H. J. Wilson Company, Inc. v. Mississippi State Tax Commission

IN THE SUPREME COURT OF MISSISSIPPI
NO. 97-CA-00121-SCT
H. J. WILSON COMPANY, INC.
v.
STATE TAX COMMISSION OF THE STATE OF
MISSISSIPPI

DATE OF JUDGMENT: 12/23/96
TRIAL JUDGE: HON. DENISE OWENS
COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: CHARLES L. BROCATO
CHARLES A. TROST
ATTORNEYS FOR APPELLEE: BRAD D. WILKINSON
BOBBY R. LONG
NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED IN PART; REVERSED AND
REMANDED IN PART. - 7/30/98
MOTION FOR REHEARING FILED: 8/13/98
MANDATE ISSUED: 4/20/99

BEFORE PRATHER, C.J., SMITH AND WALLER, JJ.

SMITH, JUSTICE, FOR THE COURT:

¶1. H. J. Wilson Company, doing business as Service Merchandise in the State of Mississippi
(hereinafter Service Merchandise), challenged use tax assessments by the Mississippi State Tax
Commission (hereinafter Commission) during the taxable periods from June 1, 1986 through June 30,
1992, inclusive. The Commission, relying on Miss. Code Ann. § 27-67-5, denied Service
Merchandise all relief requested, and Service Merchandise paid the assessment levied. Service
Merchandise, having exhausted all of its administrative remedies, filed a complaint in the Hinds
County Chancery Court seeking a refund of the use tax assessments.

¶2. Service Merchandise argued that the use tax assessment violated the First Amendment of the
United States Constitution; constituted an unlawful burden on interstate commerce in violation of the
Commerce Clause; violated the due process clause of the Fourteenth Amendment; and discriminated
against Service Merchandise in violation of the Equal Protection Clause. Service Merchandise
additionally challenged whether the appropriate tax base for purposes of the use tax be the gross cost
of publication or the net cost of publication of the respective catalogs, fliers, and inserts. The
chancery court, Honorable Denise Owens presiding, entered final judgment denying the refund of use
taxes on December 23, 1996.

¶3. Service Merchandise now appeals to this Court the chancery court's denial of relief and contends
that the chancery court erred by concluding that the Commission's examination of periodicals did not
constitute a content-based inquiry and, thus, was not violative of the First Amendment; by not
requiring the Commission to put forward a compelling justification for its content-based distinction
between Service Merchandise's publications and non-taxed newspapers; by not rejecting the
Commission's justification to satisfy commercial speech scrutiny; and by taking the unprecedented
view that Mississippi could lawfully impose a tax on Service Merchandise's United States postage
costs. The Commission contends that the chancery court did not err in finding the Commission's basis
for determining whether a publication should be afforded exemption from use tax as a newspaper was
content-neutral; even if content-based, Mississippi's use tax scheme survives constitutional scrutiny
under a commercial speech analysis; and postage fees were appropriately included in Service
Merchandise's tax base.

FACTS

¶4. H. J. Wilson Company, the Appellant, was doing business in the State of Mississippi as Service
Merchandise (hereinafter Service Merchandise) and is a subsidiary of Service Merchandise Co., Inc.
(hereinafter Service Merchandise Company), a Tennessee corporation with its principal place of
business and commercial domicile located in Tennessee. Service Merchandise operates in the State of
Mississippi as a retail store carrying an extensive line of jewelry and household appliances. Service
Merchandise has no advertising department and depends on Service Merchandise Company to obtain
advertising for its Mississippi operations.

¶5. Service Merchandise Company has for many years contracted with printers to produce an
extensive array of catalogs and fliers which it has mailed to its Mississippi customers. During the
audit period in question, these catalogs and fliers were used extensively to provide potential
customers with prices and descriptions of Service Merchandise's extensive array of products and to
notify customers of upcoming sales, discounts and special programs. In order to reach those
customers most likely to benefit from receiving Service Merchandise information, Service
Merchandise Company carefully compiled lists of Mississippi residents based on the following four
criteria: (1) lists compiled of customers based on records of prior purchasers; (2) lists purchased from
outside vendors of customer lists; (3) lists rented from outside vendors of customer lists; and (4)
customer requests. During the audit period, Service Merchandise Company mailed publications to
Service Merchandise customers between twenty-two and twenty-eight times per year.

¶6. Service Merchandise Company contracts with printers to produce publications to be sent to
Mississippi and other states in which its subsidiaries operate stores. During the audit period, the
catalogs sent into Mississippi were all prepared and printed outside Mississippi. Once printed, the
publications at issue were placed in the United States Mail at post offices located outside Mississippi
and then forwarded directly to Mississippi residents by the United States Postal Service.

¶7. In 1992, the Mississippi State Tax Commission (hereinafter the Commission) assessed a use tax
of six percent (6%)(1) against Service Merchandise for the cost of the publications printed and mailed
to the residents of Mississippi. In assessing what it claimed to be Service Merchandise's use tax
liability, the Commission conducted two audits. During the first audit, the Commission issued an
assessment for Service Merchandise Company's publications which, together with lawful interest on
the amount assessed through the date Service Merchandise made payment, totaled $263,580.96. In
making this assessment, the Commission excluded the cost of mailing the Service Merchandise
publications to Mississippi. However, in its second assessment, which totaled $394,569.27 including
interest, the Commission included use tax on United States Postal charges totaling $100,965.00 plus
interest in the amount of $44,455.00.

¶8. Service Merchandise challenged the applicability of the Commission's use tax assessment and
further protested the assessment charges incident to the application of the use tax to postage paid,
but the Commission denied all relief requested. As a result, Service Merchandise paid the full tax
assessment in the amount of $658,150.23 on February 14, 1992 and June 25, 1993. Upon stipulation
of both parties, the proper taxpayer in this controversy is Service Merchandise.

¶9. Service Merchandise next filed a complaint in the Chancery Court of the First Judicial District of
Hinds County, Mississippi on July 2, 1992 alleging the following:

The Sales and Use Tax scheme of Mississippi relative to exemptions for newspapers, television
and radio advertising, religious publications, and certain aspects of intrastate printing industries
set forth in Rule 51 of the Mississippi Sales and Use Tax Rules results in unlawful,
discriminatory taxation against this taxpayer in violation of taxpayers' rights under the First
Amendment of the United States Constitution.

At the core of Service Merchandise's contentions before the chancery court was its contentions that
the Commission's Sales and Use Tax Rule 51, providing for an exemption to newspapers, was an
unconstitutional content-based discrimination in violation of the First Amendment of the United
States Constitution and that the Commission was without authority to impose the portion of the use
tax assessment pertaining to postage costs applied in the second audit period.

¶10. The chancery court, Honorable Denise Owens presiding, entered final judgment finding Service
Merchandise's claim for refund of use tax and interest was without merit and, therefore, should be
dismissed. The chancery court first held that the Commission's computation of use tax on the
inclusion of postage during the second audit was within the statutory authority of the Mississippi Use
Tax Law. The chancery court next decided that the appropriate tax base for the use tax assessment
was the gross cost of publication and not the net cost for Service Merchandise. The chancery court
finally determined that the exemption afforded newspapers under the sales and use tax scheme was
not content-based discrimination and, thus, not in violation of the First Amendment of the United
States Constitution.

¶11. It is from this decision that Service Merchandise appeals to this Court and raises the following
issues:

I. WHETHER THE TRIAL COURT ERRED BY HOLDING THAT THE
COMMISSION'S EXAMINATION OF PERIODICALS DID NOT CONSTITUTE A
CONTENT-BASED INQUIRY AND THUS NOT VIOLATIVE OF THE FIRST
AMENDMENT OF THE UNITED STATES CONSTITUTION.
 II. WHETHER THE TRIAL COURT ERRED BY NOT REQUIRING THE
COMMISSION TO PUT FORWARD A COMPELLING JUSTIFICATION FOR ITS
CONTENT-BASED DISTINCTION BETWEEN SERVICE MERCHANDISE'S
PUBLICATIONS AND NON-TAXED NEWSPAPERS.

III. WHETHER THE TRIAL COURT ERRED BY NOT REJECTING THE
COMMISSION'S JUSTIFICATION OF A LESSER PROTECTION FOR
COMMERCIAL SPEECH AS CONSTITUTIONALLY INADEQUATE.

IV. 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.

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.

DISCUSSION OF LAW

I. WHETHER THE TRIAL COURT ERRED BY HOLDING THAT THE
COMMISSION'S EXAMINATION OF PERIODICALS DID NOT CONSTITUTE A
CONTENT-BASED INQUIRY AND THUS NOT VIOLATIVE OF THE FIRST
AMENDMENT OF THE UNITED STATES CONSTITUTION.

¶12. The instant case involves the imposition of a use tax on Service Merchandise's importation of
certain tangible personal property, i.e., various advertising fliers and sales catalogs, into the State of
Mississippi. The use tax in question was imposed by the Commission under the following statutory
authority:

There is hereby levied, assessed and shall be collected from every person a tax for the privilege
of using, storing or consuming, within this state, any tangible personal property possession of
which is acquired in any manner.

(a) The use tax hereby imposed and levied shall be collected at the same rates as imposed under
Section 27-65-24, and Sections 27-65-17, 27-65-18, 27-65-19 and 27-65-25 computed on the
purchase or sales price, or value, as defined in this article.

