In re Picket Fence Preview

In re Picket Fence Preview (2001-037); 173 Vt. 369; 795 A.2d 1242

[Filed 22-Mar-2002]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.


                                No. 2001-037


In re Picket Fence Preview	                 Supreme Court

                                                 On Appeal from
                                                 Chittenden Superior Court


                                                 October Term, 2001


Matthew I. Katz, J.

Thomas C. Nuovo of Bauer, Anderson & Gravel, Burlington, for 
  Plaintiff-Appellant.

William H. Sorrell, Attorney General, and John M. Bagwell, Special 
  Assistant Attorney General, Montpelier, for Defendant-Appellee.


PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.


       AMESTOY, C.J.   Taxpayer, Picket Fence Preview, appeals the Chittenden
  Superior Court  order affirming the Commissioner's determination that
  taxpayer is not exempt from use tax, pursuant  to 32 V.S.A. § 9741(15). 
  Taxpayer argues that: (1) the superior court erred in its interpretation of
  §  9741(15); (2) the superior court's finding that taxpayer is not a
  newspaper was erroneous; and (3)  imposition of use tax violates the First
  Amendment and the Equal Protection Clause of the  Fourteenth Amendment to
  the United States Constitution and the Common Benefits Clause and  freedom
  of speech and of the press guarantees of the Vermont Constitution.  We
  affirm.

 

       Taxpayer is a for-sale-by-owner guide, consisting primarily of real
  estate listings,  published  monthly and distributed free of charge in
  northern Vermont.  On average, 10% of each publication  includes articles,
  features, and community notices.  The bound publication is printed on eight
  and  one-half by eleven inch coated paper.  The cover includes a color
  photograph of a listed property  with the signature image of a picket fence
  across the bottom.  Taxpayer's Registration and Vermont  Business Account
  Number Application, filed in 1995, described taxpayer's business as
  "desktop  publishers of for sale by owner real estate magazine."  In
  January 1999, taxpayer amended the  application to describe the publication
  as a newspaper.  The publication is printed in Canada and  pays neither
  Vermont sales nor use tax. 

       Vermont assesses use tax on tangible personal property used, stored,
  and consumed within  the state on which sales tax has not been paid.  32
  V.S.A. § 9773.  Certain sales are exempt from the  tax.  32 V.S.A. § 9741. 
  Following an audit in 1998, the Department of Taxes assessed taxpayer a use 
  tax of $10,086.81, plus interest and underpayment penalty, for the printing
  of its publication from the  period January 1, 1995, through December 31,
  1997.  At a July 1999 hearing, taxpayer challenged  the assessment on the
  basis that it should be considered a newspaper and be exempt from use tax. 
  The Commissioner determined that taxpayer is not a newspaper and affirmed
  the assessment.   Taxpayer appealed the Commissioner's determination to the
  superior court.  The superior court  affirmed, and this appeal followed.

       Taxpayer argues on appeal that the superior court erred in upholding
  the Commissioner's  interpretation of 32 V.S.A. § 9741(15), that taxpayer
  should fall within the definition of "newspaper"  for the purposes of the
  use tax exemption, and that the imposition of the use tax violates
  provisions  of the United States and Vermont Constitutions.  We review the
  case under the same standard as 

 

  applied in the intermediate appeal to the superior court.  Thus, we will
  not set aside the  Commissioner's findings of fact unless clearly
  erroneous.  Rock v. Dep't of Taxes, 170 Vt. 1, 5, 742 A.2d 1211, 1215
  (1999).

       Taxpayer first argues that the superior court erroneously upheld the
  Commissioner's  construction of § 9741(15) and the Commissioner's arbitrary
  definition of the term "newspaper."  In  construing a statute, our
  objective is to effectuate the intent of the Legislature.  State v. Dixon,
  169  Vt. 15, 17, 725 A.2d 920, 922 (1999).  In determining the intent of
  the Legislature, we look first to  the statute itself, presuming the
  Legislature intended the plain, ordinary meaning of the language.  Id.  The
  statutory provision in dispute reads:

    Receipts from the following shall be exempt from tax on retail
    sales . . . .  
     (15) Sales of newspapers and sales of tangible personal property
    which  becomes an ingredient or component part of or is consumed
    or destroyed, or  loses its identity in the manufacture of
    newspapers, whether sold or  distributed without charge. A
    publication shall not be considered a newspaper  unless, on an
    average for the taxable year, at least ten percent of its printed 
    material consists of news of general or community interest,
    community  notices, editorial comment, or articles by different
    authors.
   
