Compusa Stores, LP v. Department of Taxation, State of Hawaii. ( 2011 )

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IN THE SUPREME COURT OF THE STATE OF HAWAI'I
---o0o--- Electronically Filed
Supreme Court
SCWC-29597
COMPUSA STORES LP,
Respondent/Taxpayer-Appellant,
14-FEB-2011
11:14 AM
vs.
DEPARTMENT OF TAXATION, STATE OF HAWAI'I,
Petitioner/Appellee.
NO. SCWC-29597
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(TX05-0065)
FEBRUARY 14, 2011
RECKTENWALD, C.J., NAKAYAMA, ACOBA, AND DUFFY, JJ.,
AND CIRCUIT JUDGE LEE, ASSIGNED BY REASON ON VACANCY
OPINION OF THE COURT BY RECKTENWALD, C.J.
This case arises out of the assessment of the Hawai'i
use tax by the State of Hawai'i, Department of Taxation
(Department) against CompUSA Stores L.P. (CompUSA) on goods that
were transported from the mainland to CompUSA’s retail stores in
Hawai'i during the period between July 1, 1999 and December 31,
2002. During that period, CompUSA caused consumer electronics
goods from various mainland vendors to be shipped to Hawai'i in
order to restock CompUSA’s retail stores in this state.
Hawai'i Revised Statutes (HRS) § 238-2 (1993), quoted
infra, governs the applicability of the Hawai'i use tax. CompUSA
appealed the assessment of the tax in the Land and Tax Appeal
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Court (tax appeal court),1
arguing that it was not subject to the
use tax under In re Tax Appeal of Baker & Taylor, Inc. v.
Kawafuchi, 103 Hawai'i 359, 361-62, 372, 82 P.3d 804, 806-07, 817
(2004) (holding that the use tax did not apply to a mainland
seller who sold and shipped books to the Hawai'i State Library).
CompUSA moved for summary judgment. The Department cross-moved,
contending that Baker & Taylor was not applicable to the instant
case and that the plain language of HRS § 238-2 compelled the
assessment of the use tax against CompUSA. The tax appeal court
granted the Department’s motion and denied CompUSA’s motion,
holding that Baker & Taylor was distinguishable and that the use
tax applied to CompUSA. The court entered a judgment against
CompUSA in the amount of $1,705,337.71. CompUSA appealed.
The Intermediate Court of Appeals (ICA) vacated the tax
appeal court’s judgment and remanded for further proceedings,
holding that Baker & Taylor was controlling and that, pursuant to
that case, CompUSA was not liable for the tax. The Department
seeks review of the ICA’s judgment.
As discussed further infra, we conclude that the ICA
erred in its analysis of HRS § 238-2 and Baker & Taylor.
Specifically, we hold that Baker & Taylor is distinguishable
because the taxpayer in that case, a mainland seller, did not
“use in this State” the imported goods, as required by HRS
1
The Honorable Gary W.B. Chang presided.
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§ 238-2. See HRS § 238-2; Baker & Taylor, 103 Hawai'i at 361-62,
82 P.3d at 806-07. CompUSA, on the other hand, used the goods in
Hawai'i by “keeping of the property” in this state “for sale[.]”
HRS § 238-1 (1993), quoted infra. CompUSA’s transportation of
the goods to Hawai'i for resale to Hawai'i customers also
satisfied the other requirements of HRS § 238-2. We, therefore,
vacate the ICA’s judgment and affirm the tax appeal court’s
judgment.
I. Background
A. Background Facts and Tax Appeal Court Proceedings
The following facts are taken from the record on appeal,
including CompUSA’s undisputed admissions of fact and answers to
the Department’s interrogatories. CompUSA’s corporate
headquarters are located in Dallas, Texas. CompUSA held a Hawai'i
general excise tax license during the relevant period.2 It also
maintained two retail stores in Hawai'i, where it engaged in
“retail sale[s] of computers, computer components, consumer
electronics, and related other products and services[.]”3
CompUSA did not manufacture the goods it sold to its
Hawai'i customers. According to CompUSA, mainland vendors shipped
2
CompUSA, in response to the Department’s request for admission,
confirmed that it held a Hawai'i GET license. Although this admission does
not specifically state that CompUSA was licensed during the period for which
the use tax was assessed, CompUSA’s Opening Brief to the ICA specifically
stated that “during the [relevant period], CompUSA was a licensed taxpayer[.]”
3
CompUSA stated in its Opening Brief to the ICA that it has since
closed its Hawai'i stores.
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products either to its mainland consolidation centers (“cross­
dock” shipment) and then to its Hawai'i retail stores, or directly
to its Hawai'i retail stores (“drop shipment”). In both types of
shipment, vendors shipped the goods pursuant to “F.O.B. Origin”
contracts, which, according to CompUSA, meant that the title and
risk of loss passed to CompUSA on the mainland (the origin of the
shipment).4 CompUSA maintained that “[a]ll purchasing decisions
and all ordering of inventory sold at the retail stores [were]
conducted and managed from” its headquarters in Texas. CompUSA
did not pay the use tax at the time of the shipments at issue.