Miss. Code Ann. § 27-67-5(a) (Supp.1997). Miss. Code Ann. § 27-67-3 provides the following
definitions for purposes of imposing the Mississippi use tax:

(i) "Tangible personal property" means personal property perceptible to the human senses or by
 chemical analysis, as opposed to real property or intangibles. "Tangible personal property" shall
include printed, mimeographed, multigraphed matter, or material reproduced in any other
manner, and books, catalogs, manuals, publications or similar documents covering the services
of collecting, compiling or analyzing information of any kind or nature. However, reports
representing the work of persons such as lawyers, accountants, engineers and similar
professionals shall not be included. "Tangible personal property" shall also include tangible
advertising or sales promotion materials such as, but not limited to, displays, brochures, signs,
catalogs, price lists, point of sale advertising materials and technical manuals. Tangible
personal property shall also include computer software programs.

....

(k) "Use" or "consumption" means the first use or intended use within this state of tangible
personal property and shall include rental or loan by owners or use by lessees or other persons
receiving benefits from use of the property. "Use" or "consumption" shall include the benefit
realized or to be realized by persons importing or causing to be imported into this state
tangible advertising or sales promotion materials.

Miss. Code Ann. § 27-67-3(i), (k) (1990) (emphasis added). Furthermore, Miss. Code Ann. § 27-67-
7 provides an exemption from imposition of the use tax on the use of certain tangible personal
property as follows:

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.

Miss. Code Ann. § 27-67-7(b) (Supp. 1997). Miss. Code Ann. § 27-65-111(b) provides the following
sales tax exemption to newspapers:

The tax levied by this chapter shall not apply to the following:

....

(b) Sales of daily or weekly newspapers, and periodicals or publications of scientific, literary or
educational organizations exempt from federal income taxation under Section 501(c)(3) of the
Internal Revenue Code of 1954, as it exists as of March 31, 1975, and subscriptions sales of all
magazines.

Miss. Code Ann. § 27-65-111(b) (Supp. 1997). Thus, since newspapers are afforded an exemption
from imposition of the Mississippi sales tax, they subsequently are afforded an exemption from
imposition of the Mississippi use tax under the above statutory authority which leads us to the current
controversy before this Court, i.e., whether the Commission's criteria used for determining whether a
publication qualifies for newspaper status and thus an exemption amounts to content-based
discrimination in violation of the First Amendment of the United States Constitution.
¶13. Service Merchandise contends that the Commission relies on content-based criteria to make the
determination of whether a publication qualifies for the sales and use tax exemption afforded to
newspapers in violation of the First Amendment of the United States Constitution. In support of this
contention, Service Merchandise relies on the Commission's response to one of its requests for
admission which stated as follows:

Request for Admission No. 12: Do you admit or deny the determination of whether a weekly
or daily periodical or publication is or is not a newspaper requires examination of the content
of the periodical or publication?

Response to Request for Admission No. 12: Admit. The MSTC admits that MCA § 13-3-31
sets out certain content related criteria in subsection (g). The MSTC denies any other or further
examination of content is required.

The Commission, however, contends that the determination of whether a publication is a newspaper
is made exclusive of any content-based criteria and that one need not read the message and
expression of ideas in order to determine whether a publication is a newspaper.

¶14. When the use tax assessments were assessed against Service Merchandise, the Commission(2)
determined whether a publication was a newspaper for sales and use tax purposes based on the
criteria set forth in Miss. Code Ann. § 13-3-31 (Supp. 1997). Miss. Code Ann. § 13-3-31(1) provides
the following definition of a newspaper, for purposes of publication of legal notice but adopted by the
Commission for sales and use tax purposes, as a publication which:

(a) Maintains a general circulation predominantly to bona fide paying subscribers within the
political subdivision within which publication of such legal notice is required. The term "general
circulation" means numerically substantial, geographically widespread, demographically
diversified circulation to bona fide paying subscribers. In no event shall the term "general
circulation" be interpreted to require that legal notices be published in a newspaper having the
greatest circulation. The term "bona fide paying subscribers" means persons who have
subscribed at a subscription rate which is not nominal, whether by mail subscriptions, purchases
through dealers and carriers, street vendors and counter sellers, or any combination thereof, but
shall not include free circulation, sales at a token or nominal subscription price and sales in bulk
for purposes other than for resale for individual subscribers.

(b) Maintains a legitimate list of its bona fide paying subscribers by the following categories
where applicable:

(i) Mail subscribers;

(ii) Dealers and carriers; and

(iii) Street vendors and counter sellers.

(c) Is not published primarily for advertising purposes and has not contained more than seventy-
five percent (75%) advertising in more than one-half (1/2) of its issues during the period of
twelve (12) months next prior to the first publication of any legal notice therein, excluding
separate advertising supplements inserted into but separately identifiable from any regular issue
 or issues.

(d) Has been established and published continuously for at least twelve (12) months next prior
to the first publication of such matter to be published, is regularly issued at stated intervals no
less frequently than once a week, bears a date of issue, and is numbered consecutively;
provided, however, that publication on legal holidays of this state or of the United States and on
Saturdays and Sundays shall not be required, and failure to publish not more than two (2)
regular issues in any calendar year shall not disqualify a paper otherwise qualified.

(e) Is issued from a known office of publication, which shall be the principal public business
office of the newspaper and need not be the place at which the newspaper's printing presses are
physically located. A newspaper shall be deemed to be "published" at the place where its known
office of publication is located.

(f) Is formed of printed sheets. However, the word "printed" does not include reproduction by
the stencil, mimeograph or hectograph process.

(g) Is originated and published for the dissemination of current news and intelligence of
varied, broad and general public interest, announcements and notices, opinions as editorials
on a regular or irregular basis, and advertising and miscellaneous reading matter.

(h) Is not designed primarily for free circulation or for circulation at nominal rates.

Miss. Code Ann. § 13-3-31(1) (Supp. 1997) (emphasis added). The Mississippi legislature has since
then adopted a similar criteria for purposes of determining whether a publication qualifies for an
exemption from sales and use tax based on its classification as a newspaper.(3)

¶15. Many state jurisdictions provide an exemption for newspapers from imposition of sales and use
tax under the applicable state statutes, and several states have determined their respective sales and
use tax schemes unconstitutional as being in violation of the First Amendment of the United States
Constitution because of the application of content-based criteria to determine whether publications
qualified as a newspaper for exemption from imposition of sales and use tax. See, e.g., Department
of Revenue v. Magazine Publishers of Am., Inc., 604 So. 2d 459, 463 (Fla. 1992) (holding Florida
sales tax scheme for publications unconstitutional under the First Amendment as content-based and
not narrowly drawn to achieve a compelling governmental interest); Emmis Publ'g Corp. v. Indiana
Dep't of State Revenue, 612 N.E.2d 614, 622 (Ind. Tax Ct. 1993) (holding Indiana sales tax scheme
granting exemption to newspapers unconstitutional as being content-based and "neither necessary to
serve a compelling state interest nor narrowly drawn to achieve that end"); Southern Living, Inc. v.
Celauro, 789 S.W.2d 251, 253 (Tenn. 1990) (ruling unconstitutional Tennessee's Sales and Use Tax
scheme allowing exemption for newspapers as content-based and failing to meet the heightened
scrutiny of narrowly drawn to achieve a compelling government interest); Newsweek, Inc. v.
Celauro, 789 S.W.2d 247, 250 (Tenn. 1990) (same). But see Gallacher v. Commissioner of
Revenue Servs., 602 A.2d 996, 1005 (Conn. 1992) (holding that Connecticut tax scheme of
"exempting newspapers from the generally applicable use tax while not exempting other media does
not violate the first amendment"); Hearst Corp. v. Iowa Dep't of Revenue & Fin., 461 N.W.2d 295,
304 (Iowa 1990) (holding that "Iowa tax scheme which exempts 'newspapers,' but not 'magazines' or
'periodicals,' from the generally-applicable Iowa retail sales and use tax is not the type of suspect tax
that violates the first amendment"); Magazine Publishers of Am. v. Commonwealth Dep't of
Revenue, 654 A.2d 519, 523 (Pa. 1995) (ruling that the Pennsylvania tax scheme "distinction
between newspapers and magazines, as set forth in the newspaper exemption and the provisions that
relate to it, is based on the format and frequency of publication, not the content" and thus not
unconstitutional).

¶16. In Newsweek, Inc. v. Celauro and Southern Living, Inc. v. Celauro, two companion cases
decided by the Tennessee Supreme Court on March 5, 1990, the Tennessee Supreme Court held that
the Tennessee Sales and Use Tax Statutes' exemption for newspapers from imposition of the sales
and use tax was unconstitutionally content-based discrimination. Newsweek, Inc., 789 S.W.2d at
249; Southern Living, Inc., 789 S.W.2d at 252. The supreme court held that the Tennessee Sales
and Use Tax scheme's use of criteria that "a publication 'must contain matters of general interest and
reports of current events'" in order to qualify for the newspaper exemption was "not a content-neutral
requirement," and the tax scheme was thus invalid, for it was not narrowly drawn to achieve a
compelling state interest. Newsweek, Inc., 789 S.W.2d at 249. In reaching this conclusion, the
supreme court relied heavily on the United States Supreme Court's decision in Arkansas Writers'
Project, Inc. v. Ragland, 481 U.S. 221 (1987), for the rule of law that

[S]elective taxation of the press--either singling out the press as a whole or targeting
individual members of the press--poses a particular danger of abuse by the State. 'A power to
tax differentially, as opposed to a power to tax generally, gives a government a powerful
weapon against the taxpayer selected. When the State imposes a generally applicable tax, there
is little cause for concern. We need not fear that a government will destroy a selected group of
tax payers by burdensome taxation if it must impose the same burden on the rest of its
constituency.'

