Petitioner is a common carrier, organized under the laws of New York, engaged in the business of transporting property. After an audit of petitioner by the Division of Taxation (hereinafter the Division), petitioner filed a claim for a refund in the amount of $3,138,786 for sales and use tax paid during the audit period in connection with the purchase of shipping supplies and other materials provided free of charge to its customers which, petitioner asserted, were promotional materials exempt from tax pursuant to Tax Law § 1115 (n) (4). The Division partially granted the refund to the extent of $35,333 for tax paid on items such as "guides, calendars, brochures, rate charts, zone charts, [and] other printed matter," and denied the claim as to the remaining $3,103,453.
Petitioner thereafter filed a petition for redetermination with the Division of Tax Appeals, with a revised claim for a refund in
Pursuant to Tax Law § 1115 (n) (4), printed promotional materials that are sent to customers or prospective customers by means of a common carrier, without charge to the customer, are exempt from sales and use tax.
In matters of statutory interpretation, our "primary consideration is to ascertain and give effect to the intention of the Legislature" (Matter of DaimlerChrysler Corp. v Spitzer, 7 N.Y.3d 653, 660  [internal quotation marks and citation omitted]; accord Yatauro v Mangano, 17 N.Y.3d 420, 426 ). To this end, the statutory text provides the clearest indication of legislative intent, and should be construed "to give effect to its plain meaning" (Matter of DaimlerChrysler Corp. v Spitzer, 7
Initially, we agree with the Tribunal's determination that "related tangible personal property" refers to materials that are distributed for advertising purposes. However, we reject the contention of respondent Commissioner of Taxation and Finance that the customer supplies at issue do not qualify as promotional materials because they are neither advertising literature nor related thereto. We have previously defined advertisements as "`the action of making generally known; a calling to the attention of the public'" (Matter of Scotsmen Press v State of N.Y. Tax Appeals Trib., 165 A.D.2d 630, 633 , quoting Random House Dictionary of the English Language 29 [2d ed, unabridged 1987]). With this definition in mind, we are persuaded that the supplies at issue here satisfy the ordinary meaning of "promotional materials" because they were designed and distributed for the purpose of promoting petitioner's business and contain a clear promotional message.
At the hearing before the ALJ, two of petitioner's employees — its decentralized tax coordinator and the manager of its
By promoting its air delivery services on the actual shipping materials provided to customers free of charge, petitioner believed that its promotional message would reach a wider audience — initially, petitioner's customers who ordered and used the supplies for shipping and, subsequently, the recipients of the items shipped, who may or may not be its customers, as well as other persons involved in the chain of delivery — and would foster goodwill. Petitioner provided the shipping supplies as part of a welcome kit to all new customers, which also included a rate and service guide and a booklet explaining available services. Customers could request additional materials through petitioner's website or by calling a toll-free telephone number. Significantly, customers were not required to utilize the supplies provided in order to use petitioner's services; conversely, the shipping supplies could even be used in conjunction with a competitor's services.
In our view, the Tribunal's determination that the materials in question were merely branded with petitioner's logo and did not constitute a solicitation is inconsistent with the plain meaning of the statute, and its interpretation of Tax Law § 1101 (b) (12) was "so narrow and literal as to defeat [the provision's] settled purpose" (Matter of Gordon v Town of Esopus, 15 NY3d at 90 [internal quotation marks and citation omitted]).
We are also of the view that petitioner's shipping supplies qualify as tax exempt promotional materials under the category of free gifts. The Tribunal's determination that there was "distinct mutual consideration" for the items is simply not supported by the record, as it is undisputed that customers were under no obligation to use petitioner's services or to use the supplies when shipping with petitioner. Nor were customers prevented from using the supplies to ship items through other common carriers.
As such, we conclude that the Tribunal's determination was irrational and clearly erroneous and that petitioner has satisfied its burden of establishing "that its interpretation of the statute is not only plausible, but also that it is the only reasonable construction" (Matter of Moran Towing & Transp. Co. v New York State Tax Commn., 72 N.Y.2d 166, 173 ; see Matter of Charter Dev. Co., L.L.C. v City of Buffalo, 6 N.Y.3d 578, 582 ). The fact that this construction may, as the dissent notes, result in substantial economic benefits to the beneficiaries thereof, such as petitioner, does not require us to defer to the Tribunal where, as here, doing so would invade the province of the Legislature in enacting the promotional materials exemption (see n 6, supra). If the Legislature intended to place the limitations on such exemption imposed by the Tribunal here, it could have done so.
The parties' remaining contentions have been considered and are either academic or without merit.
McCarthy, J. (concurring).
I agree partially with the majority and partially with the dissent, requiring me to concur with the majority's outcome. The majority annuls the determination of respondent Tax Appeals Tribunal and finds that petitioner was entitled to the claimed tax exemption because the items at issue could be classified as promotional materials in two ways: as "other related tangible personal property" in general, and under the enumerated category of "free gifts" (Tax Law § 1101 [b] ). The dissent concludes that petitioner did not meet its burden on the general or free gifts aspect. As long as the items qualify under either aspect of the exemption, petitioner prevails and the determination must be annulled.
