the trial court's grant of summary
judgment only as to the AMI blow-in cards; the trial
court's order is otherwise affirmed.
R. App. P. 3 Appeal as of Right; Judgment of the Chancery
Court Vacated in Part, Affirmed in Part, and
Michael D. Sontag, Stephen J. Jasper, and Michael A. Cottone,
Nashville, Tennessee, for the appellant, Check Printers, Inc.
Herbert H. Slatery, III, Attorney General and Reporter,
Andrée Blumstein, Solicitor General, and R. Mitchell
Porcello, Senior Assistant Attorney, for the appellees,
Commissioner of Revenue for the State of Tennessee, and State
of Tennessee - Civil.
Armstrong, J., delivered the opinion of the court, in which
J. Steven Stafford, P.J., W.S., and Carma D. McGee, J.,
Printers, Inc. ("Check Printers," or
"Appellant") is a commercial printing company
founded in 1960 for the specific purpose of printing checks
for banks in the Middle Tennessee area. Since that time, the
company's operations have expanded to include the
manufacture and sale of a wide range of printed commercial
products. In 2004, Check Printers became a wholly-owned
indirect subsidiary of R.R. Donnelley and Sons ("R.R.
Donnelley"). R.R. Donnelley has approximately 150
printing facilities in North America and is one of the
largest printers in the world. During all relevant times,
Check Printers had two facilities: one in Antioch, Tennessee
and one in North Carolina. This appeal concerns the tax
consequences flowing from the operations at Check
Printers' Antioch facility during the relevant time
completing audits of Check Printers for the period of July 1,
2006 through December 1, 2010 (the "Audit Period"),
on April 10, 2015, the Commissioner of the Tennessee
Department of Revenue ("Commissioner," or
"Department," and together with the State of
Tennessee, "Appellees") issued a Notice of Adjusted
Amounts Due. The adjusted tax assessment consisted of sales
and use tax in the amount of $4, 098, 468.17, plus interest
(for the period of January 1, 2008 through December 31,
2010), and state and local business tax in the amount of
$323, 443.36, plus penalties and interest (for the period of
July 1, 2006 through December 31, 2010). The adjusted tax
amount, interest, and penalties totaled $6, 183, 675.31. In
making the assessment, the Commissioner determined that Check
Printers' principal business, during the Audit Period,
was the sale of services, rather than manufacturing. However,
in its memorandum and final order, infra, the trial
court concluded that Check Printers was, in fact, a
manufacturer entitled to exemption from business tax. Tenn.
Code Ann. §§ 67-4-712(b)(2) and 67-6-206. The
parties do not appeal the trial court's conclusion that
Check Printers is a manufacturer or its amendment of the
Commissioner's adjusted tax amount to reflect Check
Printers' manufacturer exemption. As such, we will
neither address nor disturb this portion of the trial
the Audit Period, Check Printers printed various items at its
Antioch facility, including checkbooks, catalog components,
check starter kits, coupon payment booklets, mortgage closing
packages, monthly billing statements, utility bills,
etc. After Check Printers completed an order, it
shipped the order to its customers or to other
customer-designated parties in the chain of production and/or
distribution. Check Printers also printed blow-in cards,
which are inserted into magazines to solicit subscriptions.
As is relevant to this appeal, Check Printers manufactured
blow-in cards for American Media, Inc. ("AMI") and
Martha Stewart-Finishing ("Martha Stewart"). The
blow-in cards were printed at the Antioch facility and then
shipped to an out-of-state R.R. Donnelley facility; the
out-of-state facility printed the magazines for AMI and
Martha Stewart, inserted the blow-in cards into the
magazines, and then shipped the magazines to AMI and Martha
Stewart or to their subscribers. For its shipping, Check
Printers primarily used the United States Postal Service
("USPS"), which was located at the Antioch
facility, but it shipped some products through common
carriers such as United Parcel Service and Federal Express.