  32 V.S.A. § 9741(15).

       The superior court upheld the Commissioner's interpretation of the
  term "newspaper," as  found in § 9741(15), using its ordinary meaning. 
  Specifically, the Commissioner found that a  newspaper is "a specific
  product which is printed and distributed soon after news occurs, read 
  promptly by the recipient and discarded after reading [that] is
  identifiable by the physical features  [such as] inexpensive paper
  (newsprint), broad sheet or tabloid size, lack of refinements such as 
  bindings and covers, and short intervals between editions."  Further, the
  Commissioner determined  that publications like magazines and
  for-sale-by-owner guides have longer production schedules and 

 

  longer useful lives.  The superior court affirmed the Commissioner's
  conclusion that taxpayer is not a  newspaper because its physical features
  place it beyond what is ordinarily understood to be a  newspaper:  taxpayer
  is printed on glorified newsprint that is glossier, whiter, and more
  resistant to  tearing than ordinary newsprint, and taxpayer is bound and
  stapled into an eight and one-half by  eleven inch booklet with a distinct
  cover. 

       Taxpayer contends that the use of physical features to determine that
  it is not a newspaper is  arbitrary because it deviated from the definition
  used by this Court in Hadwen Inc. v. Dep't of Taxes,  139 Vt. 37, 39, 422 A.2d 255, 257 (1980).  In Hadwen, the Department of Taxes appealed a
  superior  court decision reversing a determination by the Commissioner of
  Taxes that plaintiff publishing  company owed use taxes on goods used in
  the publication of a weekly "Pennysaver" largely devoted  to
  advertisements.  139 Vt. at 39, 422 A.2d  at 257.  The Department, in that
  case, urged this Court to  endorse the Commissioner's application of the
  rationale set forth in Green v. Home News Publ'g Co.,  90 So. 2d 295, 296
  (Fla. 1956).  Id.  In Green, the Florida Supreme Court upheld a denial of a
  sales  and use tax "newspaper exemption" for a "Shopper Advertiser,"
  citing, among other reasons: that  only one page of the publication was
  devoted to news; there was no masthead setting forth its  publisher,
  editor, and circulation; and the publication was not authorized to carry
  legal advertising.  Green, 90 So. 2d  at 296 (Fla. 1956).   In Hawden, we
  declined to follow Green because of our  concern that a definition of
  "newspaper" based upon content would lead to an unconstitutional 
  construction of the statute.  Hadwen, 139 Vt. at 39, 422 A.2d  at 257.

       Instead we looked to a dictionary definition of newspaper: "a paper
  printed and distributed, at  stated intervals, usually daily or weekly, to
  convey news, advocate opinions, etc., now usually  containing also
  advertisements and other matters of public interest."  Id at 39, 40, 422 A.2d  at 257 

 

  (quoting Webster's New International Dictionary (2d ed. unabridged 1955)). 
  Taxpayer asserts that  the superior court may not uphold the Commissioner's
  decision in light of our holding in Hadwen.   We disagree.

       Our resort to a dictionary definition of "newspaper" in Hadwen stemmed
  from our concern  that the Commissioner avoid a definition that could be
  construed as content-based. (FN1)  Here, the  Commissioner has scrupulously
  done just that. Indeed, the Commissioner's focus on format and  frequency
  criteria is even less susceptible to constitutional infirmity than the
  definition that we  employed in Hadwen.  Unlike that definition, where the
  phrase "other matters of public interest" is  arguably content-based, the
  superior court determined that the Commissioner relied on the physical 
  features which, in ordinary usage, identify a newspaper.

