On this date in 1984, the Supreme Court decided two cases, Fairlawn Shopper, Inc. v. Director, Div. of Taxation, 98 N.J. 64 (1984), and Today Newspapers, Inc. v. Director, Div. of Taxation, 98 N.J. 75 (1984). Both cases involved the question of whether publishers’ purchases of printing services and materials for “pennysavers” (also known as “shoppers”), which are newspapers that are distributed for free and whose “revenues are derived almost entirely from advertising,” were subject to sales tax.
That issue had been the subject of prior Appellate Division decisions, as well as opinions in other jurisdictions. The Fairlawn case itself involved consolidated cases, so the issue continued to be hotly litigated until the Supreme Court ruled in these cases. The Tax Court found the publishers’ purchases to be exempt from sales tax, but the Appellate Division reversed. The cases then came to the Supreme Court.
There were two issues. First, the Sales and Use Tax Act exempted “newspapers” from sales tax. Though the parties had stipulated that the pennysavers were “newspapers,” it remained to be decided whether they should receive a sales tax exemption.
Writing for a unanimous Court, Justice Clifford quoted the observation of the Tax Court that the exemption for “newspapers” was “aimed at the transfer of the publication between the publisher and the reader. This is so even though the product transferred is identical in form when it passes between printer and publisher as when it passes from publisher to reader.” A decision of the Supreme Court of Virginia agreed, and Justice Clifford found those rulings persuasive, declining to follow a contrary decision of Massachusetts’ highest court.
But that did not end the matter. The second issue was whether the statute, which exempts “sales for resale” from taxation, made the publishers’ expenses non-taxable. The statute did not define “resale,” and Justice Clifford observed that “the fact that the plaintiffs distribute the subject newspapers free-of-charge seems to fly in the face of a conclusion that plaintiffs’ purchases of printing services and materials were ‘sales for resale.'”
The statute did, however, define “sale, selling or purchase.” That definition required consideration in the transaction sought to be taxed. There was no consideration paid directly by consumers here, but advertisers paid for the pennysavers in lieu of consumers doing so. The statute did not limit where the required consideration had to come from, and the Supreme Court agreed with the Tax Court’s conclusion that “[i]n effect, the advertisers are subsidizing the readers of these papers to the extent of the price per copy that the publisher would otherwise charge the consumer.” A decision of the Supreme Court of Ohio buttressed the Tax Court’s ruling. Thus, the consideration paid by the advertisers qualified the pennysavers as “sales for resale” and exempted them from sales tax.