1 AW L!BHARY
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32
NO. 29597
IN THE INTERMEDlATE COURT OF APPEALS §§
2 rs
oF THE STATE oF HAWAI‘I s §§
@> 23
5
§§ FY
IN THE MATTER OF THE TAX APPEAL OF §§ §§
COMPUSA STORES, L.P., Taxpayer-Appellant v.n§ 99
sTATE oF HAWAI‘I, DEPARTMENT oF TAxATIoN, Appel‘f“v‘ee
APPEAL FROM THE TAX APPEAL COURT
(CASE NO. 05-OO65)
MEMORANDUM OPINlON
(By: Foley, Presiding Judge, Fujise and Leonard, JJ.)
Appellant-Taxpayer CompUSA Stores L.P. (CompUSA)
appeals from the December 22, 2008 Judgment (Judgment) entered by
the HaWaFi Tax Appeal Court (Tax Appeal Court)9 against CompUSA
and in favor of Appellee/Appellee State of HawaiHq Department of
Taxation (State).W
This tax appeal involves the State's imposition of the
(HRS) § 238-2, on
use tax, pursuant to Hawaii Revised Statutes
tangible personal property shippped from the mainland by CompUSA
(the Audited Transactions) between
CompUSA
to its HawaiU.retail stores
(the Audit Period).
1999 and December 3l,
July l,
contends that the use tax statute in effect during the Audit
(200l), does not provide for taxation of the
2002
Period, HRS § 238-2
Audited Transactions.
BACKGROUND
The following facts apply to the Audit Period,
I.
is a retail seller of
CompUSA, a Delaware corporation,
The Honorable Gary W.B. Chang presided.
W Appellant also seeks relief from the Tax Appeal Court's December
22, 2008 Order Granting Director of Taxation, State of Hawaii's Motion for
Summary Judgment, and December 22, 2008 Order Denying Appellant~Taxpayer
CompUSA Stores L.P.’s Motion for Summary Judgment.
}_/
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electronics with corporate headquarters in Dallas, Texas. During
the Audit Period, CompUSA conducted business in Hawafi through
two retail stores (Retai1 Stores), open to the general public,
and held a Hawafi general excise tax license in connection
therewith.W
CompUSA managed and conducted all purchasing decisions
at its Dallas headquarters and purchased all inventory sold at
the Retail Stores from third-party vendors located on the
mainland. lt is undisputed that these sales transactions, from
third-party vendors to CompUSA, did not subject the third-party '
vendors to the Hawafi general excise tax. All inventory
purchased from the mainland vendors and ultimately sold at the
Retail Stores was transported from outside Hawafi via "cross-
dock" or "drop-shipment."
With regard to cross-dock deliveries, third-party
vendors delivered the purchased inventory to consolidated centers
located outside HawaFi and owned by CompUSA.5 Upon arrival to
the delivery centers, title and risk of loss to the inventory
passed from vendor to CompUSA. CompUSA, through various agents
and sub-agents, then shipped its inventory from the mainland
consolidation center to its Hawafi Retail Stores. In drop-
shipment deliveries, inventory was purchased by CompUSA by its
mainland corporate offices, but vendors directly shipped the
purchased inventory from the mainland to the Hawafi Retail
Stores. As with cross-dock deliveries, title and risk of loss to
the inventory passed from the vendor to CompUSA on the
mainland.W
y While the exact date is unclear, CompUSA has since ended all
retail operations in Hawafi.
5 During the Audit Period, approximately 97% of the relevant cross-
dock inventory was delivered to a consolidated center in La Palma, California.
y During the Audit Period, cross-dock deliveries constituted
approximately 58.6% of the cost of goods delivered to the Retail Stores, while
drop-shipment deliveries accounted for the remaining 4l.4%.
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In 2003, the State audited CompUSA for unpaid taxes on
transactions which occurred during the Audit Period. On June 9,
2004, the State issued notices of final assessment to CompUSA
which imposed $l,099,348.98 in unpaid use tax and $2l0,223.l0 in
unpaid interest on the principal amount of the tax. The State
maintained, pursuant to HRS § 238-2, that CompUSA failed to pay
the .5% retail use tax on the Audited Transactions. CompUSA
disputed the imposition of use tax on those transactions.
