MODERN MERCHANDISING, INC., d/b/a LaBelle‘s, Taxpayer and Appellant, v. DEPARTMENT OF REVENUE, State of South Dakota, Appellee.
No. 15257.
Supreme Court of South Dakota.
Decided Dec. 10, 1986.
Argued Sept. 17, 1986.
We hold that the agreement be given effect as a loan agreement only to the extent that the money advanced thereunder, $85,000, is to be repaid by plaintiff to State Farm.9 For example, assume plaintiff obtains a judgment against Chrysler and Ford for $300,000. This would require plaintiff to pay back the $85,000 loan to State Farm, and would entitle Chrysler and Ford to credit against plaintiff‘s judgment of $200,000, or more based on the percentage of Rodenburg‘s liability as ultimately determined by the fact finder.
Accordingly, we reverse and order the trial court judgment modified to reflect that South Dakota substantive law governs interpretation of the loan receipt and release agreement, and that Chrysler and Ford, as alleged joint tort-feasors, are entitled to credit for the greater of the amount of settlement or the percentage of Rodenburg‘s liability as is ultimately determined by the fact finder.
All the Justices concur.
Gene R. Woodle, Asst. Atty. Gen. (Mark V. Meierhenry, Atty. Gen., on brief), Pierre, for appellee.
Robert B. Anderson of May, Adam, Gerdes & Thompson, Pierre, (John L. Ruppert of Kirkland & Ellis, Denver, Colo., on brief), for taxpayer and appellant.
FOSHEIM, Justice.
This is an appeal from a circuit court judgment affirming a Department of Revenue (Department) order assessing use tax
LaBelle‘s is a Minnesota corporation and a subsidiary of Modern Merchandising. It retails consumer goods by mail order and through stores located in Minnesota, North Dakota, and South Dakota. Department assessed use taxes and interest against LaBelle‘s from April 1, 1982 through February 29, 1984, on catalogs and flyers mailed to South Dakota residents. Following a hearing, Department issued an order approving the assessment and denying LaBelle‘s request for a refund.
From the stipulated facts it appears companies related to LaBelle‘s contracted with printers located in Minnesota to print the catalogs and flyers. These printers either mailed the literature from Minnesota directly to the South Dakota residents or turned the materials over to common carriers who delivered them to post offices located in South Dakota for mailing to the South Dakota residents. LaBelle‘s furnished the printers with the names of those to whom the literature was to be delivered. The catalogs were delivered free of charge to the residents who were free to use or discard them as they wished. Catalogs not delivered in South Dakota were returned directly to the Minnesota printers.
The tax was levied pursuant to
An excise tax is hereby imposed on the privilege of the use, storage, and consumption in this state of tangible personal property purchased on or after July 1, 1939, for use in this state at the same rate [as the state sales tax].
It is Department‘s position that since LaBelle‘s paid the printers for the catalogs and flyers and those items were mailed to the South Dakota residents as determined by LaBelle‘s customer list, LaBelle‘s exercised “right or power” over the catalogs and, therefore, “use[d] the flyers and catalogs to generate sales in South Dakota and to operate its catalog business in South Dakota within the definition of ‘use’ in
‘Use’ means and includes the exercise of right or power over tangible personal property incidental to the ownership of that property....
In reviewing a circuit court judgment entered under
The issue on appeal is whether LaBelle‘s had sufficient “right or power ... incidental to the ownership” of the catalogs and flyers once in South Dakota to qualify as a
Department relies heavily upon our K-Mart Corp. v. Dept. of Revenue, 345 N.W.2d 55 (S.D.1984), decision. The retailer in K-Mart contracted with local newspapers to have its advertisements inserted in its publications for distribution in South Dakota. The supplements were printed and sent to a publisher outside of South Dakota. The publisher received a distribution list from K-Mart setting forth the South Dakota newspapers to which it sent the supplements. Essentially, K-Mart made the same arguments we find here. We held that because K-Mart owned the supplements and retained the power to control the date of distribution and the numbers of copies to be distributed after the copies entered South Dakota, K-Mart “use[d]” the supplements within the meaning of
Although the facts of K-Mart are similar to those in this case, we distinguish advertisements delivered in the K-Mart fashion from the direct mailings in this case. Unlike K-Mart, LaBelle‘s had no in-state contract and no similar in-state power. All control over the present literature within our state belonged to either the post office or the advertisement recipients. Even if the literature could not be delivered, it again would be handled by the post office until outside of South Dakota. By concluding the catalogs and flyers were taxable, Department concentrated more on the material‘s generation of in-state sales for LaBelle‘s than on whether LaBelle‘s activities fit the language of the tax statutes. In contrast, K-Mart focuses and turns upon the statutory language; not merely upon whether the newspaper supplements generated in-state sales for K-Mart.
Department cites Northwestern National Bank of Sioux Falls v. Gillis, 82 S.D. 457, 148 N.W.2d 293 (1967), as demonstrating a legislative intent behind
Department argues it is illogical to subject advertisements delivered in the K-Mart fashion to the use tax, but not those delivered as in this case. However, we find support for this dichotomy in J.C. Penney, supra, relied upon in K-Mart. In J.C. Penney, the Wisconsin Supreme Court considered both the K-Mart situation and the one before us now,1 and reached the same contrasting conclusions as this court. Similarly, that Court was also confronted with the argument that reaching such contrasting results was irrational. We agree with its observation that “[t]his contention is more appropriately directed to the legislature.” J.C. Penney, 323 N.W.2d at 170.2
WUEST, C.J., and MORGAN and HENDERSON, JJ., concur.
