Summary
construing 2003 amendment to section 151.011, which added language nearly identical to language in section 151.011(f), as excluding from taxation only printing materials that are components of finished product, not cost of printing services provided out-of-state for products distributed in Texas
Summary of this case from Combs v. Chapal Zenray, Inc.Opinion
No. 03-07-00638-CV
Filed: January 30, 2009.
Appealed from the District Court of Travis County, 200th Judicial District, No. D-1-GN-06-004500, Honorable Orlinda Naranjo, Judge Presiding.
Before Justices PATTERSON, WALDROP and HENSON.
MEMORANDUM OPINION
Southwestern Bell Yellow Pages sued the Comptroller seeking a refund of use tax it paid on the out-of-state printing of telephone directories that were subsequently distributed in Texas. See Tex. Tax Code Ann. § 112.151 (West 2008) (allowing taxpayer to sue Comptroller for refund of taxes paid). Both parties moved for summary judgment and the trial court, without stating the grounds for its rulings, denied Southwestern Bell's motion and granted the Comptroller's motion. Southwestern Bell appeals, asserting that under section 151.011(a) of the tax code, use tax may not be imposed on charges for out-of-state printing services. See id. § 151.011(a) (West 2008). Because we have determined that section 151.011(a) does not prohibit the imposition of use tax on the printing of the telephone directories in this case, we affirm the trial court's judgment.
BACKGROUND
In order to produce the telephone directories at issue, Southwestern Bell purchased rolls of paper from various out-of-state paper mills and directed the mills to ship the paper to out-of-state printers. The printers then used the paper to print the directories, which were ultimately distributed in Texas. Southwestern Bell paid use tax on the printing charges associated with the directories and now seeks a refund, claiming that these charges are excluded from the use tax under section 151.011(a) of the tax code. See id.
STANDARD OF REVIEW
Summary judgments are reviewed de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). When, as here, both parties move for summary judgment on the same issues, and the trial court grants one motion and denies the other, the appellate court considers the summary-judgment evidence presented by both sides, determines all questions presented, and if the reviewing court finds that the trial court erred, renders the judgment the trial court should have rendered. Id.
The question of whether Southwestern Bell is entitled to a refund turns solely on an issue of statutory construction. Statutory construction is a legal question that we review de novo. State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). In resolving an issue of statutory construction, we are required, first and foremost, to follow the plain language of the statute. General Motors Corp. v. Bray, 243 S.W.3d 678, 685 (Tex.App.-Austin 2007, no pet.). "If a statute is clear and unambiguous, it should be given its commonly understood meaning without resort to extrinsic aids of statutory construction." Id. We read every word, phrase, and expression in a statute as if it were deliberately chosen, and presume that words excluded from the statute are done so purposefully. Gables Realty Ltd. P'ship v. Travis Cent. Appraisal Dist., 81 S.W.3d 869, 873 (Tex.App.-Austin 2002, pet. denied). "[P]rior law and legislative history cannot be used to alter or disregard the express terms of a code provision when its meaning is clear from the code when considered in its entirety, unless there is an error such as a typographical one." Fleming Foods of Tex., Inc. v. Rylander, 6 S.W.3d 278, 284 (Tex. 1999). "Construction of a statute by the administrative agency charged with its enforcement is entitled to serious consideration, so long as the construction is reasonable and does not contradict the plain language of the statute." Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993).
Statutes imposing a tax must be strictly construed against the taxing authority and liberally construed in favor of the taxpayer, Upjohn Co. v. Rylander, 38 S.W.3d 600, 606 (Tex.App.-Austin 2000, pet. denied), while statutory exemptions from taxation are strictly construed against the taxpayer, North Alamo Water Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991). Because Southwestern Bell does not invoke an exemption, but rather argues against an imposition of the use tax, we will construe the statute strictly against the Comptroller. See Sharp v. Morton Buildings, Inc., 953 S.W.2d 300, 302-03 (Tex.App.-Austin 1997, pet. denied).
DISCUSSION
The Texas use tax, a tax on the use or consumption of goods that are purchased out of state and brought into Texas, was designed to "more evenly distribute the tax burden among all consumers by imposing a tax on the fruits of an interstate purchase as well as on the sale of property in the State." Bullock v. Lone Star Gas Co., 567 S.W.2d 493, 497 (Tex. 1978). A use tax serves to prevent "avoidance of a state's sales tax by the purchase of goods in another state, and to place retailers in the state upon equal footing with out-of-state competitors, who are not obligated to collect and remit sales tax." Bullock v. Foley Bros. Dry Goods Corp., 802 S.W.2d 835, 838 (Tex.App.-Austin 1990, writ denied).
Prior to 2003, section 151.011(a), in relevant part, dictated the parameters of the use tax by defining "use" as follows:
Except as provided by Subsection (c) of this section, "use" means the exercise of a right or power incidental to the ownership of tangible personal property over tangible personal property.