On July 9, 2004 pursuant to HRS §§ 237-42 and 238-8
(Supp. 2004), CompUSA filed notices of appeal with the Board of
Review for the First Taxation District (Board), requesting a
reassessment of the tax deficiencies articulated in the June 9,
2004 notices of final assessment. On October 20, 2005, the
Board, at CompUSA's request and pursuant to HRS § 235-ll4,
transferred the matter to the Tax Appeal Court.
On November 3, 2005, CompUSA also filed a notice of
appeal with the Tax Appeal Court, later amended on November 21,
2005, challenging the imposition of use tax on the Audited
Transactions.
l On May 29, 2008, CompUSA moved for summary judgment and
on August 7, 2008, the Department cross-moved for summary
judgment. On November 17, 2008, the Tax Appeal Court held a
hearing on the cross-motions, and after entertaining oral
argument, granted the Department's motion and denied CompUSA's
motion.
On December 22, 2008, the Tax Appeal Court entered an
order granting the State's motion for summary judgment, an order
denying CompUSA's motion for summary judgment, and the Judgment
in favor of the State and against CompUSA, in the amount of
$l,099,348.98 in unpaid use tax and $605,988 73 in interest. On
January 21, 2009, CompUSA timely filed a notice of appeal.
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II. POINTS OF ERROR ON APPEAL
Only one point of error is properly before this court
on appeal. CompUSA contends that the Tax Appeal Court erred when
it denied CompUSA's motion for summary judgment and granted the
State's motion for summary judgment because the Audited
Transactions were not subject to the Hawafi use tax, pursuant to
the HawaiFi Supreme Court's decision in In re Tax Appeal of Baker
& Tavlor, Inc. v. Kawafuchi, 103 Hawaii 359, 82 P.3d 804 (2004).W
III. APPLICABLE STANDARD OF REVIEW
"We review the circuit court's grant or denial of
summary judgment de novo." Querubin v. Thronas, 107 Hawafi 48,
56, 109 P.3d 689, 697 (2005) (quoting Durette v. Aloha Plastic
Recycling, Inc., 105 HawaiH.490, 501, 100 P.3d 60, 71 (2004)).
Likewise, the meaning of a statute is a question of law that is
reviewed de novo. See, e.q., Sierra Club v. Dep't of Transp. of
state of Hawai‘i, 120 Hawai‘i 181, 197, 202 P.3d 1226, 1242
(2009).
IV. DISCUSSION
The use tax is governed by HRS Chapter 238. During the
Audit Period, HRS § 238-2 (2001) provided in relevant part:U
§ 238-2. Imposition of tax; exemptions. There is
hereby levied an excise tax on the use in this State of
tangible personal property which is imported, or purchased
from an unlicensed seller, for use in this State. The tax
imposed by this chapter shall accrue when the property is
acquired by the importer or purchaser and becomes subject to
the taxing jurisdiction of the State. The rates of the tax
hereby imposed and the exemptions thereof are as follows:
(1) If the importer or purchaser is licensed under
chapter 237 and iss
(A) A wholesaler or jobber importing or
purchasing for purposes of resale; or
W As argued by the State, the Tax Appeal Court did not rule on the
additional points of law raised by CompUSA and are beyond the scope of this
appeal.
y During the Audit Period, the cited statutory language was not
altered in relevant part. Therefore, when referring to the version of HRS
§ 238-2 in effect during the Audit Period, we reference HRS § 238-2 (2001).
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(B) A manufacturer importing or purchasing
material or commodities which are to be
incorporated by the manufacturer into a
finished or saleable product . . . and
which finished or saleable product is to
be sold in such manner as to result in a
further tax on the activity of the
manufacturer as the manufacturer or as a
wholesaler, and not as a retailer,
there shall be no tax;
(2) If the importer or purchaser is licensed under
chapter 237 and is:
(A) A retailer or other person importing or
purchasing for purposes of resale, not
exempted by paragraph (1);
the tax shall be one-half of one per cent of the
purchase price of the property, if the purchase
and sale are consummated in Hawaii . . . or if
the purchase or sale is consummated outside of
Hawaii, then one-half of one per cent of the
value of such property
In conjunction with this provision, HRS § 238-1 (1993 &
Supp. 1999) provides the following definitions:W
§ 238-1. Definitions, general1y. Whenever used in
this chapter, unless otherwise required by the context:
"General excise tax law" means chapter 237, as amended
from time to time.