       Taxpayer further argues that it is a newspaper because it meets the
  10% criteria of  § 9741(15).  Again, we disagree.  We think it instructive
  that the 10% criteria of § 9741(15) was  added by the Legislature after the
  superior court decision in Hadwen.  As the Commissioner noted in  his
  decision, while the amendment to § 9741(15) evinced a legislative decision
  to tax publications 

 

  in "newspaper format" unless they contained 10% qualifying material, (FN2)
  the Legislature did not  choose to substitute "periodical" for "newspaper." 
  Thus, the reasonable application of § 9741(15) in  its entirety compels the
  conclusion that the Legislature intended that the Commissioner first 
  determine whether a publication is a "newspaper" in its format, and, if so,
  whether at least 10% of its  printed material consists of news of general
  or community interest, community notices, editorial  comment, or articles
  by different authors.  To construe § 9741(15) otherwise would lead to the 
  absurd result that any publication, including a book, a magazine, and a
  booklet meeting the 10%  criteria is a newspaper.  See Roddy v. Roddy, 168
  Vt. 343, 347, 721 A.2d 124, 128 (1998)  (interpretation leading to absurd
  result clearly not intended by Legislature should be avoided).

       Taxpayer asserts that the imposition of a use tax in this case
  violates the United States  Constitution by denying taxpayer equal
  protection of the laws under the Fourteenth Amendment, and  by abridging
  taxpayer's First Amendment freedom of speech rights.  We address each of
  the  taxpayer's constitutional claims in turn.

       Taxpayer's contention that the Commissioner's application of the
  statute deprived taxpayer of  equal protection of the law is premised on
  the assertion that a tax exemption for newspapers, but not  magazines and
  similar periodicals, classifies similar entities for different treatment
  upon wholly  arbitrary and capricious grounds.  Statutes are entitled to a
  presumption of constitutionality under the  equal protection clause if the
  classifications drawn by the statutes are rationally related to any 
  legitimate governmental purpose.  New Orleans v. Dukes, 427 U.S. 297, 303
  (1976) (unless  classifications trammel fundamental personal rights or are
  drawn upon inherently suspect distinctions 

 

  such as race, religion, or alienage, constitutionality of statutory
  discrimination is presumed and   classification challenged must be
  rationally related to a "legitimate state interest.")  In determining 
  whether economic regulation violates the equal protection clause, we are
  required to impose only the  minimum scrutiny of the "rational basis" test. 
  Hadwen, 139 Vt. at 42, 422 A.2d  at 258.  When the  classification rests
  upon "some reasonable consideration of legislative policy" it will not be
  found  unconstitutional.  Id.  Here, the distinction between newspapers and
  other periodicals is neither  arbitrary nor capricious.  The State has a
  legitimate interest in encouraging the inexpensive and wide  dissemination
  of newspapers in order for its citizens to be informed of current affairs,
  Gallacher, 602 A.2d  at 1005-06, and - as we noted in Hadwen in rejecting a
  similar challenge - in removing the  collection burden where the tax
  amounts are de minimus.  Hadwen, 139 Vt. at 43, 422 A.2d. at 259.   Section
  9741(15) is rationally related to a legitimate governmental purpose and
  must therefore be  upheld.  See Regan v. Taxation With Representation, 461 U.S. 540, 547 (1983) ("[g]enerally,  statutory classifications are valid if
  they bear a rational relation to a legitimate governmental purpose  . . . .
  Legislatures have especially broad latitude in creating classifications and
  distinctions in tax  statutes.")

       Taxpayer argues next that any determination of whether a publication
  is a "newspaper" is  inherently content-based and, as such, we should
  employ a heightened scrutiny test in assessing  whether the superior
  court's decision upholding the Commissioner's application of § 9741(15) 
  violates the First Amendment.  We will employ heightened scrutiny when
  reviewing a tax statute  which discriminates on the basis of a taxpayer's
  speech.  Leathers v. Medlock, 499 U.S. 439, 447  (1991).  However, where a
  tax statute is broad-based, content-neutral, and generally applicable, we 

 

  review the statute under a deferential rational basis standard.   Vt. Soc'y
  of Ass'n Executives v.  Milne, __Vt.__, 779 A.2d 20, 23 (2001). 