SABERS, J., dissents.
SABERS, Justice (dissenting).
I dissent for all of the following reasons.
LaBelle‘s argues that it had insufficient “right or power ... incidental to the ownership” of the catalog and flyer shipments once in South Dakota to qualify as a “use” under
... Department‘s position that K-Mart uses’ the supplements within the state within the meaning of
SDCL 10-46-2 by virtue of its ownership of the supplements and its power to determine the date of distribution and the numbers of copies to be distributed.
345 N.W.2d at 58, citing Wisconsin Dept. of Revenue v. J.C. Penney Co., 108 Wis.2d 662, 323 N.W.2d 168 (1982).
Unlike the retailer in K-Mart, LaBelle‘s contends that it did not own nor have control over the catalogs and flyers once in South Dakota. It cites no authority for this proposition. LaBelle‘s contrasts its situation with K-Mart where the retailer owned the supplements after they were received by the South Dakota newspapers. LaBelle‘s argues that once delivered, the catalogs and flyers belonged to the residents. LaBelle‘s further argues that K-Mart had more power over its advertisements than did LaBelle‘s because K-Mart had the power to “‘determine the date of distribution and the number of copies to be distributed,’ after the [K-Mart] supplements were delivered in South Dakota.” Id., (emphasis added).
Department claims the cases are essentially identical except that LaBelle‘s catalogs were shipped directly to the in-state residents instead of to newspapers. Department argues that K-Mart had less in-state control than does LaBelle‘s because the newspapers in K-Mart had the power to edit the advertisements, and their personnel handled the supplements.
Both sides cite considerable authority for their respective positions. Apart from J.C. Penney, supra, which this court relied on in K-Mart, these cases are not extremely helpful. The J.C. Penney case ruled on the taxability of both (1) catalogs sent directly to consumers from out of state (this case), and (2) out-of-state shipments of advertisements to in-state newspapers for insertion (K-Mart). The case holds per K-Mart that shipments to newspapers fall within the use tax. However, J.C. Penney also holds that mailings directly to the consumers are not taxable.
In J.C. Penney, the court held that catalogs printed in Indiana and mailed to Wisconsin were not taxable in Wisconsin, but that newspaper supplements printed out-of-state, but delivered by local newspapers, were subject to tax. 323 N.W.2d at 171-172. The court determined that J.C. Penney “used” the newspaper supplements, but did not “use” the catalogs. This appears illogical and honors form over substance. A catalog is similar to a newspaper supplement. They both contain pictures of items for sale with prices and descriptions. In actual practice, J.C. Penney got more use out of the catalogs than
The use tax is not a property tax or a tax on consumption of property. In Inter-State Nurseries, Inc. v. Iowa Department of Revenue, 164 N.W.2d 858 (Iowa 1969), the court held that an Iowa nursery company was “using” its catalogs “... as a means of advertising and promoting the sale of its products ...” even though they were received, read, or discarded by others. Id. at 863.
Under cases such as Philco Corporation v. Department of Revenue, 40 Ill.2d 312, 239 N.E.2d 805 (1968), physical manipulation of property is not a necessary incident to use of the property for use tax purposes. In construing a definition of “use” similar to South Dakota‘s, the court quotes with approval from Kessling, Conflicting Conceptions of Ownership in Taxation,
LaBelle‘s asserts that tax liability should be avoided because it did not use the catalogs in South Dakota. However, LaBelle‘s has stores in South Dakota, the catalogs are in South Dakota, and the recipients of the catalogs are in South Dakota. LaBelle‘s furnishes and controls the mailing list for the catalogs and also pays for them. The reason the catalogs are in this state is to generate sales for LaBelle‘s. This constitutes the same use that K-Mart made of its advertising supplements. The method of delivery should be irrelevant.
This court‘s decision in Northwestern National Bank of Sioux Falls v. Gillis, 82 S.D. 457, 148 N.W.2d 293 (1967), is helpful in discerning the legislative intent behind
In my view, LaBelle‘s arguments simply miss the controlling point. LaBelle‘s used the catalogs in South Dakota. They even stored those catalogs not delivered until returned. It is not necessary that LaBelle‘s employees physically ride on the mail truck—the use of the catalogs by South Dakota residents was LaBelle‘s use under the statute. LaBelle‘s exercised power and control through its agents in South Dakota even though its own employees may not have physically entered the state. The evidence shows that LaBelle‘s exercised power and control over the catalogs through the printing, the number of catalogs distributed, the timing of the delivery of the catalogs in South Dakota, and even the return of undelivered catalogs, all to the same or greater extent than in the K-Mart case. As stated by the trial court, “LaBelle‘s has raised a number of distinctions between (K-Mart) and this case, however, I am of the opinion that they are distinctions without difference.” So am I. This court should discern substance over form and affirm the use tax.