"Import" (or any nounal, verbal, adverbial, adjective,
or other equivalent of the term) includes importation into
the State from any other part of the United States or its
possessions or from any foreign country, whether in
interstate or foreign commerce or both.
"Property" means tangible personal property
"Purchase" and "sale" means any transfer, exchange, or
barter, conditional or otherwise . . . of tangible personal
property or services for a consideration.W
9 During the Audit Period, the cited statutory definitions were not
altered in any manner relevant to this appeal. Therefore, when referencing to
the version of HRS § 238-1 as drafted during the Audit Period, we are
referring to HRS § 238-1 (1993 & Supp. l999).
y In 2000, the Legislature amended this provision, retroactive to
taxes accruing after December 31, l999, to read:
"Purchase" and "sale" means any transfer, exchange, or
(continued...)
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"Purchaser" means any person purchasing property or
services and "importer" means any person importing property
or services Y/
"Unlicensed seller“ means any seller who, with respect
to the particular sale, is not subject to the tax imposed by
chapter 237, whether or not the seller holds a license under
that chapter, but does not include any seller with respect
to any sale which is expressly exempted from the tax imposed
by chapter 237.
"Use" (and any nounal, verbal, adjectival, adverbial,
and other equivalent form of the term) . . . means any use,
whether the use is of such nature as to cause the property
or services to be appreciably consumed or not, or the
keeping of the property or services for such use or for
sale, and shall include the exercise of any right or power
over tangible or intangible personal property incident to
the ownership of that property .¥/
in 2004, in Baker t Tayior, 103 Hawai‘i 359, 82 1>.3<1
804, the supreme court interpreted both the Hawai‘i general excise
tax (GET) statute and the use tax statute at issue in this case.
W(...continued)
barter, conditional or otherwise...of tangible personal
property, services, or contracting for a consideration.
2000 Haw. Sess. L. Act 198, § 7 at 475 (emphasis added).
H/ In 2000, the Legislature amended this provision, retroactive to
taxes accruing after December 31, l999, to read:
"Purchaser" means any person purchasing property,
services or contracting and ”importer" means any
person importing property, services, or contracting
2000 Haw. Sess. L. Act 198, § 7 at 475 (emphasis added).
¥/ In 2000, the legislature amended this provision, retroactive to
taxes accruing after December 3l, l999, to read:
"Use" (and any nounal, verbal, adjectival, adverbial,
and other equivalent form of the term)...means any use,
whether the use is of such nature as to cause the property,
services, or contracting to be appreciably consumed or not
2000 Haw. Sess. L. Act 198, § 7 at 476 (emphasis added). The term "use" does
not include, inter alia, use of property acquired by gift, certain temporary
use of property, and certain use of household goods, personal effects and
private automobiles for nonbusiness purposes, §§§ HRS § 238-1 (1993 & Supp.
l999).
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The taxpayer in that case, Baker & Taylor, Inc. (Baker), was a
Delaware corporation with its headquarters and principal place of
business in Charlotte, North Carolina, engaged in selling books
to, among others, the Hawafi State Library. lQ; at 361-62, 82
P.3d at 806-07. Although not specifically stated in the supreme
court's opinion, the parties in that case stipulated and the
court, without a doubt, understood that Baker was a wholesaler of
books and other educational materials to institutional and
commercial customers.¥/ The supreme court's analysis of the use
tax issue was as follows:
The final issue is whether Baker is subject to
Hawaii's use tax. As previously indicated, the use tax
statute, HRS § 238-2, states that '[t]here is hereby levied
an excise tax on the use in this State of tangible personal
property which is imported, or purchased from an unlicensed
seller, for use in this State.' (Emphases added.) The term
'use' under HRS § 238-1 includes 'any use, whether the use
is of such nature as to cause the property to be appreciably
consumed or not, or the keeping of the property for such use
or for sale, and shall include the exercise of any right or
power over tangible personal property incident to the
ownership of that property[.]'
Baker argues that inasmuch as it was stipulated that
title passed on the mainland, Baker did not own the goods
when they arrived in Hawafi. Accordingly, Baker argues it is
not subject to the use tax. On the other hand, the
Department imposed the use tax on Baker on the bases that
(a) Baker imported tangible personal property into Hawafi
for resale pursuant to HRS § 238-2(2) and (b) Baker 'used'
personal property as defined in HRS § 238-1 when it directed
delivery of the purchased goods to Hawai7i customers.
