STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NORTH AMERICAN PUBLICATIONS, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 80-2072RX

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a consolidated hearing in this case with Case No. 81-1236 on 13 July 1982 at Tampa, Florida.

APPEARANCES

For Petitioner: C. Timothy Corcoran, III, Esquire

Robert W. Courtney, Esquire Post Office Box 3239

Tampa, Florida 33601

For Respondent: Thomas L. Barnhart, Esquire

Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301

By Petition filed 3 November 1980 North American Publications, Inc., seeks to have Rules 12A-1.08(3)(d) and (4), Florida Administrative Code, declared invalid. As grounds therefor it is alleged that Section 212.08(6), Florida Statutes,, exempts newspapers from certain sales and use taxes and Rule 12A- 1.08(3)(d)and (4) wrongfully and unconstitutionally define newspapers so as to exclude Petitioner from this exemption.

Following audits of Petitioner covering the period March 1, 1979, through December 31, 1980, Notices of Proposed Assessments for sales taxes, penalties and interest were sent to Petitioner. These assessments were paid under protest by Petitioner and the claim for refund was filed with the Comptroller. When the claim for refund was denied, North American Publications, Inc., by Petition dated 28 April 1981, filed a Petition, in Case No. 81-1236, seeking $104,455.50. As grounds there for it is alleged that Petitioner, at all times relevant to the assessment, was a newspaper and therefore entitled to the exemption for newspapers; that under the rules the Comptroller, in denying newspaper status to Petitioner, has acted unconstitutionally by denying Petitioner due process, equal protection, and freedom of the press; and that a portion of the tax was assessed on sales of job printing that were exempt from sales and use tax.

These two cases were consolidated for hearing, and a final order in Case No. 80- 2072RX and a Recommended Order in Case No. 81-1236 are submitted.

Contemporaneously with the filing of this Petition, Petitioner filed suit in the Circuit Court in and for Leon County against the Department of Revenue and the Comptroller to litigate the tax and constitutional issues involved.

These proceedings were stayed pending resolution of that action. By Order entered 30 October 1981 the Circuit Court in and for Leon County, in Case No. 81-1070, granted the Defendant's Motion to Dismiss on grounds Plaintiff had not exhausted its administrative remedies. Following this Order, this case was rescheduled to be heard on 13 and 14 July 1982.

Pursuant to order, the parties entered into a Prehearing Stipulation dated July 6 and 7, 1982, in which their relative positions were set out, numerous exhibits were identified and authenticated, certain facts were agreed upon, and witnesses were identified. At the hearing Petitioner called five witnesses, Respondent called one witness, and some 75 exhibits were admitted into evidence. Many of these exhibits were of the same type and carried the same exhibit number and were distinguished by a letter designation (e.g., 1A, 1B, 1C, etc.).

Without counting the letter-designated exhibits as separate exhibits, Petitioner submitted 29 exhibits, Respondent submitted two exhibits, and four joint exhibits were submitted. Objections on grounds of relevancy were overruled and all exhibits were admitted into evidence. However, those subsequently found not relevant to the issues here presented have been disregarded. The material facts are largely undisputed. Proposed findings submitted by the parties and not included below were not supported by the evidence or were deemed immaterial to the results reached.

FINDINGS OF FACT

1. In Exhibit 3 Petitioner disputes the overpayment of sales tax, penalties and interest in the amount of $62,035.63. At the hearing it was stipulated that the disputed sum is $62,000.00.

   
   

2. Petitioner is owner and publisher of a weekly paper, The Tampa/Metro Neighbor (Neighbor), published in Tampa and distributed in the Tampa metropolitan area of Hillsborough County.

   
   

3. The Neighbor is distributed to readers free of charge. Petitioner started rack sales September 27, 1980, and has sold approximately 125 per week since that time. Its total circulation is approximately 164,000.

   
   

4. The Neighbor has not been entered or qualified to be admitted and entered as second class mail matter at a post office in the county where it is published.

   
   

5. The Neighbor is delivered by approximately one thousand carriers to residences and apartments in Hillsborough County each Thursday. The papers are placed in plastic bags to protect them from the weather.

   
   

6. Petitioner claims sales tax exemption for the purchase of newsprint, ink, and plastic bags used to print and distribute the Neighbor. Newspapers such as The Tampa Tribune are exempt from sales tax on these items.

   
   

7. The Neighbor is organized into seven departments. These are: editorial, retail advertising, classified advertising, accounting, circulation, production, and printing. The editorial staff provides all items in the paper other than advertising. The editorial/advertising mix of the Neighbor is approximately 25 percent-75 percent. No 12-month breakdown of these percentages

   was presented. The Neighbor defines editorial content as everything except paid advertising.