Id. at 249-50 (emphasis added) (quoting Arkansas Writers' Project, Inc. v. Ragland, 481 U.S. 221,
228 (1987) (quoting Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 585 (1983))). The supreme court concluded that

The tax that singles out the press, or that targets individual publications within the press, places
a heavy burden on the State to justify its action. Minneapolis Star, [460 U.S. at 592-93]. In
this case the State has failed to meet this heavy burden. It has advanced no compelling
justification for selective, content based taxation of plaintiff's publication. We hold therefore the
tax is invalid under the First Amendment.

Newsweek, Inc., 789 S.W.2d at 250.

¶17. In Department of Revenue v. Magazine Publishers of America, Inc., the Florida Supreme
Court similarly invalidated the Florida use tax scheme providing an exemption for newspapers as
being content-based discrimination and in violation of the First Amendment of the United States
Constitution. Department of Revenue v. Magazine Publishers of Am., Inc., 604 So. 2d 459, 463
(Fla. 1992). The tax scheme at issue in Magazine Publishers of America, Inc. was "a tax of general
applicability, which applie[d] to receipts from the sales of all tangible personal property unless
specifically exempted, and [did] not single out the press for special treatment," and thus, the tax
scheme did "not discriminate either by singling out the press for a special tax or by targeting a small
group within the press to bear the burden of the tax." Magazine Publishers of Am., Inc., 604 So. 2d
at 461. However, the Florida Supreme Court found that the tax scheme was unconstitutional because
it determined whether a publication was a newspaper on content-based criteria. Id.

¶18. The Florida sales tax scheme for determining whether a publication qualified for the newspaper
exemption included five different elements in which the court found that four of the elements related
to the "form and frequency of publication." Id. at 462. However, the fifth element(4) required "the
Department [of Revenue] to evaluate the contents of the publication to determine whether it
contain[ed] 'reports of current events and matters of general interest which appeal to a wide spectrum
of the general public.'" Id. (quoting Fla. Admin. Code R. 12A-1.008(1)(b)5). Thus, the Florida
Supreme Court held that "[b]ecause Florida's differential taxation of the press is content-based, the
tax must withstand heightened scrutiny under the First Amendment." Id. (citing Leathers v. Medlock,
499 U.S. 439, 447 (1991)). "In order to pass this strict scrutiny muster, the tax must serve some
compelling state interest and must be narrowly drawn to achieve that end." Magazine Publishers of
America, Inc., 604 So. 2d at 462 (citing Arkansas Writers' Project, Inc., 481 U.S. at 231). The
supreme court concluded that "[n]either of the reasons advanced by the State constitutes a
compelling justification for the content-based taxation of publications," and thus, the tax scheme was
invalid under the First Amendment. Id. at 463.

¶19. The Mississippi Sales and Use Tax statutes providing an exemption for newspapers from
imposition of the sales and use tax in the case sub judice is inherently similar to the Indiana sales tax
provisions that afforded newspapers an exemption from imposition of the Indiana sales tax which the
Indiana Tax Court ruled was unconstitutionally content-based in violation of the First Amendment.
See Emmis Publ'g Corp., 612 N.E.2d at 622. In Emmis Publishing Corp., the Indiana Department
of State Revenue's regulation addressing the sales tax exemption for newspapers set forth the
following criteria for determining whether a publication qualified for the sales tax exemption provided
for newspapers:

(a) General Rule. In general, sales of all publications irrespective of format are taxable. The
exemption provided by this rule . . . is limited to sales of newspapers.

(b) Application of the general rule. For purposes of [sales] tax, the term 'newspaper' means only
those publications which are:

(1) commonly understood to be newspapers;

(2) published for the dissemination of news of importance and of current interest to the
general public, general news of the day, and information of current events;

(3) circulated among the general public;

(4) published at stated short intervals;

(5) entered or are qualified to be admitted and entered as second class mail matter at a post
office in the county where published; and

(6) printed for resale and are sold.

(c) Publications which are primarily devoted to matters of specialized interest such as business,
 political, religious, or sporting matters may qualify for exemption if they also satisfy the criteria
listed in subsection 26 of this rule . . . . .

(d) Magazines, periodicals, journals, bulletins, advertising supplements, handbills, circulars, or
the like are not newspapers until distributed as a part of a publication which is a newspaper
within the meaning of this rule . . . .

(1) Magazines are not construed to be newspapers. The retail sales of all magazines and
periodicals are subject to sales tax. The sale of magazines by subscription is subject to sales tax
without regard to the price of a single copy, and sales tax must be collected by the seller from
the person who subscribes to the magazine on the full subscription price.

(2) For purposes of [sales] tax, the term 'newspaper' shall include advertising inserts.
Advertising inserts shall mean only those publications which are:

(A)(i) produced for a person by a private printer and delivered to the newspaper publishers, or

(ii) produced and printed by a newspaper publisher, or

(iii) produced and printed by a person and delivered to the newspaper publisher, and

(B) inserted by the newspaper publisher into the newspapers and distributed along with the
newspapers.

Any distribution not meeting the above test does not qualify for the newspaper insert
exemption. Examples of items distributed along with a newspaper that do not qualify for the
exemption include: gum, shampoo, and detergent samples.

(e) Publications issued monthly, bimonthly, or at longer or irregular intervals are generally not
considered to be newspapers.

(f) Racing forms and tip sheets are not newspapers.

(g) A preponderance of advertising, lack of authorization to carry legal advertizing, or lack of a
masthead setting forth the publisher, editor, circulation, and place of publication are
characteristics of publications other than newspapers.

Id. at 616-17 (citations omitted) (emphasis added) (quoting 45 I.A.C. 2.2-5-26). In reviewing
precedent setting forth the "circumstances in which a tax upon the press will run afoul of the First
Amendment, regardless of the legislature's good or bad motives," the Indiana Tax Court discussed
the following three circumstances:

First, a tax that singles out the press for differential treatment is presumptively unconstitutional.
See Minneapolis Star, 460 U.S. at 585. . . . Second, selective taxation of the press that targets
a "small group" of members of the press or singles out a "few members" of the press may offend
the First Amendment. Id. at 591-92. . . . And third, "for reasons that are obvious, a tax will
trigger heightened scrutiny under the First Amendment if it discriminates on the basis of the
content of speech." Leathers, [499 U.S. at 447.]
Emmis Publ'g Corp., 612 N.E.2d at 617 (emphasis added) (footnotes omitted). The tax court, after
reviewing the divergence within jurisdictions over the issue of whether sales and use tax exemptions
for newspapers were content-based or content-neutral,(5) found that the particular language used by
the Indiana State Department of Revenue's criteria for determining which publications qualified for
the newspaper exemption was unconstitutionally content-based and, thus, had to be narrowly drawn
to achieve a compelling state interest. Id. at 620. The tax court specifically found subsection (b)(2) of
the State Department of Revenue's regulation constituted an unconstitutional content-based criteria
to determine whether a publication qualified for the newspaper exemption. Id.

¶20. After finding that the criteria used by the Indiana Department of State Revenue was based on the
content of the publication, the Indiana Tax Court applied heightened scrutiny to the discriminatory
content-based criteria. Id. at 621. The Department of State Revenue asserted the following interests
as compelling state interests: (1) "the newspaper exemption is a form of subsidy that makes available
inexpensive sources of news, thus, enhancing the knowledge and literacy of the public" and (2) "the
Department, by virtue of the newspaper exemption, is relieved of the administrative burden and
expense of regulating hundreds of newspaper carriers in the collection and remittance of sales tax."
Id. at 621-22. After weighing the importance of the interests asserted by the Department of State
Revenue and the application of the newspaper exemption to achieve those interests, the tax court
concluded that "the content-based distinction among publications in 45 I.A.C. 2.2-5-26(b)(2) [was]
neither necessary to serve a compelling state interest nor narrowly drawn to achieve that end."
Emmis Publ'g Corp., 612 N.E.2d at 622.

¶21. However, several states have found that the newspaper exemption from imposition of the
respective sales and use tax levies was not content-based but rather content-neutral, and thus, the tax
schemes were held to be constitutionally valid. See Gallacher v. Commissioner of Revenue Servs.,
602 A.2d 996, 1005 (Conn. 1992) (holding that Connecticut tax scheme of "exempting newspapers
from the generally applicable use tax while not exempting other media does not violate the first
amendment"); Hearst Corp. v. Iowa Dep't of Revenue & Fin., 461 N.W.2d 295, 304 (Iowa 1990)
(holding that "Iowa tax scheme which exempts 'newspapers,' but not 'magazines' or 'periodicals,' from
the generally-applicable Iowa retail sales and use tax is not the type of suspect tax that violates the
first amendment"); Magazine Publishers of Am. v. Commonwealth Dep't of Revenue, 654 A.2d
519, 523 (Pa.1995) (ruling that the Pennsylvania tax scheme "distinction between newspapers and
magazines, as set forth in the newspaper exemption and the provisions that relate to it, is based on
the format and frequency of publication, not the content" and, thus, not invalid).