Act of May 31, 1981, 67th Leg., R.S., ch. 389, § 1, 1981 Tex. Gen. Laws 1490, 1547 (amended 1987, 1989, and 2003) (current version at Tex. Tax Code Ann. § 151.011(a)).
In 2003, the legislature amended section 151.011(a) to include the underlined language below:
Except as provided by Subsection (c) of this section, "use" means the exercise of a right or power incidental to the ownership of tangible personal property over tangible personal property, including tangible personal property other than printed material that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state.
Tex. Tax Code Ann. § 151.011(a).
The 2003 amendment reversed the effect of Sharp v. Morton Buildings, Inc., 953 S.W.2d at 303, in which this Court held that raw materials that are purchased out of state, incorporated into another product out of state, and then subsequently brought into Texas are not subject to the use tax. The 2003 amendment superceded Morton Buildings by imposing use tax on raw materials that are purchased out of state, incorporated into another product, and then brought into Texas.
The sole issue in the present case is whether the phrase "other than printed material" in the 2003 amendment served to exclude the amounts paid by Southwestern Bell to out-of-state printers from the use tax. Southwestern Bell argues that "other than printed material" excludes printing services from the use tax altogether, while the Comptroller contends that the language was meant to exclude only the raw materials that make up printed material, such as paper and ink, while continuing to tax printing services.
At the time of the 2003 amendment, the Comptroller taxed printed material as "printing services," under the legal fiction that "printing services" were a type of tangible personal property embodied by the printed material ultimately provided to the customer. See May Dep't Stores Co. v. Strayhorn, No. 03-03-00729-CV, 2004 Tex. App. LEXIS 7681, at *20 (Tex.App.-Austin Aug. 26, 2004, pet. denied) (mem. op., not designated for publication).
This Court acknowledged the Comptroller's policy regarding printing services in May, stating, "[T]he Comptroller here is taxing the transformation — i.e., the printing — not the raw materials. May's argument attempts to separate the printing from the advertising materials. But without the printing, the advertising materials would not exist." Id. at *23. The May opinion also quoted the following language from a 1993 Comptroller administrative opinion:
When one buys printing services or binding services, or copy services, tax is owed — not because any of these are "taxable services," but because . . . the essence of these transactions (what the purchaser really wants, and receives) is tangible personal property. It is the business cards, the letterheads, the annual reports, the vitae or resumes, etc.
Id. at *20 (quoting Tex. Comptroller of Pub. Accounts, Hearing No. 27,942, STAR System No. 9302083H (Feb. 18, 1993)). Southwestern Bell argues that in light of the legal fiction that "printed material" is tangible personal property that represents a printing services transaction, the 2003 amendment excludes charges for printing services from the use tax.
The Comptroller, on the other hand, contends that the legislative intent in amending the statute was simply to reverse the effect of Morton Buildings by taxing raw materials that are incorporated into other products for use in Texas, while preserving the status quo of excluding the raw materials — paper and ink — of printed materials.
Regardless of how "printed material" is defined, the plain and unambiguous language of the amended statute does not exclude all "printed material" from the use tax. As the statute reads, it excludes only printed material "that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state." Tex. Tax Code Ann. § 151.011(a) (emphases added). Therefore, only printed material that serves as a component of some other finished product is excluded from the use tax under section 151.011(a).
In support of its argument that the 2003 amendment was intended to exclude only paper and ink, the Comptroller quotes a letter from Rep. Brian McCall, stating that the legislative intent of the amendment was to supercede Morton Buildings "except in so far as that decision affected printed material and component parts of printed material." However, the phrase "component parts of printed material" does not appear in the statute. Rather than excluding the component parts, such as paper and ink, of all printed material from the use tax, the legislature excluded only printed material that is itself a component part of a final product.
The correspondence between the Comptroller and Rep. McCall is insufficient to establish legislative intent. See General Chem. Corp. v. De La Lastra, 852 S.W.2d 916, 923 (Tex. 1993) ("[T]he intent of an individual legislator, even a statute's principal author, is not legislative history controlling the construction to be given a statute. It is at most persuasive authority as might be given the comments of any learned scholar of the subject.").
The statute, as written by the legislature, provides only that use tax is not imposed on printed material that has been incorporated into other property. While the plain meaning of the 2003 amendment differs from the Comptroller's theory of the legislature's intent, we may not rewrite unambiguous legislation in an attempt to preserve legislative intent. See Fleming Foods, 6 S.W.3d 278 at 285 ("We must be able to accept and to rely upon the words written by the Legislature if they are clear and unambiguous, their meaning is plain when the code in which they appear is read in its entirety, and they do not lead to absurd results.").
Southwestern Bell conceded at oral argument that the telephone directories themselves were a final product and were not incorporated into other property. Therefore, in light of the fact that the present case does not involve "printed material that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state," we hold that the "other than printed material" language in section 151.011(a) is inapplicable and that Southwestern Bell is not entitled to a refund of use tax paid on printing charges.