'Where the language of a statute is plain and
unambiguous, our only duty is to give effect to the
statute's plain and obvious meaning.' Iddings v. Mee-Lee, 82
Hawai‘i l, 7, 919 P.2d 263, 269 (l996). According to HRS
§ 238-1, 'imported' mn 'includes importation into the State
from any other part of the United States or its possessions
or from any foreign country, whether in interstate or
foreign commerce, or both.' 'Purchase' is defined as 'any
B/ In footnote 7 of the Baker & Taylor case, the supreme court noted
that Baker and the State had filed a stipulation of facts in the tax appeal
court, Baker & Taylor, 103 HawaFi at 361 n.7, 82 P.3d at 806 n.7. The
stipulation of facts included the fact that Baker was one of the largest
wholesalers of books in the world, with distribution centers in 13 states (but
not Hawafi) and international sales offices in Australia and Japan. In the
case now before us, the Baker & Taylor stipulation was submitted to the Tax
Appeal Court, without objection, in conjunction with the summary judgment
motions.
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transfer, exchange, or barter, conditional or otherwise, in
any manner or by any means, wheresoever consummated, of
tangible personal property for a consideration.' HRS
§ 238-1. The sale of books was directly from Baker to the
Library. Therefore Baker did not import the books from an
unlicensed seller. Furthermore, Baker did not purchase the
books and 'resell' the goods to the Library. Under the
circumstances of this case Baker could not import from
itself or purchase from itself. Therefore, Baker is not
subject to the use tax under the plain language of HRS
§ 238-1.
""" Although the statute defines the word
'import,' there is a parenthetical qualifier
directly after 'import' which states, '(or any
nounal, verbal, adverbial, adjective, or other
equivalent of the term)‘. Therefore, the
definition for 'import' would be equivalent to
'imported.'
Although the Director is concerned with the imposition
of a uniform tax burden, the taxing burden is not at issue
here. As HRS § 238-2 deals with the imposition of a tax on
the ‘use in this State of tangible personal property[,]' it
is inapplicable. The Director's reliance on In Re Tax Appeal
of Habilitat, 65 Haw. l99, 649 P.2d 1126 (l982), is
inapposite. Habilitat, a not-for-profit organization in
Hawafi, advertised the availability of mainland products to
HawaFi consumers. Consumers placed orders with Habilitat and
Habilitat would have the mainland supplier ship the products
directly to the HawaFi consumer. The organization argued
that it never possessed or used the property so it should
not be assessed use taxes. This court disagreed, stating
that the definition of use in HRS § 238-1 included 'the
exercise of any right or power over tangible personal
property incident to the ownership of that property.' ;Q; at
210, 649 P.2d at 1134. Since the organization had the power
to order the mainland supplier to ship the goods to the
consumer, the court found sufficient 'right or power over
the tangible personal property‘ to impose the use tax. ;§;
In contrast, Baker did not direct a third party supplier to
ship the books to the Library. Rather, Baker itself was the
supplier.
Baker & Taylor, 103 Hawafi at 372-73, 82 P.3d at 817-18.
In applying the plain language of HRS § 238-1 and
§ 238-2 (1993), the supreme court held that Baker was not subject
to the use tax. ld; The court first noted that, in order for
§ 238-2 to be triggered, a taxpayer must "import" or "purchase"
tangible personal property from an "unlicensed seller." ;d4
Within this context, the court reasoned that Baker, not a third-
party, was the mainland supplier of the books - therefore, Baker
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did not "import" the books from an "unlicensed seller.¥/" lQ;
The court also expressly observed that Baker did not "purchase
the books and 'resell' the goods to the Library" - thus, the
court concluded that Baker could not "purchase from itself." ld;
With these principles in mind, the court excluded the subject
transactions from the use tax. lg4 When it was enacted, and as
interpreted by the supreme court, the use tax law was established
for the purpose of taxing "the value of goods purchased directly
from non-licensed sellers and brought into the State for resale."
Senate Conf. Comm. Rep. No. 6, 1965 Senate Journal, at 8l4. ln
essence, Baker successfully availed itself of a loophole in the
use tax law by shipping goods it already owned to Hawafi, rather
than goods purchased directly from non-licensed mainland sellers.