¶22. In Hearst Corp. v. Iowa Department of Revenue & Finance, the Iowa Supreme Court held
that Iowa's newspaper exemption from imposition of sales and use taxes was based on content-
neutral criteria and, thus, was a constitutional taxing scheme. Hearst Corp., 461 N.W.2d at 304. The
Iowa Supreme Court found that the term "newspaper" was not defined in the statutes, but the
Department of Revenue and Finance in 1981 adopted the definition of a newspaper from Webster's
Third New International Dictionary to determine which publications qualified for the sales and use
tax exemption. Id. at 300. The definition used by the department provided as follows:

A newspaper is defined as a paper that is printed and distributed daily, weekly, or at some other
regular and usually short interval and that generally contains news, articles of opinion
(editorials), features, advertising, or other matter regarded as of current interest.
Id. (quoting 701 Iowa Admin. Code 18.42(1) (1981) (amended 1982 striking "generally" from
definition)). In concluding that the tax scheme was one of general applicability, was not content-
based, and was constitutionally valid, even though language in the definition required that in order to
be a newspaper the publication had to contain news, editorials, features, advertising, or other matter
regarded as of current interest, the Iowa Supreme Court reasoned:

While the classification of the writing as "news, articles of opinion (editorials), features,
advertising, or other matter regarded as of current interest" is a consideration, the focus is not
on the content of the journalism. Rather, the form and frequency of the publication are the
primary factors for determining whether a publication qualifies for the Iowa sales and use tax
exemption. Hearst, or anyone else for that matter, is free under the rule to publish and sell
whatever content they choose and to choose whatever form they desire. The Iowa law does not
scrutinize the content, but rather the form and frequency of publication. There is no censorial
threat, motive, or element imposed by the rules in this case. Because the form of a publication is
a noncontent based consideration, the Iowa statute complies with the standards set forth by the
Supreme Court in Arkansas Writers' Project.

Id. at 303.

¶23. In Gallacher v. Commissioner of Revenue Services, the Connecticut Supreme Court held that
Connecticut's newspaper exemption was not content-based but rather content-neutral. Gallacher,
602 A.2d at 1005. The supreme court found that

because the Connecticut sales and use tax is a general tax that does not target the media or
discriminate among media sources of the same type and therefore does not subject only a small,
select number of publications to the tax, and because the exemption contained in the statute is
not content based, the tax, which exempts newspapers but not the plaintiffs' publications, is not
a suspect tax.

Id. at 1004-05. However, the Connecticut sales and use tax scheme did not specifically contain
language defining the criteria required to qualify as a newspaper, and thus, the supreme court applied
generally accepted definitions of a newspaper and "common understanding of what one would
envision as a newspaper" to conclude that the determination of what constitutes a newspaper was
content-neutral. Id. at 1002. The court based its decision that the criteria used to determine whether
a publication was a newspaper revolved around the subject matter contents, i.e., whether the
publication contained news and other common inclusions in newspapers, and since that determination
did not require a review of the viewpoint of the content, the determination was content-neutral. Id. at
1002-03.

¶24. In Magazine Publishers of America v. Commonwealth Department of Revenue, the
Pennsylvania Supreme Court upheld the Pennsylvania sales and use tax exemption for newspapers,
but excluded such exemption to magazines, as content-neutral and not a discriminatory content-based
criteria for determining whether a publication qualified as a newspaper. Magazine Publishers of
Am., 654 A.2d at 523. The Pennsylvania sales and use tax scheme defined the term newspaper as
follows:

Newspaper is defined as:
 (1) A printed paper or publication, bearing a title or name, and conveying reading or pictorial
intelligence of passing events, local or general happenings, printing regularly or irregularly
editorial comment, announcements, miscellaneous reading matter, commercial advertising,
classified advertising, legal advertising, and other notices, and which has been issued in numbers
of four or more pages at short intervals, either daily, twice or oftener each week, or weekly,
continuously during a period of at least six months, or as the successor of such a printed paper
or publication issued during an immediate prior period of at least six months, and which has
been circulated and distributed from an established place of business to subscribers or readers
without regard to number, for a definite price or consideration, either entered or entitled to be
entered under the Postal Rules and Regulations as second class matter in the United States
mails, and subscribed for by readers at a fixed price for each copy, or at a fixed price per
annum. A newspaper may be either a daily newspaper, weekly newspaper, newspaper of general
circulation, official newspaper, or a legal newspaper, as defined in this section. Continuous
publication within the meaning of this section shall not be deemed interrupted by any
involuntary suspension of publication resulting from loss, destruction, failure or unavailability of
operating facilities, equipment or personnel from whatever cause, and any newspaper so
affected shall not be disqualified to publish official and legal advertising in the event that
publication is resumed within one week after it again becomes possible.

(2) A printed paper or publication, regardless of size, contents, or time of issue, or number of
copies issued, distributed and circulated gratuitously, is not a newspaper.

(3) A printed paper or publication, not entitled to be entered, or which has been denied entry, as
second class matter in the United States mails under the Postal Rules and Regulations of the
United States is not a newspaper.

Id. at 522 n.6 (quoting 45 Pa.C.S. § 101(a)). In concluding that the Pennsylvania sales and use tax
scheme did not constitute a discriminatory content-based scheme, the Pennsylvania Supreme Court
stated:

[T]he distinction between newspapers and magazines, as set forth in the newspaper exemption
and the provisions that relate to it, is based on the format and frequency of publication, not the
content. The exemption provides that all publications which fit within the definition of
newspaper shall be exempt from the six per cent sales tax. Newspaper means "a 'legal
newspaper' or a publication containing matters of general interest and reports of current events
which qualifies as a 'newspaper of general circulation' qualified to carry a 'legal advertisement'
as those terms are defined in 45 Pa.C.S. § 101 (relating to definitions), not including
magazines." 72 P.S. § 7204(30) (emphasis added). It is clear from this language that all
magazines, regardless of their content, are subject to taxation. Thus, we reject Appellants'
contention that content is the basis for the inclusion of magazines in the items of tangible
personal property that are subject to the sales tax.

Id. at 523 (footnotes omitted).

¶25. Thus, when faced with the issue of whether a state's sales and use tax scheme, which provides an
exemption to newspapers, uses content-based criteria to determine whether a publication qualifies as
a newspaper and should be provided the exemption from sales and use tax, the ultimate inquiry
should be whether the criteria used by the state's taxing authority requires a review of the content of
the publication. At the time the use tax was assessed against Service Merchandise, the Mississippi
State Tax Commission had adopted as part of its criteria the determination of whether the publication
was "originated and published for the dissemination of current news and intelligence of varied, broad
and general public interest, announcements and notices, opinions as editorials on a regular or
irregular basis, and advertising and miscellaneous reading matter." Miss. Code Ann. § 13-3-31(1)(g)
(Supp. 1997). We hold that where such criteria was employed by the Commission to qualify
publications as a newspaper and provide an exemption from the sales and use tax, such criteria
required an analysis of the content of the publication and, thus, was content-based in violation of the
First Amendment of the United States Constitution.

¶26. This conclusion is supported by the Tennessee Supreme Court's decisions in Newsweek, Inc. v.
Celauro and Southern Living, Inc. v. Celauro, the Florida Supreme Court's decision in Department
of Revenue v. Magazine Publishers of America, Inc., and the Indiana Tax Court's decision in
Emmis Publishing Corp. v. Indiana Department of State Revenue which all found similar criteria
involving a determination of whether the publication contained matters of general interest and reports
of current events to be unconstitutional content-based distinctions. SeeMagazine Publishers of Am.,
Inc., 604 So. 2d at 463; Emmis Publ'g Corp., 612 N.E.2d at 622; Southern Living, Inc., 789
S.W.2d at 253; Newsweek, Inc., 789 S.W.2d at 250.

¶27. This conclusion is distinguishable from the Connecticut Supreme Court's decision in Gallacher
v. Commissioner of Revenue Services and the Iowa Supreme Court's decision in Hearst Corp. v.
Iowa Department of Revenue & Finance which involved sales and use tax schemes that did not
provide a definition of the term newspaper, and, thus, there were no criteria, other than the dictionary
definition of newspaper, to be classified as content-based. See Gallacher, 602 A.2d at 1002; Hearst
Corp., 461 N.W.2d at 304.

¶28. This conclusion is also distinguishable from the Pennsylvania Supreme Court's holding in
Magazine Publishers of America v. Commonwealth Department of Revenue in which the court
found that the criteria was content-neutral despite the inclusion in the definition of newspaper
language referring to a newspaper as a publication "conveying reading or pictorial intelligence of
passing events, local or general happenings, printing regularly or irregularly editorial comment,
announcements, miscellaneous reading matter, commercial advertising, classified advertising, legal
advertising, and other notices." Magazine Publishers of Am., 654 A.2d at 522 n.6 (quoting 45
Pa.C.S. § 101(a)). The court, nevertheless, held that the criteria were content-neutral as
determination of whether a publication qualified as a newspaper was based on the form and frequency
characteristics of the publication. Id. at 523.

¶29. However, we find that an important distinction exists between the statutory language in
Magazine Publishers of America and the case sub judice. In Magazine Publishers of America, the
statute defining newspaper also contained the following description of a newspaper: "A printed paper
or publication, regardless of size, contents, or time of issue, or number of copies issued, distributed
and circulated gratuitously, is not a newspaper." Id. at 522 n.6 (emphasis added) (quoting 45 Pa.C.S.
§ 101(a)). The criteria used by the Commission at the time of the use tax assessment against Service
Merchandise did not include such language specifically stating that a publication distributed and
circulated gratuitously regardless of its contents was not a newspaper. Thus, we find that in the case
sub judice it is not clear whether or not the contents of the publication were reviewed by the
Commission to determine whether the publication should be granted the sales and use tax exemption
for newspapers, but it is apparent that the Commission's criteria used to determine whether a
publication qualified as a newspaper consisted of content-based criteria.

¶30. As a result, we hold that the trial court erred when it determined that the criteria used by the
Commission to determine whether a publication were a newspaper was content-neutral. Specifically,
we hold that subsection (g) of Miss. Code Ann. § 13-3-31(1), used by the Commission at the time of
assessment in the case sub judice for determining whether a publication qualified as a newspaper for
purposes of receiving the sales or use tax exemption, was an unconstitutional content-based criteria
for determining which publications qualify for the newspaper sales and use tax exemption. Likewise,
we hold that Miss. Code Ann. § 27-65-3(l)(vi), the later adopted counterpart to Miss. Code Ann. §
13-3-31(1)(g) for the function of defining a newspaper for sales and use tax purposes, is also an
unconstitutional content-based criteria.