   
   

8. Only newspapers and other periodical publications are eligible for mailing at second class rates of postage. Publications primarily designed for free circulation and/or circulation at nominal rates may not qualify for the general publications category (Exhibit 24). General publication primarily designed for advertising purposes may not qualify for second class privileges. Those not qualifying include those publications which contain more than 75 percent advertising in more than half of the issues published during any 12- month period (Exhibit 24). Second class mail privilege is a very valuable asset for newspapers and other qualifying publications.

   
   

9. The editorial content of the Neighbor, as defined in Finding of Fact 7 above, is comprised of local news, sporting news, local investigative reporting, an opinions section, and an entertainment section. The advertising is split into classifieds and other. The Neighbor contains no national or international news, no wire service reports, no comics, no stock market reports, no sports statistics, no weather reports, no nationally syndicated columnists, no state capital news, no obituaries, no book review section, and no special section such as home designs, gardening, etc.

   
   

10. Neighbor considers its primary competition to be The Tampa Tribune. However, this competition is limited to advertising, as the Neighbor has none of the traditional newspaper functions above noted which are normally carried in daily newspapers.

    
    

11. Petitioner presented two expert witnesses who opined that the Neighbor met the requirements to be classified as a newspaper because it was published in newspaper format; that it had an editorial section which provided some news as contrasted to that provided in a shopping guide; that the 75 percent-25 percent advertising-editorial content did not make the Neighbor primarily an advertising paper; that the requirements of the U.S. Post Office for a periodical to obtain second class mail privileges is not relevant to a determination that the Neighbor is not a newspaper; that the requirements of the Department of Revenue Rule 12A-1.08(3)(d) and 12A-1.08(4), Florida Administrative Code, are not relevant in determining whether the Neighbor is a newspaper; and that in a journalistic concept the Neighbor is a newspaper.

    
    

12. The Neighbor was purchased in 1979 by North American Publications, Inc., a wholly owned subsidiary of Morris Communications Corporation. Morris Communications Corporation owns several newspapers scattered from Florida to Alaska, both daily and weekly publications. Most of these publications are sold to paid subscribers. Petitioner's testimony that sales tax was not collected from Petitioner's predecessor owner was flatly contradicted by the testimony of Respondent's witness. Since the latter witness is in a much better position to know the facts respecting sales taxes levied on the former owner of the Neighbor, this testimony is the more credible. In any event, Petitioner did not claim estoppel.

    
    

    CONCLUSIONS OF LAW

    
    

13. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

14. Section 212.08, Florida Statutes, provides certain exemptions from sales and use taxes, and subsection (6) thereof provides in part: "Likewise

    exempt are newspapers. . . . " Newspapers are not otherwise defined in Chapter 212.

    
    

15. However, Rule 12A-1.08, Florida Administrative Code, provides in part:

    
    

    1. In order to constitute a newspaper, the publication must contain at least the following elements:

       1. It must be published at stated short intervals (usually daily or weekly)

       2. It must not, when successive issues are put together, constitute a book.

       3. It must be intended for circulation among the general public.

       4. It must have been entered or qualified to be admitted and entered as second class mail matter at a post office in the county where published.

       5. It must contain matters of general interest and reports of current events. If the publication is devoted primarily to matters of specialized interests such as legal, mercantile, political, religious or sporting matters, and it contains in addition thereto general news of the day, information of current events and news of importance and of current interest to the general public, it is entitled to be classified as a newspaper.

          
          

    2. To qualify for exemption as a newspaper, a publication must be sold and not given to the reader free of charge. So-called newspapers which are given away for advertising and public relations purposes are taxable.

       
       

16. In its Petition, Petitioner contends that subsections 3(d) and (4) are not in compliance with Section 212.08(6), Florida Statutes, and go beyond the meaning of the statute and the intent of the Legislature. During the course of these proceedings, Petitioner became aware that, as further justification of the assessment, the Respondent also relied 6" upon Rule 12A-1.28, Florida Administrative Code, which provides in part:

    
    

    (1) The purchase by a printer, including publishers of newspapers, magazines, periodicals, etc. of materials and supplies which become a component of the printed matter or [sic] resale, are exempt from the tax.

    * * *

    (3) Items for packaging tangible property for sale, which actually accompany the product sold to the customer without which the delivery of the product is impracticable on account of the character of the contents for which there is no separate charge is

    exempt. Examples of such items are: . . . plastic bags. . . .

    
    

17. Petitioner contends that the word "or" between "matter" and "resale" in subparagraph (1) above makes it clear that there is no resale requirement; however, Petitioner acknowledges that prior to Supplement No. 121 to the Florida Administrative Code, the phrase read "printed matter for resale." This is obviously a clerical or proofreading error, as the sentence makes no sense with the word "or" used in place of the word "for." In other sections of this rule the word "resale" is preceded by "for," which merely reinforces the conclusion that a proofreading error occurred and there was no intent to change the rule. Canons of statutory construction require such obvious errors be corrected in determining the intent of the provision.