On June 9, 2004, the Department issued tax assessments
requiring CompUSA to pay, inter alia, a use tax pursuant to
HRS § 238-2(2)(A)5
on CompUSA’s “imports for resale.” (Formatting
4
This court has interpreted F.O.B. provisions in shipment contracts
as follows: “The term FOB generally designates where title to goods passes
from the seller to the buyer. See Black’s Law Dictionary 642 (6th ed. 1990).”
Baker & Taylor, 103 Hawai'i at 362, 82 P.3d at 807.
5
During the relevant period, HRS § 238-2 (1993) provided, in
relevant part:
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:
. . . .
(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
(continued...)
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altered). CompUSA filed a notice of appeal of the assessment with
the tax appeal court.
In the tax appeal court, CompUSA moved for summary
judgment, arguing, inter alia, that under this court’s decision in
Baker & Taylor,6
CompUSA was not subject to the use tax on the
goods which it owned prior to shipment from the mainland to
Hawai'i. The Department cross-moved for summary judgment,
contending that the plain language of HRS § 238-2 and Hawai'i
Administrative Rules (HAR) § 18-238-27
compelled the application of
5
(...continued)
Hawaii; or, if there is no purchase price applicable
thereto, or if the purchase or sale is consummated
outside of Hawaii, then one-half of one per cent of
the value of such property.
(3) In all other cases, four per cent of the
value of the property.
HRS § 238-2 was amended during the relevant period. 1999 Haw.
Sess. Laws Act 71, § 8 at 117-118; 2000 Haw. Sess. Laws Act 198, § 8 at 477­
78; 2000 Haw. Sess. Laws Act 271, § 2 at 940-41. However, these amendments
did not materially affect the quoted portions of the statute and are,
therefore, not relevant to the instant case. Accordingly, this opinion refers
to the 1993 version of the statute unless otherwise noted.
6
As noted previously, in Baker & Taylor, this court held that the
use tax did not apply to a mainland seller who sold and shipped, F.O.B.
origin, books to the Hawai'i State Library. 103 Hawai'i at 361-62, 372, 82
P.3d at 806-07, 817.
7
HAR § 18-238-2(b) (1998) implements HRS § 238-2 and provides, in
relevant part:
[I]f the importer or purchaser is licensed under
the general excise tax law, chapter 237, HRS, and is
(1) a retailer or other person importing or purchasing
for purposes of resale and not exempted by subsection
(a), . . . the tax shall be one-half of one per cent
of the purchase price of such tangible personal
property, if the purchase and sale are consummated in
Hawaii, or, if there is no purchase price applicable
thereto, or if the purchase or sale is consummated
outside of Hawaii, then one-half of one per cent of
the landed value of such property imported into
Hawaii. . . .
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the use tax to CompUSA, and that the facts in Baker & Taylor were
distinguishable. At the hearing on the cross-motions, the tax
appeal court ruled from the bench, holding that Baker & Taylor did
not apply to the facts of the instant case and that CompUSA’s
transactions were subject to the use tax pursuant to HRS § 238-2.
The court stated:
[W]hat we are dealing with is a situation where
the legislature is attempting to level the playing
field between local vendors or sellers and mainland
sellers, and there appears to be a concern that
mainland sellers, because they may not be subject to
the excise tax, wholesale tax, may have a huge
advantage over the local vendors. And so, that could
be one of the reasons underlying the use tax in the
case at bar.
The Court does agree that the use tax is viewed
generally as a tax that compliments [sic] the general
excise tax on gross revenues, and I think that this
Court is most persuaded by two facts that distinguish
the case at bar from the Baker & Taylor case. First of
all, the Court does not believe that the Baker &
Taylor case involved a sale from the publisher, or
manufacturer, of the books to Baker & Taylor. Contrast
that with the facts in the case at bar, which clearly
shows that CompUSA is not the manufacturer of these
products but instead purchases these products from a
mainland manufacturer. So, that is one factual
distinction of significance.
The second fact of significant distinction in
the case at bar is that we do not have a sales
transaction comparable to the sale between Baker &
Taylor and the library, Hawaii State Public Library
System. Instead, we have one retailer that happens to
be a national corporation, CompUSA. So, the
distribution center of CompUSA does not have to sell
any merchandise or inventory to the Hawaii retail
stores.
So, we do not have -- the two primary distinct
-- facts distinguishing the case at bar from the Baker
& Taylor case is, number one, the existence of a
purchase transaction between the manufacturer and
CompUSA, and secondly, the absence of a sales
transaction between mainland CompUSA and Hawaii
CompUSA that is comparable to the transaction of the
book sales from Baker & Taylor [sic] to the Hawaii
State Library.
Those two facts are critical when we look at
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Justice Acoba’s analysis in Baker & Taylor, because
Justice Acoba noted at page 372 of the Hawaii public
-- Hawaii cite of Baker & Taylor that the books were
sold directly from Baker & Taylor [sic] to the
library, and therefore, Baker & Taylor [sic] did not
import the books from an unlicensed seller. The Court
believes that is a significant point that
distinguishes Baker & Taylor from the case at bar.
In the case at bar, there does appear to be an
unlicensed seller[,] that is all of the component or
product manufacturers that sold product to CompUSA for
the purpose of retail or resale here at Hawaii.
