Opinion ID: 1463707
Heading Depth: 1
Heading Rank: 2

Heading: catalogs

Text: Catalogs and newspaper inserts are similar in that both are used for the purpose of advertising and both are distributed to Kentucky residents in accordance with Lazarus' instructions. The main difference between the two is the manner in which they are distributed. Lazarus' newspaper inserts are distributed through Kentucky newspapers. Catalogs, on the other hand, are distributed through the U.S. mail. The out-of-state printers that print Lazarus' catalogs mail the catalogs using address labels that are provided by Lazarus. Lazarus prepares the address labels from its own proprietary customer lists. Considering that newspaper inserts and catalogs are virtually the same thing, apart from their means of distribution, there is no logical basis to distinguish the two. Lazarus used two approaches in its Kentucky direct-mail advertising: advertising catalogs and marriage mail, an advertising method that was performed under a contract between Lazarus and another non-Kentucky company, ADVO. ADVO delivered Lazarus advertising materialsagain, materials which were conceived, designed, printed, and manufactured outside of Kentuckyto the United States Postal Service at a point outside of the Commonwealth, from which they were mailed directly to Kentucky customers. The only distinction with marriage mail is that in the same mailing package, ADVO also included other companies' advertising material. Lazarus created, designed, and authorized the catalogs' printing outside of Kentucky. The printers, not Lazarus, mailed them outside of Kentucky directly to potential Lazarus customers in Kentucky. While the undisputed record confirms that never did Lazarus, any of its agents (other than the United States Postal Service), or its employees touch or control the catalogs after they were mailed, Lazarus benefited from sales of items advertised in the catalog. There can be no dispute that Lazarus used the catalogs in Kentucky in the same manner that it used the newspaper inserts. Other than the means of distribution, there is no meaningful distinction in Lazarus' use of newspaper inserts and catalogs. Prior to the instant case, the Cabinet did not tax catalogs, because such taxation was interpreted as being a burden on interstate commerce. The decision in D.H. Holmes, supra , found taxing catalogs was permissible because it was a nondiscriminatory tax on interstate commerce. In D.H. Holmes, supra , the U.S. Supreme Court held that taxing catalogs mailed into the state was not an unconstitutional burden on interstate commerce, and that states may require interstate commerce to pay its fair share of taxes. Thereafter, in 1991, the Cabinet issued an internal, non-officially promulgated Technical Assistance Ruling (TAR), subjecting catalogs like the ones in issue here to use tax if delivered under such circumstances. Thereafter, Cabinet auditors began assessing use tax. The United States Supreme Court decision in D.H. Holmes, supra , is a Commerce Clause case which holds that states' taxes are not an impermissible burden on interstate commerce. In D.H. Holmes , the U.S. Supreme Court dismissed the idea that a retailer loses control over catalogs when it places them in the U.S. mail because it verges on the nonsensical. 486 U.S. at 31, 108 S.Ct. 1619. The U.S. Supreme Court's analysis pertaining to a taxpayer's control over property that is mailed into the taxing state through the U.S. mail applies in Kentucky. By holding that catalogs are not subject to use tax, the Court of Appeals has adopted a minority position. The solid majority of states that have ruled on this issue have followed D.H. Holmes and ruled that use tax should apply to catalogs that are mailed into the taxing state. We believe that is the more reasonable and fair application and interpretation of the law. Under these facts, we conclude that both Lazarus' newspaper inserts and catalogs are subject to use tax. Accordingly, the decision of the Court of Appeals is reversed. All concur.