Opinion ID: 1771648
Heading Depth: 1
Heading Rank: 2

Heading: whether the applicable remedy under mississippi law for overpayment of use tax under an unconstitutional tax scheme requires the refund of all payments made by service merchandise.

Text: ถ 40. Service Merchandise contends that in order to keep with federal due process requirements, Mississippi law mandates that the State refund all payments made by a taxpayer under a taxing scheme subsequently deemed unconstitutional or otherwise illegal. In support of this position, Service Merchandise cites to this Court's decision in Marx v. Broom, 632 So.2d 1315 (Miss.1994), where this Court granted a full refund for overpayment of taxes under an unconstitutional taxing scheme. Marx, 632 So.2d at 1318. ถ 41. The Commission, however, argues that the appropriate remedy if the newspaper exemption of the sales and use tax scheme is found unconstitutional is not a refund but instead the striking of the newspaper exemption from the sales and use tax statutes. The Commission further attempts to distinguish Marx v. Broom on the basis that Marx involved the wrongful levy of a tax and not the wrongful granting of an exemption. In support of its position, the Commission cites to a Tennessee Supreme Court decision in 1986, Sears, Roebuck & Co. v. Woods, 708 S.W.2d 374 (Tenn.1986), which held: However, even if this Court were to find that the exemptions for newspapers and shoppers advertisers are violative of the Equal Protection Clause, it would provide Sears no remedy. Striking down of the exemptions for these publications would simply bring them within the ambit of the tax and would not remove preprints from the coverage of the tax. Courts cannot create a tax exemption where the legislature has not provided one. Sears, Roebuck & Co., 708 S.W.2d at 383. ถ 42. This Court, in Marx v. Broom , held that where a tax was levied under an unconstitutional taxing scheme the applicable remedy was to give a full refund to the taxpayers who had the tax levied on them under the unconstitutional scheme. Marx, 632 So.2d at 1322-23. In Marx, the chancery court held that state residents who were also federal retirees were entitled to a refund of state income taxes paid under the state's unconstitutional tax scheme which taxed federal retirees while exempting the state's own retired employees, and the Mississippi State Tax Commission appealed to the Supreme Court. Id. at 1316. The applicable refund statute in Marx was Miss.Code Ann. ง 27-7-313 which provided: In the case of any overpayment of any tax, interest or penalty levied or provided for in article 1 of this chapter, or in this article, whether by reason of excessive withholding, error on the part of the taxpayer, erroneous assessment of tax, or otherwise, the excess shall be refunded to the taxpayer. Id. at 1317 (quoting Miss.Code Ann. ง 27-7-313 (Supp.1993)). The Court rejected the Commission's argument that refunds are not to be given for a constitutional challenge but only for other errors or excessive withholding by holding that [t]he plain words of the statute say that any overpayment of Mississippi taxes for any reason shall be refunded to the taxpayer. Id. at 1318. Thus, under applicable Mississippi case law, where a tax is assessed under an unconstitutional taxing scheme, the appropriate remedy is for the taxpayer to be given a refund from the levy of the unlawful tax. Id. ถ 43. However, the case sub judice is distinguishable from Marx on the grounds that the taxpayers in Marx were challenging the tax as being unlawful and not the exemption. See Thayer v. South Carolina Tax Comm'n, 307 S.C. 6, 413 S.E.2d 810, 815 (1992). In Thayer v. South Carolina Tax Commission, the South Carolina Supreme Court held that South Carolina's sales and use tax scheme granting an exemption from use tax to religious publications was in violation of the establishment clause of the First Amendment. Thayer, 413 S.E.2d at 813-14. However, the court, in determining that the taxpayer, which was assessed a use tax on its real estate advertising publication, was not entitled to a refund, reasoned: Appellant asserts that McKesson v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), mandates that her tax assessment be forgiven. She claims that any attempt to subject her to tax after an exemption is removed would deprive her of due process. We disagree. McKesson must be read in conjunction with its companion case, American Trucking Associations, Inc. v. Smith, 496 U.S. 167, 110 S.Ct. 2323, 110 L.Ed.2d 148 (1990). The Court in American Trucking makes it clear that McKesson requires relief as a matter of federal law only when taxpayers involuntarily pay a tax that is unconstitutional under existing precedents. McKesson is inapplicable when, as here, taxpayers have been subjected to a constitutional tax. The fact that we have found section 12-35-550(7) as it pertains to religious publications to be unconstitutional does not render appellant's tax burden unconstitutional. The language of a tax exemption statute