Justice Acoba went on to say that Baker & Taylor
[sic] did not purchase the books and resell the goods
to the library. That is also a fact of distinction
from the case at bar, where we did have CompUSA
purchasing the inventory or products for sale on the
mainland. They purchased it on the mainland for the
purpose of reselling it here in Hawaii to the ultimate
user.
So, we have a situation that does appear to fall
within Section 238-2 Subsection 2 Subsection A, which
states, “If the importer or purchaser is licensed
under Chapter 237 and is a retailer or other person
importing or purchasing for the purposes of resale,”
et cetera.
The Court does find and conclude that the
CompUSA series of transactions fall within Section
238-2 Subsection 2 Subsection A, and therefore, for
these and any other good cause shown in the record,
the Court will respectfully grant the [Department’s]
motion for summary judgment and deny [CompUSA’s]
motion for summary judgment.
On December 22, 2008, the tax appeal court issued its
order granting the Department’s motion for summary judgment. On
that day, the court also issued its order denying CompUSA’s motion
for summary judgment. Finally, on the same day, the tax appeal
court entered a judgment in favor of the Department and against
CompUSA, pursuant to the above orders. On January 21, 2009,
CompUSA timely filed a notice of appeal.
B. ICA Appeal
In its Opening Brief, CompUSA argued that this court’s
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decision in Baker & Taylor precluded the assessment of the use tax
against CompUSA. CompUSA contended that the distinctions on which
the tax appeal court relied in its oral ruling were non-existent.
Addressing the first purported distinction, CompUSA
relied on a stipulation of facts from Baker & Taylor, which
CompUSA submitted to the tax appeal court as an exhibit in support
of its memorandum in opposition of the Department’s motion for
summary judgment. Citing the stipulation, CompUSA argued that the
taxpayer in that case was a “wholesaler” who, similar to CompUSA,
purchased the goods from third-party suppliers and shipped them
into Hawai'i.8 Addressing the second purported distinction,
CompUSA argued that its transactions were similar to the ones in
Baker & Taylor because “[i]n both cases, there [was] a purchase
transaction outside the State of Hawaii between a
manufacturer/publisher and the taxpayer[, where] the taxpayer then
[brought] its own goods into the State[, and where] there [was]
only one sales transaction in the State[.]”
Finally, CompUSA discussed the 2004 legislative
amendments to HRS chapter 238.9 CompUSA contended that retroactive
8
Stipulated Fact 4 specifically referred to the taxpayer in Baker &
Taylor as “one of the largest wholesalers of books in the world[.]”
9
In 2004, the legislature made several amendments to the use tax
statute in response to Baker & Taylor. 2004 Haw. Sess. Laws Act 114, § 1 at
431 (“The purpose of this Act is to clarify current use tax laws in light of
Baker & Taylor[.]”). The following passages highlight the relevant
differences between the pre- and post-amendment text of the definitional
provisions of HRS chapter 238. HRS § 238-1 (1993) defined “import” as
“includ[ing] importation into the State from any other part of the United
States or its possessions or from any foreign country, whether in interstate
(continued...)
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application of the 2004 legislative amendments was
unconstitutional under the Due Process clause, in contravention of
9
(...continued)
or foreign commerce, or both.” The 2004 amendments, on the other hand,
contain the following definition:
(1) The importation into the State of tangible
property, services, or contracting owned, purchased
from an unlicensed seller, or however acquired, from
any other part of the United States or its possessions
or from any foreign country, whether in interstate or
foreign commerce, or both[.]; and
(2) The sale and delivery of tangible personal
property owned, purchased from an unlicensed seller,
or however acquired, by a seller who is or should be
licensed under the general excise tax law from an
out-of-state location to an in-state purchaser,
regardless of the free on board point or the place
where title to the property transfers to the
purchaser.
2004 Haw. Sess. Laws Act 114, § 2 at 431-32 (formatting in original).
In addition, the definition of “use” in the 1993 version of the
statute read as follows:
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, but the term “use” shall
not include [a number of exceptions].
HRS § 238-1 (1993).
However, the definition of “use” in the 2004 amendments includes:
any use, whether the use is of such nature as to
cause the property, services, or contracting 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, and shall include
control over tangible or intangible property by a
seller who is licensed or who should be licensed under
chapter 237, who directs the importation of the
property into the [S]tate for sale and delivery to a
purchaser in the State, liability and free on board
(FOB) to the contrary notwithstanding, regardless of
where title passes . . . .
2004 Haw. Sess. Laws Act 114, § 2 at 432 (formatting in original).
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the judiciary’s “exclusive power to interpret the law,” and
invalid as a legislative attempt “to overrule” the judiciary.10
(Formatting altered).
In its Answering Brief, the Department reiterated its
position that the plain language of HRS §§ 238-1, 238-2 and HAR
§ 18-238-2 subjected CompUSA to the use tax. Specifically, the
Department argued that the statutes and the administrative rule
clearly apply to a Hawai'i-licensed retailer who purchased goods
from an unlicensed seller outside of Hawai'i and imported such
goods into the state in order to sell them at retail to the
general public in Hawai'i. The Department also reiterated its
contention that Baker & Taylor was distinguishable from the
instant case because, unlike CompUSA, the taxpayer in Baker &
Taylor 1) did not direct a third-party supplier to ship goods to
Hawai'i; 2) relinquished title to the goods on the mainland before
shipping them to Hawai'i; and 3) did not ship the goods to Hawai'i
with the purpose of reselling them here.