¶31. However, this Court has consistently held that:

It is the Court's duty in passing on the constitutionality of a statute to separate the valid from
the invalid part, if this can be done, and to permit the valid part to stand unless the different
parts of the statute are so intimately connected with and dependent upon each other as to
warrant a belief that the legislature intended them as a whole, and that if all cannot be carried
into effect it would not have enacted the residue independently.

Wilson v. Jones County Bd. of Supervisors, 342 So. 2d 1293, 1296 (Miss. 1977) (citing Howell v.
State, 300 So. 2d 774, 781 (Miss. 1974); American Express Co. v. Beer, 107 Miss. 528, 536, 65 So.
575 (1914); Adams v. Standard Oil Co., 97 Miss. 879, 53 So. 692 (1910); Campbell v. Mississippi
Union Bank, 7 Miss. 625 (1842)). Adhering to this duty, we hold that the other criteria listed in
Miss. Code Ann. § 27-65-3(l) are content-neutral and can stand alone as objective criteria to
determine whether a publication qualifies for the newspaper exemption from the imposition of sales
and use tax. This conclusion is consistent with the legislature's intention of providing newspapers
with an exemption from the sales and use tax as set forth in Miss. Code Ann. §§ 27-65-111(b) & 27-
67-7(b). Thus, we hold that Miss. Code Ann. § 27-65-3(l)(vi) is severed from the rest of the statute
as being an invalid content-based criteria for determining whether a publication should be afforded
the newspaper exemption from the imposition of sales and use tax, but the remainder of § 27-65-3(l)
is to remain in effect as a constitutional content-neutral criteria for determining whether a publication
qualifies as a newspaper.

II. WHETHER THE TRIAL COURT ERRED BY NOT REQUIRING THE
COMMISSION TO PUT FORWARD A COMPELLING JUSTIFICATION FOR ITS
CONTENT-BASED DISTINCTION BETWEEN SERVICE MERCHANDISE'S
PUBLICATIONS AND NON-TAXED NEWSPAPERS.

III. WHETHER THE TRIAL COURT ERRED BY NOT REJECTING THE
COMMISSION'S JUSTIFICATION OF A LESSER PROTECTION FOR
COMMERCIAL SPEECH AS CONSTITUTIONALLY INADEQUATE.
¶32. Service Merchandise contends that the trial court erred by failing to require the Commission to
set forth a compelling justification for its content-based distinction between its publications and
newspapers that are exempt from the sales and use tax. Service Merchandise further contends that
the chancellor erred by attempting to justify its holding on the state supreme court cases that upheld
newspaper sales and use tax exemptions because all of the cases relied on by the chancellor found
that the taxing schemes in question did not involve determinations based on the publication's content
but were rather determinations based on the content-neutral criteria of the form and frequency of the
publication. As a result, Service Merchandise argues that because the Mississippi taxation scheme
utilized content-based criteria, such criteria had to be narrowly drawn to achieve a compelling state
interest and that no compelling interest has been set forth by the Commission.

¶33. The Commission, in the alternative to its position that the criteria used to determine newspaper
status are content-neutral, argues that if the criteria are content-based then the appropriate
constitutional analysis, rather than strict scrutiny, i.e., narrowly drawn to achieve a compelling
governmental interest, would be the lesser standard of review that is afforded restrictions on
commercial speech, i.e., narrowly drawn regulation directly and materially advancing a substantial
government interest. Thus, the Commission contends that since the speech discriminated against in
the instant case is commercial speech then it should be afforded the lesser standard of review,
intermediate scrutiny. In support of this contention, the Commission asserts the following interests as
substantial and, thus, contends that the discriminatory tax should pass constitutional scrutiny because
newspapers serve the critical functions of: (1) disseminating news and events in an immediate fashion;
(2) promoting general welfare and awareness; and (3) encouraging public involvement. The
Commission further argues that the sales and use tax exemption provided for newspapers directly
advances these critical interests.

¶34. However, the Commission's arguments are unsupported and, at the same time, in contradiction
to the overwhelming weight of authority of United States Supreme Court decisions dealing with
content-based discrimination between protected First Amendment speech. The Commission,
nevertheless, argues that because the party challenging the newspaper exemption from sales and use
tax imposition was distributing commercial speech that the lesser standard of review afforded
commercial speech should be applied if the exemption constitutes content-based discrimination. To
the contrary, the United States Supreme Court has held that "for reasons that are obvious, a tax will
trigger heightened scrutiny under the First Amendment if it discriminates on the basis of the content
of taxpayer speech." See Leathers, 499 U.S. at 447 (emphasis added) (citing Arkansas Writers', 481
U.S. at 229-31). Moreover, application of the intermediate scrutiny afforded commercial speech is
appropriate when there is a challenge made by a party against a statute or ordinance that regulates,
burdens or restricts commercial speech in some shape, form or fashion. See Florida Bar v. Went-
For-It, Inc., 515 U.S. 618, 623 (1995) (stating "we engage in 'intermediate' scrutiny of restrictions
on commercial speech, analyzing them under the framework set forth in [Central Hudson Gas &
Elec. Corp. v. Public Serv. Comm'n of N.Y., 447 U.S. 557 (1980)]").

¶35. In the case sub judice, however, Service Merchandise does not challenge a regulation restricting
commercial speech but rather challenges a content-based discriminatory sales and use tax scheme that
affords a different form of First Amendment speech an exemption from the sales and use tax.
Therefore, since the sales and use tax scheme that provides an exemption for newspapers involves
content-based criteria, such taxing scheme discriminates based on the content of taxpayer speech, and
thus, the tax is unconstitutional unless it survives heightened scrutiny.

¶36. In order to survive this heightened scrutiny standard of review, the tax must serve some
compelling state interest and must be narrowly drawn to achieve that end. See Leathers, 499 U.S. at
447; Arkansas Writers', 481 U.S. at 231. The Commission asserts the following interests as
compelling justifications for the newspaper sales and use tax exemption: (1) the dissemination of
news and events in an immediate fashion; (2) promoting general welfare and awareness; and (3)
encouraging public involvement. However, we hold that the compelling interests asserted by the
Commission do not pass constitutional scrutiny, and thus, the tax scheme is unconstitutional as a
content-based discrimination between different forms of protected First Amendment speech.

¶37. In support of this conclusion, similar asserted interests have been rejected by other state courts
applying strict scrutiny analysis to discriminatory content-based tax schemes. See, e.g., Department
of Revenue v. Magazine Publishers of Am., Inc., 604 So. 2d 459, 462-63 (Fla. 1992) (rejecting
Department's contention "that the newspaper exemption furthers the compelling state interest of
encouraging the literacy and general knowledge of Florida's citizens" based on the conclusion that
such interest was merely a legitimate interest and that "the tax scheme [was] not narrowly tailored to
achieve that end"); Emmis Publ'g Corp. v. Indiana Dep't of State Revenue, 612 N.E.2d 614, 621-
22 (Ind. Tax Ct. 1993) (holding content-based tax scheme unconstitutional as not being narrowly
tailored toward achieving asserted interests that newspaper exemption was "a form of subsidy that
makes available inexpensive sources of news, thus, enhancing the knowledge and literacy of the
public" and provided "relie[f] of the administrative burden and expense of regulating hundreds of
newspaper carriers in the collection and remittance of sales tax"); Southern Living, Inc. v. Celauro,
789 S.W.2d 251, 253 (Tenn. 1990) (holding that "[t]he immed iate and timely dissemination of
information to the public" was not a compelling governmental interest and that, "[m]oreover, the
exemption statute [was] not narrowly tailored to meet the asserted governmental interest");
Newsweek, Inc. v. Celauro, 789 S.W.2d 247, 250 (Tenn. 1990) (same). Thus, analogous to the
above decisions, in particularly the two companion cases decided by the Tennessee Supreme Court,
we hold that the Commission's asserted interests that the newspaper exemption serves the critical
functions of (1) disseminating news and events in an immediate fashion, (2) promoting general
welfare and awareness, and (3) encouraging public involvement are not compelling governmental
interests.

¶38. Furthermore, in Department of Revenue v. Magazine Publishers of America, Inc., the Florida
Supreme Court held that Florida's content-based sales and use tax scheme affording newspapers an
exemption was not narrowly tailored to achieve those ends because "[t]he State need not look to the
content of the publications to attain the desired goal of increased public knowledge and literacy.
Moreover, magazines and other publications not eligible for the exemption also provide a wealth of
information to the public." Magazine Publishers of Am., Inc., 604 So. 2d at 463. Analogously, we
hold that the Mississippi sales and use tax scheme is not narrowly tailored to achieve its asserted
interests because there is no logical reason to require a review of the content of a publication to
achieve its asserted interests.

¶39. As a result, we hold that Mississippi's sales and use tax scheme providing newspapers an
exemption utilizes discriminatory content-based criteria to determine whether a publication qualifies
as a newspaper, and thus, the tax scheme violates the First Amendment of the United States
Constitution.

IV. 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.

¶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.

¶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.

¶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 Marxwas Miss. Code Ann. § 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. § 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.

¶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. SeeThayer v. South
Carolina Tax Comm'n, 413 S.E.2d 810, 815 (S.C. 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 onWheels, 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. 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.

¶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. § 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. § 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.

¶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. § 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.

¶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. § 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. § 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.

¶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. § 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. § 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. § 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, except--

(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. § 3124(a) (1994). An obligation of the United States Government is defined in 18 U.S.C.
§ 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. § 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. § 3124(a)
(1994).