    
    

18. The predecessor to Rule 12A-1.08(3)(d), Florida Administrative Code, dates back to November 1, 1949, when Rule 8 of the Rules and Regulations pertaining to Florida Revenue Act of 1949 provided in part:

    
    

    Notwithstanding the fact that the publication may be devoted primarily to matters of specialized interest, such as legal, mercantile, political, religious or sporting matters, if in addition to the special interest it serves, the alleged newspaper contains general news of the day, information of current events, and news of importance and of current interest to the general public, it is entitled to be classed as a newspaper.

    
    

19. Apart from the general rule that tax laws are to be construed strongly in favor of the taxpayer and against the government, Maas Bros., Inc. v. Dickinson, 195 So.2d 193, (Fla. 1973) but the exemptions to taxing statutes are special favors granted by the Legislature and are to be strictly construed against the taxpayer, State ex rel. Szabo Food Services v. Dickinson, 286 So.2d

    529 (Fla. 1973) several other principles of statutory construction are here applicable. First, there is the "venerable principal that the construction of a statute by those charged with its execution should be followed unless there are compelling indications that it is wrong." E. I. DuPont de Nemours & Co. v. Collins, 432 U.S. 46, 53 L.Ed 100, 97 S.Ct. 2229 (1977). Further, where Treasury regulations interpreting statutes exist when the statute is reenacted, it may be concluded that the Legislature adopted the interpretation of the agency as included in those regulations. Morgan v. Commissioner of Internal Revenue, 309 U.S. 581 (1946).

    
    

20. The rule here being challenged not only is a "venerable" rule but numerous changes have been made to Chapter 212 since the genesis of this rule without any change in the phraseology regarding the exemption for "newspapers." It can hardly be said that the Legislature was unaware of this agency definition of newspapers which has been extant more than 30 years yet made no change to the statute to correct this interpretation if not consonant with the legislative intent.

    
    

21. Tax exemptions, like mailing privileges, are valuable assets. The Postal Service rules establishing requirements for second class mailing privileges for newspapers include paid subscriptions and maximum advertising content. These rules have also been in existence a long time. 39 USCS 403(c) provides:

    In providing services and in establishing classifications, rates, and fees under this title [39 USCS 101, et seq.] the Postal Service shall not, except as specifically authorized in this title [39 USCS 101, et seq.], make any undue or unreasonable discrimination among users of the mails, nor shall it grant any undue or unreasonable preferences to any such user.

    
    

22. 39 USCS 101, et seq., became effective 1 January 1971 when the present Postal Service was established as an agency somewhat independent of the government. Rules pertaining to qualifications for second class mail privileges, inter alia, were carried forward into the new agency. The requirement that publications be in the public interest before being granted such a valuable asset as second class mailing privileges existed for many years before 1971 and those requirements were obviously not deemed unduly discriminatory in denying second class mail privileges to "free" periodicals such as the Neighbor.

    
    

23. Since the Postal Service, nee U.S. Post Office Department, also had established criteria to determine when a periodical was a "newspaper ," it was not surprising that Respondent adopted some of these criteria when Rule 4A- 1.08(3) [now Rule 12A-1.08(4)], Florida Administrative Code, was enacted in 1962. Again, this rule has been extant for 20 years and under the doctrines of the DuPont and Morgan cases, op cit supra, this interpretation of criteria to be met before a publication is given tax-exempt status as a newspaper is entitled to great weight.

    
    

24. The issue of whether a publication primarily devoted to advertising and given away free is exempt from sales tax as a newspaper was considered by the Florida Supreme Court in Green v. Home News Publishing Co., Inc., 90 So.2d 295 (Fla. 1956).

    
    

25. At this time "newspaper" was defined in Rule 8 [of 1949] above quoted. No reference was made in Rule 8 to a requirement the paper be sold in order to qualify for tax-exempt status. In the Home News Publishing case, the paper was given away free and in one 12-page edition only one full page was devoted to news of local governmental affairs in Hialeah, Florida. In reversing the lower court's finding that the publication qualified as a newspaper, the court stated at p. 296:

    
    

    We do not find the construction placed on the statute by the Comptroller to be clearly erroneous. While it is true that the "Shopper Advertiser" complies with the minimum requirement for a newspaper established by the Comptroller in his Rules and Regulations under the Sales Tax Act, as contended by the publisher, this fact is not controlling on the question of whether a

    publication is, in fact, a "newspaper" within the meaning of the act. The "Shopper Advertiser" unquestionably has for its principal purpose the advertising of business concerns in the area and not the

    dissemination of the news. It is, in practical effect, simply an advertising "give-away" even though a modicum of local news and other material found in newspapers, is included. (Citations omitted.)