The Department also argued that CompUSA’s contentions
regarding the 2004 legislative amendments to HRS chapter 238 were
“irrelevant” because the tax appeal court did not rule on the
issue. Finally, the Department contended that the amendments
constituted a clarification, rather than a substantive change, of
10
There is no indication that the tax appeal court relied on the
2004 amendments in granting the Department’s motion for summary judgment.
According to CompUSA’s Reply Brief in the ICA, CompUSA made this argument to
“protect its position on [] appeal” in the event the ICA addressed the
retroactive application of the 2004 amendments.
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the statutory language.
In its Memorandum Opinion, the ICA held that CompUSA was
not subject to the use tax on the goods in question. As to the
relevance of Baker & Taylor, the ICA first noted that, “[a]lthough
not specifically stated in the . . . opinion, the parties in that
case stipulated and the court, without a doubt, understood that
[the taxpayer there] was a wholesaler of books and other
educational materials to institutional and commercial customers.”
(Footnote omitted). The ICA relied on the copy of the Baker &
Taylor stipulation, which CompUSA submitted to the tax appeal
court as an exhibit to its memorandum in opposition of the
Department’s motion for summary judgment. The Department did not,
in the tax appeal court or the ICA, object to the introduction of
the Baker & Taylor stipulation.
The ICA applied Baker & Taylor as follows:
In this case, as in Baker & Taylor, there was no
purchase or importation from an unlicensed seller
because CompUSA itself was the supplier. The
[Department] 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 Hawai'i. CompUSA, like
Baker, sold goods it owned to its customers in
Hawai'i. 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 [relevant period].
The ICA, accordingly, held that Baker & Taylor compelled
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the conclusion that CompUSA was not subject to the use tax.
The ICA also rejected the Department’s argument that
HAR § 18-238-2 required a different result, reasoning that an
administrative rule “cannot contradict the statute.” With regard
to the 2004 legislative amendments, the ICA held that the
amendments constituted a modification, not a “clarification,” of
the existing law. The ICA did not apply the modified statute to
the instant case, implicitly holding that the amendments did not
apply retroactively to CompUSA’s pre-amendment conduct. The ICA
further noted that the purpose of the amendments was to close “a
loophole in the use tax law” of which the taxpayer in Baker &
Taylor “successfully availed itself . . . by shipping goods it
already owned to Hawai'i, rather than goods purchased directly from
non-licensed mainland sellers.”
The ICA filed its judgment on August 30, 2010, vacating
the tax appeal court’s judgment and remanding for further
proceedings consistent with the memorandum opinion. The
Department timely filed its application on November 22, 2010.
CompUSA filed a timely response on December 7, 2010.
C. Application and Response
In its application, the Department argues that the ICA
erred in holding that the use tax did not apply to CompUSA.11 The
11
Specifically, the Department raises the following questions:
1. Whether the [ICA] correctly interpreted
and applied Hawaii’s use tax law, Chapter 238, [HRS].
(continued...)
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Department argues that the purpose of the use tax, as set forth in
its legislative history, was to “tax[] the value of goods
purchased directly from non-licensed sellers and brought into the
State for resale.” (Quoting S. Conf. Comm. Rep. No. 6, in 1965
Senate Journal, at 814) (emphasis omitted). The Department also
relies on the plain language of HRS § 238-2, reasoning that
property is taxable if it was “either (1) imported for resale in
Hawaii or (2) purchased from an unlicensed seller for resale in
Hawaii[.]” (Emphasis in original) (footnote omitted). The
Department also argues that the ICA’s decision “nullifies the use
tax law for the tax years at issue because its decision means that
there would be no instance where the use tax would apply.”
Finally, the Department contends that the ICA’s reading
of Baker & Taylor improperly assumed “facts [that] are clearly
unsupported by the Baker & Taylor record on appeal[.]”
Specifically, the Department challenges the ICA’s conclusions that
1) the taxpayer in Baker & Taylor purchased goods on the mainland
and then shipped them to Hawai'i; and 2) the transaction was “the
initial sale of the taxpayer’s goods, rather than a resale of
goods purchased from an unlicensed third-party vendor.”12
11
(...continued)
2. Whether the ICA erred in its
interpretation and application of [Baker & Taylor] to
the facts of this case.
12
In our view, this argument somewhat mischaracterizes the ICA’s
decision. The ICA did not state that the transaction in Baker & Taylor was in
fact an initial sale, rather than a resale. Instead, the ICA concluded that
(continued...)
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(Internal quotation marks omitted).
CompUSA, in its response, argues that the ICA correctly
applied Baker & Taylor to the instant case. Alleging that the
Department is principally concerned with “state tax revenues,”
CompUSA notes that “laws should be applied according to their
plain language, and not with reference to revenue enhancement.”
CompUSA urges this court to “apply the plain language of the
statute, and not rely on legislative history to create an issue.”