I agree with the dissent that petitioner did not meet its burden of showing that its interpretation of the phrase "other related tangible personal property" was the only possible rational interpretation that could be applied to the disputed items. On the other hand, I agree with the majority that the aspect of the Tribunal's determination finding that the disputed items were not free gifts is irrational. Because I agree with the majority on that aspect, and petitioner is entitled to the exemption if the items qualify as promotional materials under any
Kavanagh, J. (dissenting).
Respondent Tax Appeals Tribunal's determination that certain supplies used by petitioner in its air freight business are not exempt from the state's sales and use tax is rationally based and, in my opinion, should in all respects be confirmed (see Tax Law §§ 1115 [n] ; 1101 [b] ).
The burden imposed upon a taxpayer challenging a determination by the Tribunal denying it a tax exemption is significant and requires the taxpayer to prove "`a clearcut entitlement'" to the exemption (Matter of Golub Serv. Sta. v Tax Appeals Trib. of State of N.Y., 181 A.D.2d 216, 219 , quoting Matter of Luther Forest Corp. v McGuiness, 164 A.D.2d 629, 632 ). Also, to prevail, the taxpayer must not only show that it is clearly and unambiguously entitled to the exemption (see Matter of Federal Deposit Ins. Corp. v Commissioner of Taxation & Fin., 83 N.Y.2d 44, 49 ; Matter of Golub Serv. Sta. v Tax Appeals Trib. of State of N.Y., 181 AD2d at 219; Matter of Old Nut Co. v New York State Tax Commn., 126 A.D.2d 869, 871 , lv denied 69 N.Y.2d 609 ), but also demonstrate that its interpretation of the statute is not only plausible, but, as applied to the attendant circumstances, is the only rational interpretation possible (see Matter of Astoria Fin. Corp. v Tax Appeals Trib. of State of N.Y., 63 A.D.3d 1316, 1318 ; Matter of Brooklyn Navy Yard Cogeneration Partners, L.P. v Tax Appeals Trib. of State of N.Y., 46 A.D.3d 1247, 1248 , lv denied 10 N.Y.3d 706 ). Given this standard, and the fact that such tax exemptions are strictly construed against a taxpayer (see Matter of Gordon v Town of Esopus, 15 N.Y.3d 84, 90 ; Matter of 21 Club, Inc. v Tax Appeals Trib. of State of N.Y., 69 A.D.3d 996, 997 ; Matter of CBS Corp. v Tax Appeals Trib. of State of N.Y., 56 A.D.3d 908, 909-910 , lv denied 12 N.Y.3d 703 ), it is my view that petitioner has not met its burden. Consequently, the determination of the Tribunal that these shipping supplies are not promotional materials entitled to a tax exemption should be confirmed.
In essence, petitioner claims that certain packaging materials it uses in its air freight business are designed and configured in such a way that they not only serve as shipping supplies but also act to promote that business and, as such, qualify as promotional materials that are tax exempt (see Tax Law § 1115 [n] ). There is no dispute that the materials at issue are boxes, paks, envelopes, stickers and labels that are used by petitioner to ship items as part of its air freight operation. But petitioner argues that because these materials are labeled with
In its determination, the Tribunal interpreted the relevant statutes to require that for materials to qualify as "other ... tangible personal property" (Tax Law § 1101 [b] ) related to advertising, they must have been distributed by petitioner "for advertising purposes" and "to educate the public as to the advantages and virtues" of the service they offer for sale in their business (Selsman v Universal Photo Books, 18 A.D.2d 151, 152 ). Here, the markings on these packaging materials were deemed by the Tribunal to function primarily as a means by which petitioner was identified as the entity shipping the items and, as designed, were not a solicitation by petitioner that others employ its services. Its conclusion that the markings on these packaging materials bore a remote and, at best, tangential relationship to advertising — especially since these materials were first and foremost shipping supplies used by petitioner in its air freight operation — is supported by the record and, as such, should be confirmed.
Petitioner also contends that since these packaging materials were provided to customers upon request and without charge, they qualified as gifts that are tax exempt under the statute (see Tax Law § 1101 [b] ). In response, the Tribunal found that these items were not "free gifts" because they were only provided to current customers who had accounts with petitioner and who had entered into a relationship that supported the conclusion that "customers would use the supplies to purchase petitioner's shipping services." Moreover, petitioner does not claim that the cost of these materials would not be passed on to the customer if and when it employed petitioner's services.
Simply stated, there are sound policy reasons for deferring to the Tribunal in its determination as to whether a taxpayer under a given set of circumstances is entitled to a tax exemption under the Tax Law (see Matter of American Tel. & Tel. Co. v State Tax Commn., 61 N.Y.2d 393, 400 ). That, in my opinion, is especially true where the determination involved necessarily carries with it significant implications that go far beyond what is presented by the application under consideration.
Adjudged that the determination is modified, without costs, by annulling so much thereof as found that the supplies were not related tangible personal property and, as so modified, confirmed.