    
    

26. Following the decision in this case the Comptroller amended the rules, in 1962, to include the requirement, affirmed by the Supreme Court in Home News Publishing, supra, that giveaways do not meet the definition of newspapers. In the 1965 amendment to these rules the requirement for qualification as second class mail matter was added. It is difficult to see how this construction placed on the definition of "newspaper" by the Department of Revenue that it must be sold and not given away can be held to be clearly erroneous after the Supreme Court found "giveaways" have for their principal purpose the advertising of business concerns and not the dissemination of news.

    
    

27. While the instant case is not on all fours with Home News Publishing, it is not only strikingly similar but also the rules defining requirements for exemption as newspapers have been amended to include requirements the Neighbor does not meet.

    
    

28. A conclusion similar to that made in Home News Publishing could be made that the Neighbor has for its principal purpose the advertising of business concerns in the area and not the dissemination of news.

    
    

29. In the earlier case of Gasson v. Gay, 49 So.2d 525, 526 (Fla. 1960), the court approved the language of the trial judge that in exempting "newspapers" from the operation of Chapter 212 the Legislature

    
    

    has reference to the natural, plain and ordinary significance of the word "newspaper"

    --the understanding of the word "newspaper in general and common usage--and did not refer to or comprehend magazines or periodicals.

    
    

30. The term "newspaper is generally understood to mean a publication in which one finds local, national and international news; editorials both local and syndicated; business news, stock market reports, etc.; special sections on home improvement, gardening, health, etc.; investigative reporting on local conditions; and other features such as comics, cartoons, crossword puzzles and bridge hands.

    
    

31. Respondent's contention, that the Postal Service requirements regarding maximum advertising percentage in order to quality for second class mail privileges is not relevant to a determination of whether the publication is a newspaper, is without merit. While the 25 percent news requirement is arbitrary in the sense that any fixed number would be arbitrary, it cannot be said that this is an unreasonable requirement any more than a 10 percent, 20 percent, or 30 percent requirement could be called unreasonable, per se, without competent and substantial evidence that there was no valid basis for the percent selected.

    
    

32. The rules here attacked have been in force for an extended period of time without any modification of the definition of newspaper by the Legislature. Where the Legislature uses a word having a generally understood meaning, it is proper for the agency charged with the duty of enforcing that statutory provision to determine those that fit into the classification covered by that

    word. That word here is newspaper and it has long been the function of the Department of Revenue to define the qualifications needed for such a classification. Respondent is charged with the enforcement of Chapter 212 and every court that has considered the issue has found authority for Respondent to define, by rule or statutory interpretation, the requirements a publication must meet to be classified as a newspaper. The authority to promulgate such a rule is clearly vested in the Respondent. Only if the rule is contrary to, or in conflict with, the statutory provision is the rule an invalid exercise of delegated legislative authority.

    
    

33. From the foregoing it is concluded that Rule 12A-1.08(3)(d) requiring a publication be qualified to be admitted and entered as second class mail matter at a post office in the county where published and Rule 12A-1.08(4) requiring the publication be sold and not given to the reader free of charge are valid requirements to qualification as a newspaper, do not constitute an unreasonable discrimination or preference among publications, and are a valid exercise of delegated legislative authority to promulgate rules defining newspaper for the purpose of determining whether a publication qualifies for

tax-exempt status. It is therefore

ORDERED that Rules 12A-1108(3)(d) and (4) are valid exercises of delegated legislative authority and it is further

ORDERED that the Petition of North American Publications, Inc., be dismissed.

ENTERED this 16th day of September, 1982, at Tallahassee, Florida.

K. N. AYERS, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 16th day of September, 1982.

COPIES FURNISHED:

C. Timothy Corcoran, III, Esquire Robert W. Courtney, Esquire

Post Office Box 3239 Tampa, Florida 33601

Thomas L. Barnhart, Esquire Department of Legal Affairs The Capitol, LL04 Tallahassee, Florida 32301

Larry Levy, Esquire General Counsel Department of Revenue

104 Carlton Building Tallahassee, Florida 32301

Randy Miller, Executive Director Department of Revenue

102 Carlton Building Tallahassee, Florida 32301

Carroll Webb, Executive Director Joint Administrative Procedures

Committee

120 Holland Building Tallahassee, Florida 32301

Ms. Liz Cloud

Chief, Bureau of Administrative Code Department of State

Room 1802, The Capitol Tallahassee, Florida 32301

Docket for Case No: 80-002072RX

Orders for Case No: 80-002072RX