CONCLUSION
Because Southwestern Bell is not entitled to a use tax refund, we affirm the trial court's order granting summary judgment.
CONCURRING OPINION
Although I agree that the printed material at issue in this case is not exempt from use tax pursuant to tax code section 151.011(a), I do not agree with the majority's rationale and reading of section 151.011(a). The majority reads the portion of section 151.011(a) added by the legislature in 2003 as meaning that the legislature intended the use tax to apply to tangible personal property that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state except for printed material that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property. The majority interprets this to mean that section 151.011(a) excludes from the use tax "only printed material that is itself a component part of a final product." This interpretation makes the applicability of section 151.011(a) to printed material turn on whether the printed material is "processed, fabricated, manufactured, attached to, or incorporated into other property" or "a component part" of some other "final product." I do not believe this to be a correct reading of section 151.011(a), and I am of the view that it will promote additional confusion in the area of use tax on tangible personal property purchased outside of Texas and brought into the state.
For many years prior to 2003, printed material purchased outside of Texas and transported into Texas was subject to use tax under the theory that printed material was "tangible personal property." This view of the pre-2003 version of section 151.011(a) was confirmed by this Court in May Department Stores Co. v. Strayhorn, No. 03-03-00729-CV, 2004 Tex. App. LEXIS 7681 (Tex.App.-Austin Aug. 26, 2004, pet. denied) (mem. op.). May Department Stores was not reviewed by the Texas Supreme Court, and the legislature has not amended the statute since the decision was published. In response to another case decided by this Court in 1997, Sharp v. Morton Buildings, Inc., 953 S.W.2d 300 (Tex.App.-Austin 1997, pet. denied), the legislature amended section 151.011(a) in 2003 to add a clause that clarified that tangible personal property that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state — e.g., component parts of some other final product — is tangible personal property subject to use tax. The legislature exempted printed material from this clarification. Consequently, the clause in the statute added by the 2003 amendment does not speak to the taxation of printed material at all. It speaks to the taxation of components of tangible personal property other than printed material, and clarifies that such items are included in the scope of tangible personal property subject to use tax. The clause at issue does not purport to describe every type of tangible personal property subject to use tax. It is not a comprehensive definition of everything that is included in the term "tangible personal property." It was meant to make clear that the interpretation of the statute as set out in Morton Buildings, that effectively excluded a certain class of items, was not the way the legislature wanted the use tax statute to work.
The taxation of printed material for use tax purposes was set out in May Department Stores and was not altered by the 2003 amendment to section 151.011(a). In fact, printed material was expressly excluded from the amendment. I believe the appropriate interpretation of the legislature's action in amending section 151.011(a) in 2003 is to say that whatever items the legislature wanted to make sure are included in the term "tangible personal property" with the addition of the amendment, it did not intend to address printed material with the amendment at all. Under this interpretation, the taxation of printed material is not affected by the legislature's 2003 amendment and continues unchanged.
The majority's interpretation of the 2003 amendment will change the taxation of printed material, albeit not in the way Southwestern Bell requests. The majority reads the new amendment to say that components of some final product are subject to use tax unless the component is printed material in which case it is not subject to use tax at all. However, the statute does not say this. The statute provides that tangible personal property — other than printed material — that is incorporated into other property is included in the definition of tangible personal property for the purposes of use tax. This clause does not tell us what happens to printed material. We must look somewhere else other than this clause for guidance on printed material. This guidance is available. The unamended portion of section 151.011(a) has been interpreted to include printed material within the scope of tangible personal property subject to use tax. See May Dep't Stores, 2004 Tex. App. LEXIS 7681, at *27-28. That portion of the statute remained unchanged by the 2003 amendment. Therefore, I believe the better interpretation of section 151.011(a) is that the taxation of printed material was unaffected by the 2003 amendment.
In addition, the majority's interpretation will create new and potentially confounding fact issues to unravel in order to determine whether printed material transported into this state is subject to use tax. Under the majority's view, there are now two categories of printed material: (1) printed material that is a component of some final product, and (2) printed material that is a final product itself. One type of printed material will now be subject to use tax and the other will not. The problem will be determining to which of these two new categories one's printed materials belong. When is printed material a component of a final product, and when is it a final product itself? I can see this as a potentially very difficult and fact-intensive question. I do not believe this was a dichotomy the legislature was intending to create in 2003 when it was addressing the Morton Buildings issue. Had the legislature intended to make a dramatic departure from May Department Stores, it would have done so in a more straightforward and apparent manner. The majority in this case makes such a departure from May Department Stores and changes the law with respect to the taxation of printed material in a significant way. This change is not required by the 2003 amendment to section 151.011(a). Consequently, I concur in the judgment only.