For reversal -- Chief Justice Wilentz and Justices Clifford, Schreiber, Handler, Pollock, O'Hern and Garibaldi. For affirmance -- None. The opinion of the Court was delivered by Clifford, J.
[98 NJ Page 66] In these consolidated tax appeals we address the applicability of the New Jersey Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29 (Act), to the amounts expended by plaintiffs for certain outside printing costs in the plaintiffs' publication of free-circulation newspapers. The Director of the Division of Taxation (Director) seeks to apply the Act to so much of the printers' bills to plaintiffs as represent printing services, as well as to all materials other than newsprint. Plaintiffs allege two grounds of exemption: (1) that receipts from sales of newspapers are exempt from the tax imposed by the Act, see N.J.S.A. 54:32B-8(e),*fn1 and (2) that the sale of the newspapers from the printers to plaintiffs are sales for resale, which are exempt from the Act's tax pursuant to N.J.S.A. 54:32B-2(e)(1)(A). Alternatively, plaintiffs allege that the application of this tax to sales such as those at issue here is unconstitutional under the first amendment, N.J.Const. art. 1, para. 6, and the equal protection clause, U.S.Const. amend. XIV.
The record is embodied in the two-page "Stipulation of Facts" filed in each of these now-consolidated cases. The essential facts are as follows:
1. Plaintiff Fairlawn Shopper, Inc., owns, publishes, and distributes a newspaper entitled the "Fairlawn Shopper" and plaintiff Shopper Distributors, Inc., owns, publishes, and distributes newspapers entitled the "Hawthorne Shopper" and the "Garfield Shopper."
2. For the purposes of this litigation, the "Fairlawn Shopper," the "Hawthorne Shopper," and the "Garfield Shopper," when ultimately distributed to readers, are "newspapers" within the meaning of the Act.*fn2
3. The newspapers are primarily distributed free-of-charge and their revenues are derived almost entirely from advertising.
4. The newspapers are actually produced by independent contract printing firms, which supply the necessary paper, ink, and dyes, printing the paper with their own machinery and employees. Plaintiffs nonetheless supply most of the substantive content of the newspapers.
5. The finished product is delivered by the printers to plaintiffs, who distribute the newspapers to the public on a weekly basis.
6. The amount of the tax in issue represents sales or use tax on the portions of the printers' bills to plaintiffs that represent the cost of printing services as well as materials other than newsprint.
7. The parties do not dispute the amount of tax that was assessed.*fn3
On this factual basis the Tax Court found that the exemption afforded by N.J.S.A. 54:32B-8(e) was not intended to exempt newspapers as they pass between printer and publisher. However, Judge Andrew concluded that "the purchases by these plaintiffs of printing services and materials should properly be characterized as sales for the purpose of resale and exempt from sales and use tax. N.J.S.A. 54:32B-2(e)." (Footnote omitted). The Appellate Division, in an unreported decision, reversed the Tax Court judgment "for the reasons expressed in our opinion in Del Val Pennysaver, Inc. v. Director, Division of Taxation, [188 N.J. Super. 108 (1983)] * * *." In Del Val Pennysaver the court concluded that neither N.J.S.A. 54:32B-8(e) nor N.J.S.A. 54:32B-2(e) was applicable in circumstances such as these. In so deciding, the court, relying on Princeton Community Phone Book, Inc. v. Director, Div. of Taxation, 145 N.J. Super. 589 (App.Div.1976), certif. den., 73 N.J. 66 (1977), stated that "what plaintiff's advertisers were buying was advertising space and not the finished shoppers guides per se. * * * It is equally apparent that what the printer sold to plaintiff was neither ...