C&S Wholesale Grocers, Inc. v. Department of Taxes
155 A.3d 169
Vt.2016Background
- C&S Wholesale Grocers (taxpayer) distributes frozen groceries from a Vermont warehouse using reusable insulated fiberglass "freezer tubs" packed with dry ice and loaded into refrigerated tractor-trailers (reefers).
- Freezer tubs are returned to and reused by C&S for multiple years (typically 3–5 years). Reefers use dyed off-road diesel ("reefer fuel") to power refrigeration units; that fuel is not transferred to customers.
- Vermont Department of Taxes audited C&S, assessed sales/use tax on freezer tubs ($30,562 for 2009–2012) and denied a refund for sales tax paid on reefer fuel; it also assessed a penalty under 32 V.S.A. § 3202(b)(3).
- Commissioner concluded freezer tubs are not exempt under 32 V.S.A. § 9741(16) (packing/packaging/shipping materials) and that reefer fuel is not a shipping material; Commissioner applied Department regulation excluding returnable/reusable packaging with life expectancy >3 years.
- C&S appealed administratively, then in superior court; trial court affirmed, and C&S appealed to Vermont Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether reusable freezer tubs are exempt as "containers/packaging" under 32 V.S.A. § 9741(16) | Freezer tubs are "containers"/packaging and thus exempt under the statute's plain language | Exemption limited to packaging that becomes part of the parcel or continues down the stream of commerce; returnable reusable items with life >3 years are taxable | Held: Not exempt. Tubs are reusable shipping equipment that do not transfer to customers and may escape taxation if exempt; Commissioner’s interpretation upheld. |
| Whether reefer fuel is exempt as "shipping material" under § 9741(16) | Reefer fuel is a material used in shipping and thus exempt | Reefer fuel is shipping equipment/operation cost that does not become part of the parcel or pass to the customer and so is taxable to the distributor | Held: Not exempt. Reefer fuel does not transfer to customers and may be taxed to taxpayer without double taxation concerns. |
| Validity/applicability of the Department's "three-year" rule limiting exemption for returnable/reusable packaging | Three-year life-expectancy rule lacks statutory basis and is arbitrary | Rule is an administrative interpretation to distinguish packaging from equipment and avoid absurd results/double non-taxation | Held: Court declines to rule on validity because rule does not affect outcome (tubs exceed three years); regulation need not be addressed here. |
| Challenge to penalty as unreasonable/abuse of discretion | Penalty unreasonable given good-faith misunderstanding and cooperation | Penalty authorized by statute for failure to pay; issue not preserved administratively | Held: Not reviewed (issue not preserved); in any event penalty authorized by statute and would stand. |
Key Cases Cited
- Wetterau, Inc. v. Dep't of Taxes, 141 Vt. 324, 449 A.2d 896 (Vt. 1982) (state regulations are prima facie evidence of proper interpretation)
- Standard Register Co. v. Comm'r of Taxes, 135 Vt. 271, 376 A.2d 41 (Vt. 1977) (statutory amendment clarified scope of exemption for shipping materials)
- In re Middlebury Coll. Sales & Use Tax, 137 Vt. 28, 400 A.2d 965 (Vt. 1979) (tax exemptions strictly construed)
- Hadwen, Inc. v. Dep't of Taxes, 139 Vt. 37, 422 A.2d 255 (Vt. 1980) (sales tax intended to be imposed on ultimate user)
- Tarrant v. Dep't of Taxes, 169 Vt. 189, 733 A.2d 733 (Vt. 1999) (tax exemptions strictly construed but construction must not defeat statute's purpose)
- Gasoline Marketers of Vt., Inc. v. Agency of Natural Res., 169 Vt. 504, 739 A.2d 1230 (Vt. 1999) (deference to administrative agency decisions absent clear and convincing showing of error)