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Collins v. J.C. Penney Co., Inc., 218 Ga.App. 405, 461 S.E.2d 582

Facts

J.C. Penney Company, Inc. was assessed $893,162 in use taxes and $257,828 in interest by the Georgia Department of Revenue following an audit for the period from October 1985 to December 1988. The assessment was based on the treatment of direct mail advertising materials and newspaper inserts as tangible personal property under Georgia's use tax statute. Penney conceded to the tax on some newspaper inserts but contested the remaining amount, leading to a claim for refund that was denied by the Department. The case was brought to the Fulton County Superior Court, which ruled in favor of Penney.

In October 1989, the Department conducted a sales and use tax audit of Penney for the period October 1985 through December 1988. Following that audit, the Department assessed Penney $893,162 in use taxes as well as $257,828 in accrued interest.

Issue

Whether J.C. Penney's direct mail advertising materials and newspaper inserts are subject to Georgia's use tax.

Whether J.C. Penney's direct mail advertising materials and newspaper inserts are subject to Georgia's use tax.

Rule

Under Georgia's use tax statute, tangible personal property purchased at retail outside the state is subject to use tax upon its first instance of use, consumption, distribution, or storage within the state.

The relevant portion of Georgia's use tax statute provides that '[u]pon the first instance of use, consumption, distribution, or storage within this state of tangible personal property purchased at retail outside this state, the owner or user of the property shall be a dealer and shall be liable for a tax at the rate of 3 percent of the cost price or fair market value of the property, whichever is lesser.'

Analysis

The court found that Penney's direct mail advertising materials were distributed to Georgia residents and thus fell under the definition of 'use' as per the statute. The court also determined that the preprinted newspaper inserts did not become integral components of the newspapers, as Penney retained ownership and control over the inserts until they were delivered, and they were distributed through various channels beyond just newspapers.

Penney's argument that only the 'use' of the property as defined in OCGA 48–8–2(12) will support an assessment of use taxes is simply inconsistent with the plain language of the statute.

Conclusion

The Court of Appeals reversed the trial court's decision, ruling that both the direct mail advertising materials and the newspaper inserts were subject to Georgia's use tax.

The decision of the trial court exempting the payment of the use tax on the direct mail advertising materials must be reversed.

Who won?

Georgia Department of Revenue prevailed in the case because the court found that the use tax was applicable to both the direct mail materials and the newspaper inserts.

Because we find that the law of Georgia supports the Department's assessment of use taxes and interest against Penney, we reverse.

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