It also reiterates the arguments in its ICA briefs, contending
that Baker & Taylor is applicable to the case at bar. CompUSA
argues that it was similarly situated to the taxpayer in Baker &
Taylor because CompUSA “purchased goods on the mainland, brought
them to Hawaii, and sold them in Hawaii to its customers.”
Finally, CompUSA contends that “there is little practical reason
for this court to revisit its no [sic] decision” in Baker & Taylor
because the 2004 legislative amendments to the use tax statute
eliminated “what the ICA characterized as a ‘loophole’[.]”
(Formatting altered) (footnote omitted).
II. Standard of Review
The appellate court reviews a “grant or denial of
summary judgment de novo.” Querubin v. Thronas, 107 Hawai'i 48,
56, 109 P.3d 689, 697 (2005).
12
(...continued)
this court treated that transaction as an initial sale. The distinction is
important because the Department argues that the ICA “assumed facts that were
never in the record or stated in the Baker & Taylor opinion.”
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This court has explained that:
[S]ummary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law. A fact is
material if proof of that fact would have the effect of
establishing or refuting one of the essential elements of a
cause of action or defense asserted by the parties. The
evidence must be viewed in the light most favorable to the
non-moving party. In other words, we must view all of the
evidence and the inferences drawn therefrom in the light most
favorable to the party opposing the motion.
Id. (citations omitted) (brackets in original); see also Hawai'i
Rules of Civil Procedure Rule 56(e).
III. Discussion
A. The plain language of HRS §§ 238-1 and 238-2 compels the
application of the use tax to CompUSA
The dispositive issue in this case is whether HRS
chapter 238 requires the assessment of the use tax against the
goods which CompUSA transported from the mainland to its Hawai'i
retail stores.
The use tax is closely connected with Hawaii’s general
excise tax (GET). In re Hawaiian Flour Mills, Inc., 76 Hawai'i 1,
13, 868 P.2d 419, 431 (1994); In re Habilitat, Inc., 65 Haw. 199,
209, 649 P.2d 1126, 1133-34 (1982). The GET places a 0.5% tax on
the business of manufacturing and wholesaling in Hawai'i, resulting
in a price differential between the products made and sold
wholesale locally and the same products made and sold wholesale on
the mainland. HRS §§ 237-13(1)-(2) (1993); Habilitat, 65 Haw. at
209, 649 P.2d at 1133-34. “In the absence of a use tax that
complements a GET, sellers of goods acquired out-of-state
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theoretically enjoy a competitive advantage over sellers of goods
acquired in-state: . . . out-of-state products would be less
expensive than in-state products, the prices of which would
presumably reflect some pass-on of the GET.” Flour Mills, 76
Hawai'i at 13, 868 P.2d at 431; see Habilitat, 65 Haw. at 209, 649
P.2d at 1133-34.
The Department assessed a use tax on CompUSA’s “imports
for resale” for the period between July 1, 1999 and December 31,
2002, pursuant to HRS § 238-2(2)(A). (Formatting altered). The
relevant language of HRS § 238-2 during that period was as
follows:
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:
. . . .
(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), or (B) a manufacturer
importing or purchasing material or commodities which
are to be incorporated by the manufacturer into a
finished or saleable product (including the container
or package in which the product is contained) wherein
it will remain in such form as to be perceptible to
the senses, and which finished or saleable product is
to be sold at retail in this State, in such manner as
to result in a further tax on the activity of the
manufacturer in selling such products at retail, or
(C) a contractor importing or purchasing material or
commodities which are to be incorporated by the
contractor into the finished work or project required
by the contract and which will remain in such finished
work or project in such form as to be perceptible to
the senses, 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 there is no
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purchase price applicable thereto, or if the purchase
or sale is consummated outside of Hawai'i, then
one-half of one per cent of the value of such
property.
(3) In all other cases, four per cent of the
value of the property.
HRS § 238-2 (1993) (emphasis added).
The plain language of HRS § 238-2(2)(A) set forth the
following requirements for the imposition of the use tax pursuant
to that subsection: 1) the taxpayer is licensed under HRS chapter
237; 2) the taxpayer is a retailer; and 3) the taxpayer imported
or purchased the goods for purposes of resale. HRS § 238-2(2)(A).
The introductory paragraph of HRS § 238-2 also made clear that the
tax was levied on “the use in this State.” Thus, the taxpayer
must have used the imported or purchased goods within the state in
order to be subject to the tax. In other words, HRS § 238-2
imposed a tax on the purchaser of out-of-state goods for using the
goods within the state. Such imposition is wholly consistent with
the statute’s purpose of minimizing the price advantage of out-of­
state goods. See Flour Mills, 76 Hawai'i at 13, 868 P.2d at 431;
Habilitat, 65 Haw. at 209, 649 P.2d at 1133-34.
Finally, the introductory paragraph of HRS § 238-2
provided another prerequisite to the imposition of the use tax.
Where the tax is premised on the purchase (rather than
importation) of goods, the purchase must be “from an unlicensed
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seller[.]”13 HRS § 238-2.
Turning to the facts of the instant case, CompUSA
admitted that during the relevant period it held a Hawai'i general
excise license. CompUSA also was a “retailer” under the statute.
