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Check Printers, Inc. v. Gerregano

Court of Appeals of Tennessee, Nashville

June 28, 2019

CHECK PRINTERS, INC.
v.
DAVID GERREGANO ET AL.

         Session May 8, 2019

          Appeal from the Chancery Court for Davidson County No. 15-598-IV Russell T. Perkins, Chancellor

         This 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.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Vacated in Part, Affirmed in Part, and Remanded

          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.

          Kenny Armstrong, J., delivered the opinion of the court, in which J. Steven Stafford, P.J., W.S., and Carma D. McGee, J., joined.

          OPINION

          KENNY ARMSTRONG, JUDGE.

         I. Background

         Check 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 period.

         After 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 court's order.

         During 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 Tennessee.

         After 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.

         On May 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.[1]

         The parties filed cross motions for summary judgment.[2] 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.

         II. Issues

         Check 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.

         III. Standard of Review

         This 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)).

         As set 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.

         However, "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 nonmoving party.

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).

         However, 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 issues.

Id. at 24-25.

         To the 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)).

         The 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. 2013).

         Furthermore, 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).

         Here, 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).

         IV. Analysis

         At 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.[3] 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 below.

         A. Sale-for-Resale ...


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