When Check Printers shipped materials that were printed at
the Antioch facility (including the blow-in cards) to other
states, it did not charge, collect, or remit sales tax in
the Commissioner's audit, the parties participated in an
informal taxpayer conference concerning the Notice of
Adjusted Amounts Due. As part of this process, on August 24,
2015, Check Printers sent a detailed letter disputing the
assessment. In the letter, Check Printers asserted, inter
alia, that: (1) the Department is not permitted to
assess Tennessee tax on sales in interstate commerce; and (2)
Check Printers' sale of blow-in cards qualifies for
either the magazine exemption or, alternatively, for the
sale-for-resale tax exemption. On February 26, 2015, the
Department's Administrative Hearing Officer issued a
determination upholding the assessment. Specifically, the
Hearing Officer rejected Check Printers' interstate
commerce objection on the ground that title to the printed
materials transferred to Check Printers' customers while
the materials were still in Tennessee, thus creating a
taxable event in Tennessee, see further discussion
infra. Concerning the blow-in cards, the Hearing
Officer concluded that these cards were not
"components" of the magazines, thus negating
application of the magazine exemption. The Hearing Officer
also rejected Check Printers' argument that the blow-in
cards were sales for resale. Accordingly, the Hearing Officer
declined to adjust the Department's assessment.
14, 2018, Check Printers filed this action in the Davidson
County Chancery Court ("trial court"). As is
relevant to the instant appeal, in count one of its complaint
Check Printers challenged the Department's assessment of
sales and use tax on printed products that Check Printers
caused to be shipped by common carriers to destinations
outside the State of Tennessee. Concerning these
transactions, which we read to include all materials printed
at the Antioch facility including blow-in cards, Check
Printers asserted that they involved products
"manufactured for export" and should, therefore, be
exempt from sales and use tax under the plain language of
Tennessee Code Annotated section 67-6-313(a), infra.
Concerning the blow-in cards, in count four of the complaint,
Check Printers claimed that the blow-in cards should qualify
for the "sale for resale" exemption under Tennessee
Code Annotated section 67-6-102(75)(a), infra.
Specifically, Check Printers argued that the blow-in cards
become part of the magazines, which are then resold by other
companies; thus, the blow-in cards (as part of the resold
magazines) qualify for the "sale for resale"
exemption from sales tax.
parties filed cross motions for summary
judgment. The trial court heard the motions on July
19, 2017. In its memorandum and final order, filed on May 23,
2018, the trial court granted the parties' respective
motions in part. The trial court granted Check Printers'
motion concerning its designation as a manufacturer for
business tax purposes and adjusted the amount of the tax
assessment to reflect that designation. As previously noted,
the parties do not appeal this portion of the trial
court's ruling. The trial court granted the
Department's motion as to the sales tax issues, see
discussion infra, finding that neither the
sale-for-resale nor the manufactured-for-export exemptions
applied to Check Printers' sales of the disputed tangible
personal property. Check Printers appeals.
Printers present three issues for review:
1. Whether [Check Printers'] sales of "blow-in
cards" were sales of items "intended for subsequent
resale by the purchaser" exempt from Tennessee sales tax
under Tenn. Code Ann. §§ 67-6-102(75)(A),
[67-6]-102(76), and [67-6]-202(a) when the blow-in cards were
inserted into and became component parts of magazines sold by
[Check Printers'] customers.
2. Whether [Check Printers'] sales of printed products
shipped to other states were sales of products
"manufactured in this state for export" exempt from
Tennessee sales tax under Tenn. Code Ann. § 67-6-313(a)
when [Check Printers] fabricated the products in Tennessee
and immediately thereafter shipped those products to
locations outside Tennessee through the United States Postal
Service or other common carrier.
3. Whether [Check Printers'] sales of "blow-in
cards" to American Media Incorporated were subject to
Tennessee sales tax when neither title to nor possession of
the blow-in cards passed from [Check Printers] to American
Media Incorporated in Tennessee.
Standard of Review
case was decided by summary judgment. Summary judgment is
appropriate when "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." Tenn. R. Civ. P. 56.04. We
review a trial court's ruling on a motion for summary
judgment de novo, without a presumption of correctness.