must be given its plain, ordinary meaning and must be strictly construed against the claimed exemption. John D. Hollingsworth on Wheels, Inc. v. Greenville County Treasurer, 276 S.C. 314, 278 S.E.2d 340 (1981). Appellant was not entitled to an exemption in the past; nor is she entitled to an exemption now that we have severed that portion of section 12-35-550(7) relating to religious publications. This Court cannot create an exemption by reading something into the statute which the Legislature did not intend. See Creech v. South Carolina Public Service Authority, 200 S.C. 127, 146, 20 S.E.2d 645, 652 (1942). Id. 413 S.E.2d at 815. Likewise, we adopt the reasoning of the South Carolina Supreme Court to hold that Service Merchandise is not entitled to a refund of the use tax assessments in this case. ถ 44. In the case sub judice, we agree with the South Carolina Supreme Court's conclusion that McKesson is inapplicable when taxpayers have been subjected to a constitutional tax. By finding a portion of the criteria used by the Commission as unconstitutionally content-based and severing that unconstitutional criteria from the definition of a newspaper, as contained in Miss.Code Ann. ง 27-65-3( l ), we do not render that the use tax imposed on Service Merchandise was an unconstitutional tax burden. This Court, in Mississippi State Tax Commission v. Medical Devices, Inc ., stated that: When the statute purports to grant an exemption from taxation, the universal rule of construction is that the tax exemption provision is to be construed strictly against the one who asserts the claim of exemption, in the absence of expressed legislative intent that the exemption is to be construed otherwise. Mississippi State Tax Comm'n v. Medical Devices, Inc., 624 So.2d 987, 991 (Miss. 1993) (quoting Monaghan v. Jackson Casket Co., 242 Miss. 840, 850-51, 136 So.2d 603, 606 (1962)). Service Merchandise was not entitled to the newspaper exemption from imposition of the use tax in the past, nor is it entitled to the exemption now that Miss.Code Ann. ง 27-65-3( l )(vi) has been severed from the definition of a newspaper for purposes of determining which publications qualify for the exemption. Analogous to Thayer, we cannot create an exemption by reading something into the statute which the Legislature did not intend. See State v. Heard, 246 Miss. 774, 781, 151 So.2d 417, 420 (1963). As a result, Service Merchandise is not entitled to a full refund for the amount of use tax assessed against it. V. WHETHER THE TRIAL COURT ERRED BY NOT REJECTING THE USE TAX IMPOSED ON SERVICE MERCHANDISE'S POSTAGE IN LIGHT OF THE FACT THAT A SIMILAR SALES TAX WOULD NEVER BE IMPOSED ON THE SAME PRODUCT. VI. WHETHER THE TRIAL COURT ERRED BY TAKING THE VIEW THAT MISSISSIPPI COULD LAWFULLY IMPOSE A USE TAX ON SERVICE MERCHANDISE'S UNITED STATES POSTAGE COSTS. ถ 45. Service Merchandise, in the alternative to a full refund based on the unconstitutionality of the content-based use tax exemption, contends that the trial court erred by not rejecting the use tax imposed on the amount paid to the federal government for postage costs and by taking the view that the Commission could impose the use tax on the part of the purchase price used to pay for the United States postage costs. In support of its argument, Service Merchandise contends that the use tax was imposed improperly and not in accordance with Mississippi's sales and use tax scheme because the use tax is not to be imposed on items that no sales tax is imposed on. Service Merchandise also supports its argument by citing to Rule 51(b) of the Mississippi State Tax Commission which provides that `[w]here stamped envelopes or post cards are purchased and printed for the customers, the amount of the postage may be deducted from the total charge [for purposes of computing the sales tax to be collected].' Code Miss. R. 48090 001-43 (1997). Furthermore, Service Merchandise argues that such an assessment of use tax on United States postage is in effect a state tax on a federal instrumentality which is expressly prohibited by 31 U.S.C. ง 3124(a) (1996). As a result, Service Merchandise requests a refund of the amount of use tax assessed against it in proportion to the amount of United States postage that was paid for the delivery of the catalogs and advertisement fliers into Mississippi in the amount of $145,420.00 in which it was assessed in tax and interest for use tax on postage, plus post-payment interest which has accrued. ถ 46. The Commission on the other hand argues that the use tax was properly imposed because Service Merchandise paid as total charges under the contract the delivery costs which included the chosen method of delivery as the United States Postal Service, and in support of this position, the Commission asserts authority to do so under Miss.Code Ann. ง 27-67-3(f) which provides: Purchase price or sales price means the total amount for which tangible personal property is purchased or sold, valued in money, including any additional charges for deferred