¶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.

CONCLUSION

¶49. We hold that the criteria used by the Commission for determining whether a publication
qualified for the newspaper exemption from imposition of sales and use tax included unconstitutional
content-based criteria in violation of the First Amendment of the United States Constitution.
However, in accordance with Wilson v. Jones County Board of Supervisors, we are inclined to
sever the invalid, unconstitutional portion of the definition of newspaper, i.e., Miss. Code Ann. § 27-
65-3(l)(vi), and leave intact the remainder of the definition for determining whether a publication
qualifies for the newspaper exemption as a valid content-neutral criteria. Furthermore, Service
Merchandise is not entitled to a full refund of the use tax assessment paid, for to do so would create a
tax exemption where the legislature did not intend for there to be an exemption.

¶50. However, we hold that Service Merchandise is entitled to a refund for the amount of use tax,
including pre-payment and post-payment interest, that was assessed in proportion to the charge of
United States postage costs for delivery into the State of Mississippi the advertising fliers and sales
catalogs, because to not do so would effectively result in the imposition of a sales and use tax on
United States postage in violation of 31 U.S.C. § 3124(a). This cause is remanded to the chancery
court for the determination of the appropriate refund.

¶51. AFFIRMED IN PART, REVERSED AND REMANDED IN PART FOR
PROCEEDINGS NOT INCONSISTENT WITH THIS OPINION.

PRATHER, C.J., ROBERTS, MILLS AND WALLER, JJ., CONCUR. BANKS, J., DISSENTS
WITH SEPARATE WRITTEN OPINION JOINED BY SULLIVAN AND PITTMAN, P.JJ.,
AND McRAE, J. McRAE, J., DISSENTS WITH SEPARATE WRITTEN OPINION JOINED
IN PART BY SULLIVAN, P.J.

BANKS, JUSTICE, DISSENTING:

¶52. For the reasons and rationale embodied in the opinion of the chancery court, a copy of which is
annexed hereto and incorporated herein by reference, I dissent.

IN THE CHANCERY COURT OF THE FIRST JUDICIAL DISTRICT

OF HINDS COUNTY, MISSISSIPPI

H. J. WILSON CO., INC. PLAINTIFF

v. 149,278 O/3

(CONSOLIDATED)

STATE TAX COMMISSION OF THE

STATE OF MISSISSIPPI DEFENDANT

OPINION OF THE COURT

Plaintiff, H. J. Wilson Co., Inc., initiated this action to recover Mississippi use tax allegedly
improperly charged and paid. Plaintiff filed two separate complaints against defendant, State
Tax Commission of the State of Mississippi, pursuant to Mississippi Code Annotated §27-67-
25 (Rev. 1990), which were subsequently consolidated for all purposes by order of this Court.
Following discovery, the case was tried. At trial, plaintiff called two witnesses: Ms. Donna
Adams, director of tax for plaintiff's corporate parent, Service Merchandise, Inc., a Tennessee
corporation ("SMC"), and Mr. Stephen Handy, director of store marketing, national promotions
and media distribution for SMC. Defendant called as its only witness Mr. Eddie Beck, Assistant
to its Chairman. Numerous exhibits were introduced. Both parties submitted post-trial briefs.
Pursuant to the express language of section 27-67-25, this Court's jurisdiction of this case is
original.

The material facts are not in dispute. The parties' stipulated facts include the following:

1. Plaintiff is a Louisiana corporation that is qualified to do business in this state, where it
operates six retail establishments. Plaintiff is wholly owned by SMC.

2. Defendant is charged with the duty of administering and enforcing the Mississippi Use Tax
Law, and is sued here in its official capacity.

3. Plaintiff seeks to recover the total sum of $658,150.23 consisting of use tax and interest paid
by SMC on plaintiff's behalf, pursuant to defendant's audit and assessment against plaintiff for
the taxable periods June 1, 1986 through September 30, 1989 ("First Audit Period"), and
October 1, 1989 through June 30, 1992 ("Second Audit Period"), respectively.

4. The challenged use-tax assessments are based upon the cost of plaintiff's advertisements,
specifically catalogs and flyers, which were mailed from outside Mississippi directly to
Mississippi residents by the United States Postal Service ("USPS"), at no cost to the recipients.
The parties' agreed pretrial order and joint statement indicates these materials were mailed by
the printers, pursuant to contract with SMC.

5. Advertising circulars were also inserted into certain Mississippi newspapers and delivered as
a part of the newspaper, pursuant to contract between SMC and the newspapers. Pursuant to its
interpretation of the statutory use-tax exemption for daily or weekly newspapers, no Mississippi
use tax was levied by defendant on these newspaper advertising inserts.

6. Advertising catalogs, flyers and inserts were also mailed to plaintiff's six stores in Mississippi
for customer use. Plaintiff does not contest the use tax imposed by defendant on these
advertising materials.

7. SMC controls the business operations of its subsidiaries, including plaintiff. These operations
include advertising. SMC allocates its costs for these operations among its subsidiaries,
including plaintiff, based upon the subsidiary's pro rata share of total corporate monthly sale.

8. Plaintiff bore the burden of the challenged use tax and interest. Other than the challenged tax,
no sales or use tax was paid on the direct-mail advertising materials at issue.

9. Prior to initiating this action, plaintiff pursued timely, albeit unsuccessful, appeals from the
challenged use-tax assessments to defendant's Board of Review and to defendant.

Use Tax
The Mississippi Use Tax Law is codified at Mississippi Code Annotated §§27-65- 1 through -
35 (Rev. 1990 & Supp. 1996). The use tax is levied upon the user's privilege of using, storing
or consuming tangible personal property within this state, possession of which is acquired in any
manner. Sections 27-65-5 and 27-67-13. The tax base is "the purchase or sales price, or value,
as defined in [the Mississippi Use Tax Law]." Section 27-67-5(a). "Purchase price" or "sales
price" is defined as the total amount for which the tangible personal property is sold, "including
any additional . . . freight charges to the point of use within Mississippi, without deduction for
cost of property sold, expenses or losses, or taxes of any kind except those exempt by the sales
tax law." Section 27-67-3(f). Accord Mississippi Sales and Use Tax Rule 42. "Value" of
imported sales promotion or advertising materials is defined as "an amount not less than the
cost paid by the transferor." Section 27-67-3(h).

Arguments

Plaintiff bears the burden to show the assessment of the tax paid was incorrect. Section 27-67-
25. Plaintiff challenges both the computation of the use-tax base and the constitutionality of the
tax. Because constitutional issues are not reached unless necessary for the decision of a case,
this Court first addresses plaintiff's non-constitutional claims. Robinson v. Robinson, 554 So. 2d
300 (Miss. 1989).

I. Computation of use-tax base

(A) Inclusion of postage

The parties stipulated that, with respect to the Second Audit Period only, the use-tax base
included plaintiff's postal charges incurred in mailing catalogs and flyers to Mississippi residents.
The stipulated amount of use tax allocable to said postage charges is $100,965.00, plus interest
of $44,455.00. Plaintiff raises several arguments challenging the inclusion of postage in the use-
tax base.

Relying upon Mississippi Sales and Use Tax Rule 51(b) and Mr. Beck's testimony, plaintiff
asserts it was error to impose a compensating use tax on postage where no sales tax would be
imposed. This argument fails because plaintiff fails to establish its premise, i.e., that no sales tax
would be imposed. Although Mr. Beck testified that no sales tax would be imposed on the sale
of postage, he also testified that postage would be subject to sales or use tax when included in
the sales price as a cost of shipment. Statutory support for Mr. Beck's testimony may be found
at section 27-67-3(f) (defining "purchase price" or "sales price" for use-tax purposes to include
freight charges to the point of use), section 27-65-3(h) (defining "gross proceeds of sales" for
sales-tax purposes to include delivery charges), and section 27-65-13 (levying sales tax on the
gross proceeds of sales or gross income or values, as applicable). Further, Mr. Beck testified
that Rule 51(b), which provides that printers may reduce their gross proceeds of retail sales by
the amount of postage where stamped envelopes or post cards are purchased and printed for the
customer, is applied only where the customer takes possession of the postage-paid envelopes or
post cards from the printer. In contrast, the evidence showed that plaintiff did not take
possession of the advertising which is the subject of the challenged tax, but that the printer
arranged for distribution of the finished advertising materials in accordance with plaintiff's
mailing profile. See Trial Exhibit Number 6, "Plaintiff's Example Printing Contract."

Citing, McCullough v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), plaintiff summarily argues
that taxing postage conclusively offends the venerable federal doctrine of intergovernmental tax
immunity, as implemented by 4 U.S.C. §107 and 31 U.S.C. §3124. This argument is not
persuasive. The modern interpretation of this doctrine is that "[a]bsolute tax immunity is
appropriate only when the tax is on the United States itself 'or on an agency or instrumentality
so closely connected to the Government that the two cannot realistically be viewed as separate
entities, at least insofar as the activity being taxed is concerned."' California State Board of
Equalization v. Sierra Summit, Inc., 490 U.S. 844, 848 (1989) (quoting United States v. New
Mexico, 455 U.S. 720 ( 1982)). Significantly, the tax at issue in the present case was on
plaintiff, not the United States or any inseparable entity thereof.