Rye v. Women's Care Center of Memphis, MPLLC,
477 S.W.3d 235, 250 (Tenn. 2015); Dick Broad. Co., Inc.
of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 671
(Tenn. 2013). In doing so, we make a fresh determination of
whether the requirements of Rule 56 of the Tennessee Rules of
Civil Procedure have been satisfied. Rye, 477 S.W.3d
at 250 (citing Estate of Brown, 402 S.W.3d 193, 198
(Tenn. 2013); Hughes v. New Life Dev. Corp., 387
S.W.3d 453, 471 (Tenn. 2012)).
out at Tennessee Code Annotated section 20-16-101:
In motions for summary judgment in any civil action in
Tennessee, the moving party who does not bear the burden of
proof at trial shall prevail on its motion for summary
judgment if it:
(1) Submits affirmative evidence that negates an essential
element of the nonmoving party's claim; or
(2) Demonstrates to the court that the nonmoving party's
evidence is insufficient to establish an essential element of
the nonmoving party's claim.
"a moving party seeking summary judgment by attacking
the nonmoving party's evidence must do more than make a
conclusory assertion that summary judgment is appropriate on
this basis." Rye, 477 S.W.3d at 264. Rule 56.03
requires the moving party to support its motion with "a
separate concise statement of the material facts as to which
the moving party contends there is no genuine issue for
trial." Tenn. R. Civ. P. 56.03. Each fact is to be set
forth in a separate, numbered paragraph and supported by a
specific citation to the record. Id. If the moving
party fails to meet its initial burden of production, the
nonmoving party's burden is not triggered, and the court
should dismiss the motion for summary judgment. Town of
Crossville Hous. Auth., 465 S.W.3d 574, 578-79 (Tenn.
Ct. App. 2014) (citing Martin v. Norfolk S. Ry. Co.,
271 S.W.3d 76, 83 (Tenn. 2008)). As the Tennessee Supreme
Court has stated:
[T]o survive summary judgment, the nonmoving party "may
not rest upon the mere allegations or denials of [its]
pleading, but must respond, and by affidavits or one of the
other means provided in Tennessee Rule 56, set forth specific
facts" at the summary judgment stage "showing that
there is a genuine issue for trial." Tenn. R. Civ. P.
56.06. The nonmoving party "must do more than simply
show that there is some metaphysical doubt as to the material
facts." Matsushita Elec. Indus. Co., 475 U.S.
at 586, 106 S.Ct. 1348. The nonmoving party must demonstrate
the existence of specific facts in the record which could
lead a rational trier of fact to find in favor of the
Rye, 477 S.W.3d at 265. If adequate time for
discovery has been provided and the nonmoving party's
evidence at the summary judgment stage is insufficient to
establish the existence of a genuine issue of material fact
for trial, then the motion for summary judgment should be
granted. Id. Thus, even where the determinative
issue is ordinarily a question of fact for the jury, summary
judgment is still appropriate if the evidence is
uncontroverted and the facts and inferences to be drawn
therefrom make it clear that reasonable persons must agree on
the proper outcome or draw only one conclusion. White v.
Lawrence, 975 S.W.2d 525, 529-30 (Tenn. 1998).
if there is any uncertainty concerning a material fact, then
summary judgment is not the appropriate disposition. As
stated by the Tennessee Supreme Court in EVCO Corp. v.
Ross, 528 S.W.2d 20 (Tenn. 1975):
The summary judgment procedure was designed to provide a
quick, inexpensive means of concluding cases, in whole or in
part, upon issues as to which there is no dispute regarding
the material facts. Where there does exist a dispute as to
facts which are deemed material by the trial court, however,
or where there is uncertainty as to whether there may be such
a dispute, the duty of the trial court is clear. He [or she]
is to overrule any motion for summary judgment in such cases,
because summary judgment proceedings are not in any sense to
be viewed as a substitute for a trial of disputed factual
Id. at 24-25.
extent that the issues raised in this appeal require us to
interpret and apply statutes, we note that statutory
interpretation is a question of law, which we review de novo,
affording no presumption of correctness to the conclusions of
the trial court. State v. Crank, 468 S.W.3d 15, 21
(Tenn. 2015); In re Baby, 447 S.W.3d 807, 817 (Tenn.
2014); Mansell v. Bridgestone Firestone N. Am. Tire,
LLC, 417 S.W.3d 393, 399 (Tenn. 2013) (citing Waters
v. Farr, 291 S.W.3d 873, 882 (Tenn. 2009)).
principles of statutory interpretation are well established.