       Notwithstanding taxpayer's characterization to the contrary, we agree
  with the superior court  that "[t]he Commissioner based his determination
  of whether or not Picket Fence Preview is exempt  on the format and
  frequency of the publication, not on its content."  We need not address
  taxpayer's  assertion that the second sentence of § 9741(15) contains
  constitutionally impermissible content-based criteria, because neither the
  Commissioner nor the superior court reached that part of the  statute.
  (FN3)  This Court will not decide constitutional questions unnecessarily. 
  State v. Clarke,  145 Vt. 547, 551, 496 A.2d 164, 167 (1985).  Nor are we
  persuaded that we should subject §  9741(15) to heightened scrutiny on the
  basis of our holding in Vt. Soc'y of Ass'n Executives, __ Vt.  at __, 779 A.2d  at 27.  There, we found that Vermont's tax on lobbying expenditures
  was not a  generally applicable tax that merely discriminated between First
  Amendment speakers.  Id.  Here, the  tax at issue is much more akin to the
  tax upheld in Leathers, 499 U.S.  at 446-47 (Arkansas gross  receipts tax
  imposed on cable and television services while exempting newspapers and
  magazines.)   A generally applicable tax will be upheld under these
  circumstances as long as it does not  discriminate on the basis of
  viewpoint.  Vt. Soc'y of Ass'n Executives, __ Vt. at __, 779 A.2d  at 28.  
  Taxpayer has made no showing that the tax at issue here has singled out
  First Amendment interests  and a rational basis test is appropriate
  notwithstanding that taxpayer's product is a medium of  communication.   A
  tax that discriminates among speakers is constitutionally suspect only in
  certain  circumstances.  Leathers, 499 U.S.  at 444. 

 

       Finally, taxpayer claims that tax exemption classification violates
  the Common Benefits  Clause and freedom of speech and of the press
  guarantees of the Vermont Constitution.  These  arguments were not raised
  before the superior court and therefore are not preserved for our review.  
  In Re Palmer, 171 Vt. 464, 473, 769 A.2d 623, 629 (2000).

       Affirmed.

                                       FOR THE COURT:



                                       _______________________________________
                                       Chief Justice



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                                  Footnotes


FN1.  Jurisdictions vary in the factors used to determine whether a
  publication is a newspaper.   Some jurisdictions employ format and
  frequency criteria.  See, e.g., Hearst v. Iowa Dep't of Revenue  and
  Finance, 461 N.W.2d 295, 300 (Iowa 1990) (newspapers and magazines are
  differentiated by  contrasting frequency of publication, format, type of
  paper used, cost of production, and useful life of  publication);  H.J.
  Wilson Co. v. State Tax Comm'n, 737 So. 2d 981, 988 (Miss. 1998) (statute 
  defines newspaper as publication that is "not published primarily for
  advertising purposes . . . formed  on printed sheets [and] . . . regularly
  issued at stated intervals").  Other jurisdictions combine format  and
  frequency with a review of content for the inclusion of features commonly
  understood to be  included in a newspaper, such as news and editorials. 
  See, e.g., Dep't of Revenue v. Great W.  Publ'g, Inc., 3 P.3d 992, 995 (Az.
  1999) (publication reviewed for certain key factors, such as news  and
  editorials); Gallacher v. Comm'r of Revenue Serv., 602 A.2d 996, 1000
  (Conn. 1992) ("T.V.  Facts" not a newspaper because it did not contain
  articles of opinions, such as editorials, or carry  items of general news
  interest); and Scotsmen Press v. Tax Appeals Tribunal, 569 N.Y.S.2d 991,
  993  (N.Y. 1991) (publications that do not contain news articles or
  expressions of opinions are generally  not newspapers within meaning of the
  tax law).

FN2.  In Hadwen, only 2-3% of the "Pennysaver" was deemed to be devoted to
  "current events,   news, and opinion commentary." 139 Vt. at 39, 422 A.2d.
  at 257.

FN3.  The Commissioner stated, "[t]he question is not reached here because
  the Department  concedes that the 10% criteria of § 9741(15) has been met."