Further, there is no clear showing that either section 107 or section 3124 applies on the facts of
this case. See generally Calif. State Bd. of Equalization, 490 U.S. 844 (observing that courts
must proceed carefully when asked to recognize an exemption from state taxation that
Congress has not clearly expressed). Section 107 preserves the doctrine of intergovernmental-
tax immunity where state use tax is imposed on or from the United States or any instrumentality
thereof or any "authorized purchaser" therefrom, the latter term denoting purchases from
commissaries, ship's stores, or certain organizations of Armed Forces personnel. United States
v. State Tax Commission of the State of Mississippi, et al., 421 U.S. 599 (1975). In the present
case, the challenged tax was imposed on plaintiff, not a federal agency or "authorized
purchaser." Section 3124 exempts from state taxation certain interest-bearing obligations of the
United States which are needed to secure credit to carry on the necessary functions of
government. Rockford Life Ins. Co. v. Department of Revenue, 482 U.S. 182 (1987) (decided
under prior formulation of section 3124, which was without substantive changes). This Court is
aware of no authority extending the section 3124 exemption to postage.

(B) Inclusion of reimbursed costs

As the parties stipulated, during both audit periods the use-tax base included certain production
costs for which SMC was reimbursed by the individual vendors pursuant to separate advertising
cooperative agreements between them. The stipulated amount of use tax allocable to the
reimbursed costs is $81,493.00, plus interest of $49,392.00, in the First Audit Period, and $120,
986.00, plus interest of $53,270.00, in the Second Audit Period. Plaintiff argues it was error to
tax its gross, rather than its net, cost of production. This argument is unsupported by reference
to persuasive statutory or decisional law. As previously noted, by express statutory language,
the use-tax base is defined as the purchase or sales price, or value, without any reference to
deduction for reimbursed costs that are ultimately recovered by the user. Sections 27-65-3(f)
and (h); Section 27-67-5(a).

II. Constitutional Issues
Statutes are presumed to be constitutional. Jones v. Harris, So. 2d 120 (Miss. 1984). A statute
will not be held unconstitutional unless the evidence is clear and convincing that it violates a
constitutional limitation. Illinois Central Railroad Co. v. Williams, 242 Miss. 586 (1961).

(A) Definition of "use"

Citing Connally v. General Construction Co., 269 U.S. 385 (1926), plaintiff argues the
Mississippi Use Tax Law's definition of "use" is unconstitutionally vague because it provides no
standard for application. Section 27-67-3(k), which sets forth the challenged definition, reads in
full as follows:

(k) "Use" or "consumption" means the first use or intended use within this state of tangible
personal property and shall include rental or loan by owners or use by lessees or other persons
receiving benefits from use of the property. "Use" or "consumption" shall include the benefit
realized or to be realized by persons importing or causing to be imported into this state tangible
advertising or sales promotion materials.

More specifically, plaintiff contends the statutory term "benefit realized" is impermissibly vague,
for which reason the use tax is computed on a cost basis even though cost bears no reasonable
or necessary correlation to the "benefit realized."

Plaintiff's vagueness challenge presumably arises from the protection against state deprivation of
property without due process of law found in the United States Constitution's Fourteenth
Amendment. The standards for evaluating such a challenge have been summarized as follows:

Vague laws offend several important values. First, because we assume that man is free to steer
between lawful and unlawful conduct, we insist that laws give the person of ordinary
intelligence a reasonable opportunity to know what is prohibited, so that he may act
accordingly. Vague laws trap the innocent by not providing fair warning. Second, if arbitrary
and discriminatory enforcement is to be prevented, laws must provide explicit standards for
those who apply them. A vague law impermissibly delegates basic policy matters to policemen,
judges, and juries for resolution on an ad hoc and subjective basis, with the attendant dangers of
arbitrary and discriminatory applications.

Village of Hoffman Estates v. Flipside Hoffman Estates, Inc., 455 U.S. 498 (1982) (quoting
Grayned v. City of Rockford, 408 U.S. 104 ( 1972)).

In applying these standards, the degree of vagueness that the Constitution tolerates depends on
the nature of the challenged statute. Village of Hoffman Estates, 455 U.S. 498. In the present
case, the challenged legislation regulates business behavior. Economic legislation is subject to a
less-strict vagueness test, in part, because businesses can be expected to plan behavior carefully
and consult relevant legislation in advance of action. Id.

This Court concludes that section 27-67-3(k), in its entirety, is not unconstitutionally vague and
affords a person of ordinary intelligence a reasonable opportunity to know that importation of
tangible advertising materials into Mississippi may constitute a taxable event for use-tax
purposes. Further, plaintiff's argument is unpersuasive that the use tax is computed on a cost
basis because the term "benefit realized" is unconstitutionally vague. As previously noted, the
measure of the use-tax base is clearly defined elsewhere in the Mississippi Use Tax Law,
specifically section 27-67-5(a) and the attendant definitional sections 27-67-3(f) and (h).

(B) Use-Tax Exemption for Newspapers

It is undisputed that daily and weekly newspapers are statutorily exempt from Mississippi's use
tax. See Miss. Code Ann. §27-65- 111(b)(exempting newspapers from sales tax); section 27-67-
7(b) (exempting from use tax tangible personalty if its sale is specifically exempted from sales
tax). It is also undisputed that no such exemption is provided for advertising materials, subject
to the proviso that defendant interprets the statutory exemption for newspapers to include
advertising inserts that are delivered by the printer to the newspaper and sold or distributed as a
part of the newspaper. Plaintiff argues that, because newspapers and advertising inserts in
newspapers are exempt, but its direct-mail advertising materials are subject to tax, the use-tax
scheme violates its federal constitutional rights to free speech, free press and equal protection.
United States Constitution, arts. I and XIV. On this basis, plaintiff prays for a full refund of the
entire $658,150.23 at issue. This Court finds no merit to plaintiff's constitutional arguments.

Plaintiff inaccurately cites Minneapolis Star and Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575 (1983), for the proposition that differential taxation, in and of itself, is a
presumptively unconstitutional form of regulation. The tax at issue in that case was a Minnesota
special-use tax on the cost of paper and ink consumed in the production of publications, which
was held unconstitutional because it singled out the press for special treatment and targeted a
small group of newspapers to bear the tax burden. Leathers v. Medlock, 499 U.S. 439 (1991).
In contrast, the Mississippi use tax at issue in the present case is a tax of general applicability
that applies to the use, storage or consumption of all tangible personal property, unless within a
group of specific exemptions. Cf. id. (finding the Arkansas sales tax is a tax of general
applicability). There is no evidence to demonstrate that the Mississippi use tax singles out the
press or any small group thereof for special treatment. Where a state imposes a generally
applicable tax, there is little cause for concern. Minneapolis Star and Tribune Co., 460 U.S.
575.

Plaintiff argues the Mississippi use-tax scheme violates the First Amendment because the
newspaper exemption is applied on the basis of the publication's content. This Court finds no
clear and convincing evidence of constitutionally-invalid content-based discrimination. It is
undisputed that the Mississippi Use Tax Law contained no definition of "newspaper" at the
times pertinent to this case. Instead, as the evidence showed, defendant was guided by
Mississippi Code Annotated § 13-3-31 (Supp. 1996), which sets forth the factors for identifying
publications for the placement of summons, order, citation, advertisement or other legal notice
required to be published in a newspaper in this state.(6) These factors include distinctions based
on both form and content. On similar facts, other jurisdictions have upheld statutory tax
exemptions for newspapers reasoning that the newspapers may be identified by constitutionally-
permissible distinctions based upon format, such as frequency of publication. E.g., Magazine
Publishers of American v. Commonwealth of Pennsylvania, 539 Pa. 563, 654 A. 2d 519 (1995)
; Gallacher, et. at. v. Comm'r of Revenue Services, 221 Conn. 166, 602 A.2d 996 (1992). See
also Hearst Corp. v. Iowa Dep 't of Revenue and Finance, 461 N.W. 2d 295 (Iowa 1990), cert.
denied, 499 U.S. 983 (1991) (holding that, while classification of the publication's writing as
news was a consideration, its form and frequency of publication were the primary factors for
determining its qualification for the tax exemption for newspapers).

Certainly, heightened scrutiny under the First Amendment is triggered if a tax discriminates on
the basis of the content of taxpayer speech. Leathers, 499 U.S. 439. Citing Arkansas Writers'
Project, Inc. v. Ragland, 481 U.S. 221 (1987), Minneapolis Star and Tribune Co., 460 U.S.
575, and Grosjean v. American Press Co., Inc., 297 U.S. 233 (1936), plaintiff contends a state
taxation scheme that discriminates between "two different types of political speech," absent an
overriding government interest that cannot be achieved without such differential taxation, is
forbidden. Unlike the taxpayer speech at issue in these cited authorities, however, advertising is
generally categorized as commercial speech and accorded "a measure of First Amendment
protection" that is satisfied if a narrowly-drawn regulation directly and materially advances a
substantial governmental interest. Florida Bar v. Went for It, Inc., ___ U.S. ___, ___, 115
S.Ct. 2371, 1275 (1995). As the United States Supreme Court there explained.

We have always been careful to distinguish commercial speech from speech at the First
Amendment's core. "'[C]ommercial speech [enjoys] a limited measure of protection,
commensurate with its subordinate position in the scale of First Amendment values,' and is
subject to 'modes of regulation that might be impermissible in the realm of noncommercial
expression.'". . . We have observed that "'[t]o require a parity of constitutional protection for
commercial and noncommercial speech alike could invite dilution simply by a leveling process,
of the force of the Amendment's guarantee with respect to the latter type of speech."'

Id. (citations omitted).