When reading "statutory language that is clear and
unambiguous, we must apply its plain meaning in its normal
and accepted use, without a forced interpretation that would
limit or expand the statute's application."
Eastman Chemical Co. v. Johnson, 151 S.W.3d 503, 507
(Tenn. 2004). "[W]e presume that every word in a statute
has meaning and purpose and should be given full effect if
the obvious intention of the General Assembly is not violated
by so doing." SunTrust Bank v. Burke, 491
S.W.3d 693, 695 (Tenn. Ct. App. 2015), perm. app.
denied (Tenn. June 15, 2015) (quoting Lind v. Beaman
Dodge, 356 S.W.3d 889, 895 (Tenn. 2011)). "When a
statute is clear, we apply the plain meaning without
complicating the task." In re Baby, 447 S.W.3d
807, 817 (Tenn. 2014). However, when a statute is ambiguous,
"we may reference the broader statutory scheme, the
history of the legislation, or other sources."
Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827, 836
(Tenn. 2008). Our duty in construing statutes is to ascertain
and give effect to the intention and purpose of the
legislature. See Lipscomb v. Doe, 32 S.W.3d 840, 844
(Tenn. 2000). To the extent that these issues involve
questions of fact, our review of the trial court's ruling
is de novo with a presumption of correctness. Tenn. R. App.
P. 13. Accordingly, we may not reverse these findings unless
they are contrary to the preponderance of the evidence.
Armbrister v. Armbrister, 414 S.W.3d 685, 692 (Tenn.
courts must liberally construe statutes that impose a tax in
favor of the taxpayer and strictly construe them against the
taxing authority. Eastman Chemical, 151 S.W.3d at
507. "[W]here there is doubt as to the meaning of a
taxing statute, the doubt must be resolved in favor of the
tax payer." Commercial Standard Ins. Co. v.
Hixson, 133 S.W.2d 493, 494 (Tenn. 1939). This
construction, however, must be fair and give effect to the
language of the statute. See, e.g., International
Harvester Co. v. Carr, 466 S.W.2d 207, 214 (Tenn. 1971);
United Inter-Mountain Tel. Co. v. Moyer, 426 S.W.2d
177, 181 (Tenn. 1968).
Check Printers asserts that it is entitled to certain tax
exemptions. While statutes imposing taxes are to be construed
in favor of the tax payer, tax exemption statutes are
strictly construed against tax payers. See, e.g., Steele
v. Indus. Dev. Bd. of Metro. Gov't of Nashville and
Davidson Co., 950 S.W.2d 345, 348 (Tenn. 1997)
(citations omitted). Taxpayers must carry the burden of
showing entitlement to tax exemptions; such exemptions will
not be implied. Hutton v. Johnson, 956 S.W.2d 484,
488 (Tenn. 1997) (citing American Cyanamid Co. v.
Huddleston, 908 S.W.2d 396, 400 (Tenn. Ct. App. 1995)).
In Tennessee, there is a presumption against tax exemption
"and any well-founded doubt defeats a claimed
exemption." Id. In any event, unless the text
of a revenue statute requires otherwise, courts are to give
the words in the statute their natural and ordinary meaning
and to enforce revenue statutes as written. Eastman
Chemical, 151 S.W.3d at 507; Stratton v.
Jackson, 707 S.W.2d 865, 866 (Tenn. 1986).
issue in this case is the imposition of sales tax under the
Tennessee Retailers Sales Tax Act, Tennessee Code Annotated
section 67-6-101, et seq. (the "Act"). As
discussed by the Tennessee Supreme Court,
Tennessee's tax policy . . . seeks to place the ultimate
burden for the payment of sales and use tax on the end user
of the tangible personal property. Accordingly, intermediary
dealers are relieved of the burden of collecting and
remitting sales or use tax when they are not an end user.
COA Holdings, Inc. v Trost, 333 S.W.3d 73, 84 (Tenn.
2010). "Thus, persons or entities falling within the
statutory definition of 'dealer' are permitted
certain exemptions from the payment of sales or use
tax." Id. Here, Check Printers claims two
exemptions: (1) the "sale for resale" exemption
regarding the blow-in cards; and (2) the "manufactured
for export" exemption for all products, including the
blow-in cards. We will address each of these exemptions