During the relevant period, HRS § 238-1 (1993) provided, as it
does now, that the word “retailer” for purposes of the use tax is
defined in chapter 237. HRS § 237-16 (1993) provided that
retailing includes “the sale of tangible personal property, for
consumption or use by the purchaser and not for resale[.]”14 It is
undisputed that CompUSA engaged in such sales at its Hawai'i retail
stores.
The requirement that the taxpayer use the goods in the
state is also met here. HRS § 238-1 defined “use” as “any use[,]”
13
The punctuation in the introductory paragraph makes clear that the
“unlicensed seller” qualifier applies only to purchases and not to imports:
“property which is imported, or purchased from an unlicensed seller, for use
in this State.” HRS § 238-2. Although some statements in Baker & Taylor may
be read to apply the “unlicensed seller” requirement to imports, such reading
of Baker & Taylor would be unreasonable in light of the clear language of the
statute. HRS § 238-2 (applying the use tax to “property which is imported, or
purchased from an unlicensed seller, for use in this State”); cf. Baker &
Taylor, 103 Hawai'i at 372, 82 P.3d at 817 (“Therefore [the taxpayer] did not
import the books from an unlicensed seller.”).
14
HRS 237-16 (1993) imposed a GET on “certain retailing[.]” It
stated that “[p]ersons on whom a tax is imposed by this section hereinafter
are called ‘retailers’.” Id. HRS 237-16 was amended during the relevant
period in ways that do not materially affect the quoted portions of the
statute. 1999 Haw. Sess. Laws Act 71, § 7 at 116-17; 2000 Haw. Sess. Laws Act
198, § 5 at 474. In addition, HRS § 237-16 was repealed in 2003, 2003 Haw.
Sess. Laws Act 135, § 11 at 329, and the definition of “retailer” set forth in
HRS § 237-16 (1993) was incorporated into HRS § 237-1. 2003 Haw. Sess. Laws
Act 135, § 1 at 318. In any event, HRS § 237-16 was operative during the
relevant period in this case.
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including “keeping of the property . . . for sale[.]”15 CompUSA
admitted that the products in question were shipped to its Hawai'i
stores, from which it sold the products to Hawai'i customers.
Therefore, on the undisputed facts, CompUSA “ke[pt] the property
. . . for sale” “in this State.” HRS § 238-1 and 238-2. Such
“keeping of the property . . . for sale” constituted a use of the
property in this state, as required under HRS § 238-2. HRS
§ 238-2 (“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.”)
(emphasis added).
The next requirement for imposing the use tax under HRS
§ 238-2(2)(A) is that the taxpayer “import[] or purchas[e] [the
goods] for purposes of resale[.]” HRS § 238-2(2)(A). HRS § 238-1
(1993) provided the following definitions of “import” and
“purchase”:
“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.
. . . .
“Purchase” and “sale” mean and refer to any
transfer, exchange, or barter, conditional or
15
HRS § 238-1 was amended during the relevant period. 1999 Haw.
Sess. Laws Act 70, § 4 at 102-05; 2000 Haw. Sess. Laws Act 27, § 2 at 51; 2000
Haw. Sess. Laws Act 38, § 3 at 68-69; 2000 Haw. Sess. Laws Act 198, § 7 at
475-77; 2001 Haw. Sess. Laws Act 210, § 3 at 530-32; 2002 Haw. Sess. Laws Act
40, § 8 at 126. However, these amendments did not materially affect the
quoted portions of the statute and are, therefore, not relevant to the instant
case. Accordingly, this opinion refers to the 1993 version of the statute
unless otherwise noted.
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otherwise, in any manner or by any means, wheresoever
consummated, of tangible personal property for a
consideration.
The term “importation” is defined as “[t]he bringing of
goods into a country from another country,” Black’s Law Dictionary
824 (9th ed. 2009), or “the act or practice of bringing in (as
merchandise) from an outside or foreign source,” Webster’s Third
New International Dictionary 1135 (3d ed. 1966). The statutory
definition clarified that the term includes the transfer of goods
into Hawai'i from another state or a territory of the United
States. HRS § 238-1. Thus, the act of bringing goods from
outside of Hawai'i into the state constitutes “importation.”
In the instant case, CompUSA admitted that it directed
the transport of goods from its mainland consolidation centers or
suppliers to its Hawai'i retail stores. Therefore, it imported the
goods into the state. It is also clear from the undisputed facts
that CompUSA did so “for purposes of resale,” HRS § 238-2(2)(A),
because it transported the goods from the mainland in order to
restock its Hawai'i retail stores.
Moreover, CompUSA’s responses to the Department’s
interrogatories and requests for admission make clear that it also
“purchas[ed]” the goods “for purposes of resale[.]” HRS
§ 238-2(2)(A). According to CompUSA, some of the goods in
question were shipped by CompUSA’s mainland suppliers directly to
its Hawai'i stores as drop shipments. Therefore, on the undisputed
facts, when CompUSA purchased goods from its mainland suppliers
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for drop shipments, it intended to resell them in Hawai'i.