In the present case, plaintiff cites no persuasive authority for the issue at hand, i.e., whether a
state tax of general applicability that differentiates between noncommercial speech (newspaper)
and commercial speech (advertising) violates the First Amendment. Although denial of a state-
tax exemption constitutes a violation of the First Amendment where the taxpayer engaged in
certain political speech and the denial was aimed at "the suppression of dangerous ideas,"
Speiser v. Randall, 357 U.S. 513 (1958), there is no evidence of such conduct here. Thus, in
the absence of any clear authority applicable on the facts of this case and being mindful of the
aforementioned presumption of constitutionality, this Court is not persuaded the Mississippi
use-tax exemption for newspapers impermissibly infringes upon the limited First Amendment
protection afforded plaintiff's commercial speech. See also Redwood Empire Publishing Co., et
al. v. State Board of Equalizat'n, 207 Cal. App. 3d 1334, 255 Cal. Rptr. 514 (Ct. App. 1989)
(surveying federal decisional law addressing the constitutionality of differential regulation of
commercial and noncommercial speech).

Finally, plaintiff argues the statutory newspaper exemption, as well as defendant's interpretation
of it to cover newspaper advertising inserts, violates its federal constitutional equal-protection
guarantee because there is no rational basis for such differential treatment. Generally, the Equal
Protection Clause is satisfied where there is a plausible policy reason for the classification, the
legislative facts on which the classification is apparently based rationally may have been
 considered true by the government, and the relationship of the classification to its goal is not so
attenuated as to render the distinction arbitrary or irrational. Nordlinger v. Hahn, __U.S. __,
112 S.Ct. 2326 (1992). This Court, applying the test to this case, finds the statutory use-tax
exemption for newspapers and defendant's interpretation that it encompasses newspaper
advertising inserts are rationally related to the legislative policy of subsidizing newspapers as a
vital source of public information and interpreter between the government and the people.
Grosjean v. American Press Co., 297 U.S. 23.

Conclusion

For the reasons stated above, this Court concludes plaintiff's consolidated claim for refund of
use tax and interest is without merit and, therefore, should be and it is dismissed. Defendant's
counsel is directed to prepare a final Judgment in conformity with this opinion and in
accordance with Mississippi Rule of Civil Procedure 58 and Uniform Chancery Court Rule 5.

IT IS SO ORDERED AND ADJUDGED THIS the 21st day of November, 1996.

DENISE OWENS

CHANCELLOR

SULLIVAN AND PITTMAN, P.JJ., AND McRAE, J., JOIN THIS OPINION.

McRAE, JUSTICE, DISSENTING:

¶53. Perhaps the majority fails to recognize that H. J. Wilson Company was doing business as Service
Merchandise, but Service Merchandise Company was paying the applicable taxes. The majority
ignores the fact that neither H. J. Wilson Company nor Service Merchandise Company satisfies the
statutory requirements of publishing a newspaper and are therefore not entitled to a tax exemption.
As a result, I respectfully dissent.

¶54. H. J. Wilson Company, which operates a Service Merchandise franchise, does not have a mailing
department. Instead, it relies on its parent company, Service Merchandise Company, to send out
flyers, inserts, and advertising circulars, using postage paid for by Service Merchandise. H. J. Wilson
Company does not receive credit for the postage, but it receives credit for the gross amount as
defined by the State Tax Commission.

¶55. The majority attempts to "analyze" the content of the publications sent out by Service
Merchandise Company, on behalf of H. J. Wilson Company, without first determining if either H. J.
Wilson Company or Service Merchandise publishes "newspapers." A clear review of the applicable
statute reveals that neither company publishes a "newspaper"; accordingly, neither is entitled to an
exemption.

¶56. To meet the requirements of being a "newspaper" pursuant to Miss. Code Ann. § 13-3-31 (1), a
publication, inter alia, cannot be "published primarily for advertising purposes" and cannot be
"designed primarily for free circulation or for circulation at nominal rates."(7) Miss. Code Ann. § 13-
3-31(1)(c), (h)(Supp. 1997). The advertisements paid for and mailed by Service Merchandise do not
disseminate "current news and intelligence of varied, broad and general public interest." Miss. Code
Ann. § 13-3-31(1)(g)(Supp. 1997). They are published not only primarily for advertising purposes,
but purely for advertising purposes. Moreover, the advertisements are designed for free circulation.
Accordingly, for sales and use tax purposes, those publications are not newspapers, and neither H. J.
Wilson Company nor Service Merchandise Company qualify as publishers. Without meeting this
threshold requirement, they cannot receive the newspaper exemption from assessment of Mississippi
sales and use tax. Further, the majority cannot reach its discussion of whether the Commission made
its determination using content-based criteria.

¶57. Additionally, H. J. Wilson Company used the services of Service Merchandise to send out all the
flyers and advertisements. However, H. J. Wilson Company is not even the proper party to question
the constitutionality of the Tax Commission's tax assessments. Wilson, doing business as Service
Merchandise, is a wholly separate and distinct corporation. In this case Service Merchandise
Company receives a complete write-off of the advertisements as an expenditure, and H. J. Wilson
Company receives a write-off against the total gross amount that Service Merchandise Company
charges them for printing and mailing the advertisements. Apparently, the majority does not
recognize this tax "shell game" being played and does not pick up on the effect of what these
companies were doing, as the Tax Commission did.

¶58. Service Merchandise Company controls the business operations of its franchisees, including the
advertising operations of H. J. Wilson Company. It is undisputed that no use tax exemption exists for
advertising materials. It follows that the applicable statute does not allow an exemption for the
advertisements mailed out by Service Merchandise Company for H. J. Wilson Company. Because the
majority totally misses the point that the advertisements under review do not meet the statutory
requirements of a newspaper and neither company is a newspaper publisher, and because the majority
unnecessarily addresses the question of whether this is a case of content-based discrimination, I
respectfully dissent.

SULLIVAN, P.J., JOINS THIS OPINION IN PART.

1. Starting June 1992, the publications were taxed at a use tax rate of seven percent (7%) in
accordance with the raise in the applicable Mississippi sales tax rate.

2. The Commission, by Official Order dated April 25, 1990, adopted the criteria used in Miss. Code
Ann. § 13-3-31(1) to determine whether a publication qualified for the newspaper exemption from
assessment of Mississippi sales and use tax.

3. Miss. Code Ann. § 27-65-3(l) defines newspaper for purposes of the sales and use tax as follows:

(l) "Newspaper" means a periodical which:

(i) Is not published primarily for advertising purposes and has not contained more than seventy-
five percent (75%) advertising in more than one-half (1/2) of its issues during any consecutive
 twelve-month period excluding separate advertising supplements inserted into but separately
identifiable from any regular issue or issues;

(ii) Has been established and published continuously for at least twelve (12) months;

(iii) Is regularly issued at stated intervals no less frequently than once a week, bears a date of
issue, and is numbered consecutively; provided, however, that publication on legal holidays of
this state or of the United States and on Saturdays and Sundays shall not be required, and
failure to publish not more than two (2) regular issues in any calendar year shall not exclude a
periodical from this definition;

(iv) Is issued from a known office of publication, which shall be the principal public business
office of the newspaper and need not be the place at which the periodical is printed and a
newspaper shall be deemed to be "published" at the place where its known office of publication
is located;

(v) Is formed of printed sheets; provided, however, that a periodical that is reproduced by the
stencil, mimeograph or hectograph process shall not be considered to be a "newspaper"; and

(vi) Is originated and published for the dissemination of current news and intelligence of
varied, broad and general public interest, announcements and notices, opinions as editorials
on a regular or irregular basis, and advertising and miscellaneous reading matter.

The term "newspaper" shall include periodicals which are designed primarily for free circulation
or for circulation at nominal rates as well as those which are designed for circulation at more
than a nominal rate.

The term "newspaper" shall not include a publication or periodical which is published,
sponsored by, is directly supported financially by, or is published to further the interests of, or is
directed to, or has a circulation restricted in whole or in part to any particular sect,
denomination, labor or fraternal organization or other special group or class or citizens.

For purposes of this paragraph, a periodical designed primarily for free circulation or circulation
at nominal rates shall not be considered to be a newspaper unless such periodical has made an
application for such status to the Tax Commission in the manner prescribed by the commission
and has provided to the Tax Commission documentation satisfactory to the commission
showing that such periodical meets the requirements of the definition of the term "newspaper."
However, if such periodical has been determined to be a newspaper under action taken by the
State Tax Commission on or before April 11, 1996, such periodical shall be considered to be a
newspaper without the necessity of applying for such status. A determination by the State Tax
Commission that a publication is a newspaper shall be limited to the application of this chapter
and shall not establish that the publication is a newspaper for any other purpose.

Miss. Code Ann. § 27-65-3(l) (1997) (emphasis added).

4. The fifth element, set forth in Florida Administrative Code Rule 12A-1.008(1)(b)5., used to
determine classification of a publication as a newspaper provides in full:
 It must routinely contain reports of current events and matters of general interest which appeal
to a wide spectrum of the general public. If the publication is intended for general circulation to
the public and 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 classed as a newspaper.

Magazine Publishers of Am., Inc., 604 So. 2d at 462 n. 2.

5. The Indiana Tax Court discussed and compared the State Department of Revenue's regulation
used to determine if a publication was a newspaper with the similar criteria used in Magazine
Publishers of America, Inc.; Southern Living, Inc.; Newsweek, Inc.; Gallacher; and Hearst Corp.
The tax court did not discuss the Pennsylvania Supreme Court's decision in Magazine Publishers of
America v. Commonwealth Dep't of Revenue as it was decided subsequent to Emmis Publishing
Corp.

6. This Court is aware that the Mississippi Legislature recently amended Mississippi Code Annotated
§27-65-3 to define the term "newspaper," in language substantially similar to section 13-3-31, for the
purpose of the Mississippi Sales Tax Law and for related purposes.

7. Similarly, under recently amended Miss. Code Ann. § 27-65-3(l) (Supp. 1997), if a publication is
"published primarily for advertising purposes," it cannot qualify as a "newspaper."