In response to the Baker & Taylor decision, the
Legislature immediately passed amendments to HRS §§ 238-1 and
238-2 to close this loophole. §§§ 2004 Haw. Sess. Laws Act ll4,
§ 1 at 431. Act 114 of 2004 expressly amended HRS §§ 238-1 and
238-2, and explained its purpose as follows:
SECTION 1. The purpose of this Act is to clarify
current use tax laws in light of Baker & Taylor, Inc. v.
Kawafuchi, S.C. 23376 (Jan. l4, 2004) and administrative
rule 18-237-13-O2.0l by:
(1) Clarifying when a seller is subject to the 0.5 per
cent use tax;
(2) Restoring the imposition of taxes on goods purchased
both within and outside the State; and
(3) Clarifying that the use tax applies to sellers
who acquire goods from outside the State and
import the product for sale or resale in the
State.
Id. while described as clarifications, the amendments clearly
modified the prior version of the statute as it was interpreted
B/ As noted above, an "unlicensed seller," for purposes of the
Chapter 238 use tax, is generally defined as a seller, who with respect to the
particular transaction, is not subject to the Chapter 237 general excise tax.
§§§ HRS 238-1 (1993). Baker, on the other hand, was subject to the Chapter
237 general excise tax. Baker, 103 HawaFi at 367, 82 P.3d at 8l2.
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by the Hawai/i Supreme Court in Baker & Tavlor. See 2004 Haw.
.sess. Laws Act 114, §§ 2 & 3 at 431-35.-14/
In this case, as in Baker & Taylor, there was no
purchase or importation from an unlicensed seller because CompUSA
itself was the supplier. The State argues that CompUSA
necessarily purchased its goods from unlicensed vendors such as
Apple, HP, Belkin, Palm, etc. However, so did Baker, which was
stipulated to be a book wholesaler, not a publisher or
manufacturer. CompUSA, like Baker, completed its third-party
purchase transactions on the mainland and then shipped the goods
to Hawafi. CompUSA, like Baker, sold goods it owned to its
customers in HawaiH~ The supreme court, in Baker & Taylor,
treated this transaction as an initial sale of the taxpayer's
goods, rather than a resale of goods purchased from an unlicensed
third-party vendor. We must apply the same analysis in this
case. Like the taxpayer in Baker & Taylor, CompUSA could not be
said to have imported or purchased goods from itself, and
therefore was not liable for payment of the use tax under the law
in effect during the Audit Period,
Finally, the State urges us to accord persuasive weight
to the administrative rules promulgated to carry out the purpose
of HRS Chapter 238. However, we are bound by the supreme court's
interpretation of the statute and, as the court noted in Baker &
Taylor, the administrative rule cannot contradict the statute.
Baker & Taylor, 103 HawaFi at 64 n.l4, 82 P.3d at 809 n.14; see
also, e.q., Coon v. Citv and County of Honolulu, 98 HawaFi 233,
251, 47 P.3d 348, 366 (2002) (stating that "it is axiomatic that
an administrative rule cannot contradict or conflict with the
statute it attempts to implement"). Therefore, we need not
examine whether the administrative rule in effect in 2004 was
1-‘*/ As the State reiterated in its answering brief, the State never
took the position that CompUSA was subject to taxation pursuant to 2004
amendments. Therefore, we do not address CompUSA's arguments concerning the
use tax statute, as amended.
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consistent or inconsistent with the supreme court's
interpretation.
V. CONCLUSION
For these reasons, we conclude that the Tax Appeal
Court erred when it denied CompUSA's motion for summary judgment
and granted the State's motion for summary judgment because the
Audited Transactions were not subject to the Hawafi use tax.
_Accordingly, we vacate the Tax Appeal Court's December 22, 2008
Judgment and remand for further proceedings consistent with this
Memorandum Opinion.
DATED: Honolulu, HawaFi, May 28, 20lO.
Ray K. Kamikawa Presiding Judge
(Leroy E. Colombe and
Adrienne S. Yoshihara
with him on the briefs)
(Chun, Kerr, Dodd, Beaman
& Wong)
for Taxpayer-Appellant
Damien A. Elefante, Deputy
Attorney General (Hugh R. Jones,
Deputy Attorney Genera1, with
him on the brief)
for Appellee STATE OF HAWAfI,
DEPARTMENT OF TAXATION
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