CompUSA also purchased goods with intent to resell them
in Hawai'i when it ordered cross-dock shipment goods from its
suppliers. With cross-dock shipments, mainland suppliers would
ship the purchased goods to a CompUSA mainland consolidation
center, from which CompUSA would ship the goods to its Hawai'i
stores. CompUSA stated in its response to an interrogatory that:
CompUSA utilized a software system during the
[relevant period] to analyze the inventory and sales
for the retail stores and make future sale forecasts.
. . . Based on the analysis performed using this
software in Dallas, goods are allocated to the various
retail stores, including the two Hawaii stores.
. . . .
. . . Vendors’ goods bound for Hawaii are served
by the cross-dock at La Palma, California.
(Emphasis added).
Additionally, in support of its motion for summary
judgment, CompUSA submitted a declaration from Joe Miller, who was
its “replenishment buyer” and the “Director of Replenishment”
during the relevant period. As such, he “was involved in the day-
to-day purchasing and allocating process[.]” The declaration
described how the software system was utilized to purchase goods
for restocking CompUSA’s Hawai'i stores:
9. . . . I was one of the people integrally
involved with [the development of the software
system].
. . . .
13. During the [relevant period] . . ., 12
[employees] were replenishment buyers who used the
system on a daily basis for purchasing (i.e. direct-
to-store orders through drop shipment) and allocating
(i.e., ordering products to be shipped to individual
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stores through cross-docks).
. . . .
16. . . . As a team, we would forecast what
individual CompUSA retail stores may need, including
the stores in Hawaii. We based this on a combination
of factors, including previous years’ data,
seasonability, reports, and forecasts from the finance
department. We then input this information into the
[software system], and the system calculated how much
of any particular good to order.
(Emphasis added).
Therefore, on the undisputed facts, CompUSA determined
the amount of restocking required at its Hawai'i stores and ordered
the goods from the mainland suppliers based on that determination.
CompUSA, therefore, purchased the goods from the suppliers with
the purpose of reselling the same goods in Hawai'i.
As previously noted, in order to impose the use tax on
the basis of a purchase, the purchase must be from an “unlicensed
seller[.]” HRS § 238-2. HRS § 238-1 defined “unlicensed seller”
as a seller who is not subject to the Hawai'i GET. As the ICA
stated, it is undisputed that the goods which CompUSA purchased
from its mainland suppliers “did not subject the third-party
vendors to the Hawai'i [GET].” Therefore, the “unlicensed seller”
requirement is satisfied in this case.
In sum, the plain language of the use tax statute, as
applied to the undisputed facts of the instant case, compels the
conclusion that CompUSA is liable for the use tax because it is a
“retailer” licensed under HRS chapter 237, it used the goods in
Hawai'i, and it did so after it imported and purchased them “for
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purposes of resale[.]” See HRS § 238-1 and 238-2.
B. CompUSA’s reliance on Baker & Taylor is misplaced because
CompUSA’s circumstances are not analogous to those of the
taxpayer in that case
CompUSA argues that it is not subject to the use tax
under this court’s decision in Baker & Taylor. In that case, this
court held that a mainland seller was not subject to the use tax
on books which it sold and shipped, F.O.B. mainland, to the Hawai'i
State Library (library). Baker & Taylor, 103 Hawai'i at 361-62,
372, 82 P.3d at 806-07, 817. The taxpayer had no offices or
employees based in Hawai'i and did not hold a Hawai'i GET license
during the relevant period. Id. at 361-62, 82 P.3d at 806-07.
Its employees visited Hawai'i on several occasions to meet with
representatives of the library in order to discuss a contract to
sell books to the library. Id. at 362-63, 82 P.3d at 807-08.
After the contract was formed, the taxpayer shipped the books from
the mainland to the library pursuant to an “FOB point of shipment”
contract.16 Id. at 362, 82 P.3d at 807. This court explained
that, under that contract, the “title passed from [the taxpayer]
to the customer at the loading docks on the mainland[.]” Id.This court held that the use tax did not apply to the
taxpayer in that case because “[t]he sale of books was directly
16
This court also noted that, prior to the transactions in question,
the taxpayer had also made sales to Hawai'i customers pursuant to “FOB Hawai'i”
contracts. Id. at 362, 82 P.3d at 807. However, the taxpayer did not
challenge the assessment of the use tax against those sales. Id. at 372, 82
P.3d at 817 (“[The taxpayer] argues that inasmuch as it was stipulated that
title passed on the mainland, [the taxpayer] did not own the goods when they
arrived in Hawai'i.”).
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from [the taxpayer] to the [l]ibrary.” Id. at 372, 82 P.3d at
817. The court stated that:
[The taxpayer] did not import the books from an
unlicensed seller. Furthermore, [the taxpayer] did not
purchase the books and “resell” the goods to the
[l]ibrary. Under the circumstances of this case [the
taxpayer] could not import from itself or purchase
from itself. Therefore, [the taxpayer] is not subject
to the use tax under the plain language of HRS
§ 238-1.
Id.
CompUSA argues that it was similarly situated to the
taxpayer in Baker & Taylor because it owned the goods before they
were shipped to Hawai'i, and, therefore, it “could not import from
itself or purchase from itself.” (Internal quotation marks
omitted). However, the taxpayer in Baker & Taylor was in a
significantly different position from CompUSA. As noted above,
the use tax attaches to the use of goods in this state and is
imposed on the purchaser of the goods who makes such use of them.