payment, installation and service charges, and freight charges to the point of use within this state, without any deduction for cost of property sold, expenses or losses, or taxes of any kind except those exempt by the sales tax law. Purchase price or sales price shall not include cash discounts allowed and taken or merchandise returned by customer when the total sales price is refunded either in cash or by credit, and shall not include amounts allowed for a trade-in of similar property. Miss.Code Ann. ง 27-67-3(f) (1990) (emphasis added). The Commission also argues that the reason that Rule 51(b) is not applicable is because Service Merchandise did not take actual physical possession of the catalogs and advertising fliers but instead paid the printer the full purchase price, including delivery. Furthermore, the Commission argues that it is not taxing the United States government, its instrumentalities, or obligations but, instead, the purchase price paid by Service Merchandise. ถ 47. The sales tax and use tax in Mississippi are collected in a complementary manner, i.e., where the sales tax is not collected on the sale of tangible personal property then a use tax is similarly not collected on the use of that same type of property in the State of Mississippi. This taxing scheme is set forth in Miss.Code Ann. ง 27-67-7(b) which provides: The tax levied by this article shall not be collected in the following instances: (b) On the use, storage or consumption of tangible personal property to the extent that sales of similar property in Mississippi are either excluded or specifically exempt from sales tax or are taxed at the wholesale rate. This exemption shall be confined to the use of property the sale of which is an itemized exemption in the Mississippi Sales Tax Law, or to use by persons who are listed in said law as being exempt from sales tax. Miss.Code Ann. ง 27-67-7(b) (Supp.1997). There is no specific exemption stated in the Mississippi Sales Tax Law that provides for an exemption for the sale of postage stamps. However, the Mississippi State Tax Commission, in its Rules and Regulations adopted by the Sales and Use Tax Division, has adopted Rule 51 governing taxation of the printing industry. Rule 51 provides the following: Sales. Gross proceeds of sales by persons engaging in the printing business are taxable at the regular retail rate of tax on the total charge with the following exceptions: (b) Where stamped envelopes or post cards are purchased and printed for the customers, the amount of the postage may be deducted from the total charge. Code Miss. R. 48 090 001-43 (1997) (emphasis added). Furthermore, the State Tax Commission's agent, Eddie Beck, at trial in the lower court, when questioned about the effect of Rule 51(b) conceded that there was no sales tax imposed on postage: Q: It effectively exempts postage from the gross proceeds of sale, does it not? A: Well, it does if you're taking possession of that postage. Mr. Beck's response admits that sales tax is not imposed on postage, but we hold that his attempted distinction, and also the Commission's position on appeal, that sales tax can be imposed if the purchaser does not take possession of the postage pre-paid printed material is illogical and amounts to a situation where sales tax can be imposed on a postage stamp which is prohibited by federal statutes. 31 U.S.C. ง 3124(a) provides: Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, exceptโ (1) a nondiscriminatory franchise tax or another nonproperty tax instead of a franchise tax, imposed on a corporation; and (2) an estate or inheritance tax. 31 U.S.C. ง 3124(a) (1994). An obligation of the United States Government is defined in 18 U.S.C. ง 8 as follows: The term obligation or other security of the United States includes all bonds, certificates of indebtedness, national bank currency, Federal Reserve notes, Federal Reserve bank notes, coupons, United States notes, Treasury notes, gold certificates, silver certificates, fractional notes, certificates of deposit, bills, checks, or drafts for money, drawn by or upon authorized officers of the United States, stamps and other representatives of value, of whatever denomination, issued under any Act of Congress, and canceled United States stamps. 18 U.S.C. ง 8 (1994). Thus, we find that whether the sales, or in this case use, tax is imposed on the United States Government or Service Merchandise the end result is that there is a tax imposed on postage, which is an obligation of the United States Government and violates 31 U.S.C. ง 3124(a) (1994). ถ 48. As a result, we hold that the trial court erred by upholding the Commission's imposition of the use tax on Service Merchandise for the portion related to postage costs incurred by Service Merchandise to have the catalogs and fliers delivered by the United States Postal Service and order a refund to Service Merchandise for the portion of the use tax paid that represented the imposition of the use tax on the postage costs plus interest and post-payment interest.