HRS § 238-2. The taxpayer in Baker & Taylor did not use the books
in Hawai'i. Once it sold the books and once the title passed on
the mainland, it no longer owned them, and it had no presence in
Hawai'i to make any use of them. See id. at 361-62, 372, 82 P.3d
at 806-07, 817. CompUSA, on the other hand, was the purchaser of
the goods in the instant case. It had the title to the goods by
the time they arrived in Hawai'i, and it used the goods by “keeping
[them] for sale[.]” HRS § 238-1.
Thus, CompUSA’s suppliers, and not CompUSA, were
comparable to the taxpayer in Baker & Taylor because, once the
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title to the goods passed from the suppliers on the mainland, they
could no longer import or purchase from themselves under the
reasoning in Baker & Taylor.17 See Baker & Taylor, 103 Hawai'i at
372, 82 P.3d at 817. CompUSA, on the other hand, was in exactly
the opposite position: it could and did use the goods in Hawai'i
after the title passed on the mainland. That is, unlike in Baker
& Taylor, where the title passed from the taxpayer before the
goods reached Hawai'i, the title here passed to the taxpayer on the
mainland. Thus, unlike the taxpayer in Baker & Taylor, CompUSA
had the title to the goods when they arrived in Hawai'i, where
CompUSA “used” the goods by keeping them for resale.
This court also stated in Baker & Taylor that the
taxpayer “did not import the books from an unlicensed seller”
because “[t]he sale of books was directly from [the taxpayer] to
the [l]ibrary.” Id. It could be argued that this language allows
any Hawai'i purchaser to avoid the use tax on the resale of goods
purchased directly from mainland. However, such an interpretation
conflicts with this court’s case law and the very purpose of the
use tax. As this court has declared, “the enactment of the use
tax in 1965 was prompted in part by the ‘substantial volume of
17
It should be noted that it is no longer clear that CompUSA’s
suppliers or similarly situated companies can rely on Baker & Taylor to avoid
the use tax. The 2004 amendments to HRS chapter 238 provide that the
definitions of “import” and “use” operate notwithstanding the F.O.B. point or
where the title to the goods passes. 2004 Haw. Sess. Laws Act 114, § 1 at
431-32. The legislature also provided that the amendments “shall take effect
retroactive to taxable years beginning after December 31, 1998.” 2004 Haw.
Sess. Laws Act 114, § 7 at 435. However, because CompUSA is subject to the
use tax statute notwithstanding the 2004 amendments, this court need not
decide whether the 2004 amendments apply retroactively.
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sales by unlicensed sellers to local buyers (that) . . . escape(d)
taxation because such sales . . . (were) accomplished directly
between buyer and seller without the services of an
intermediary.’” Habilitat, 65 Haw. at 209, 649 P.2d at 1134(emphasis added) (alterations in original) (quoting H. Conf. Comm.
Rep. No. 21, in 1965 House Journal, at 843).
When read in the factual context of the case, the above
quote from Baker & Taylor clarifies that the use tax did not apply
to the out-of-state seller who sold directly to a Hawai'i customer.
See Baker & Taylor, 103 Hawai'i at 361-62, 82 P.3d at 806-07(noting that the taxpayer had no staff, offices, or real estate in
Hawai'i). Baker & Taylor did not, however, hold that the in-state
purchaser, i.e. the person “us[ing the goods] in this State,” HRS
§ 238-2, is also free from the use tax. If both the seller and
the purchaser were relieved of the tax burden, then the use tax
would not accomplish its goal of minimizing the price advantage of
buying directly from a mainland seller. Habilitat, 65 Haw. at
200, 209, 649 P.2d at 1128, 1134 (holding that a Hawai'i purchaser
of mainland goods was subject to the use tax when it “directed the
unlicensed sellers to transmit the purchased goods to [its Hawai'i
customers].”).
Because Baker & Taylor is distinguishable from the case
at bar, the analysis of the use tax statute set forth in Part
III.A of this opinion controls. Therefore, CompUSA is liable for
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the use tax under HRS § 238-2(2)(A).18
IV. Conclusion
On the undisputed facts, the use tax applies to CompUSA
as a matter of law. Therefore, the tax appeal court properly
granted the Department’s motion for summary judgment and denied
CompUSA’s motion for summary judgment, and the ICA erred in
vacating the tax appeal court’s judgment.
Accordingly, we vacate the judgment of the ICA and
affirm the judgment of the tax appeal court.
Ray K. Kamikawa and Leroy E. /s/ Mark E. Recktenwald
Colombe (Chun, Kerr, Dodd,
Beaman & Wong) for /s/ Paula A. Nakayama
respondent/
taxpayer-appellant. /s/ Simeon R. Acoba
Hugh R. Jones and Damien A. /s/ James E. Duffy, Jr.
Elefante, Deputy Attorneys
General, for /s/ Randal K.O. Lee
petitioner/appellee.
18
In addition, because Baker & Taylor is distinguishable from this
case, this court need not reach the question whether the 2004 legislative
amendments to HRS chapter 238 apply retroactively.
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