SCHOLASTIC BOOK CLUBS, INC. v. COMMISSIONER OF REVENUE SERVICES, SC 18425

Judicial District of New Britain

 Taxation; Whether Connecticut Schoolteachers were the "Representatives" of an Out-of-State Seller of Children's Books for Purposes of Connecticut Sales and Use Taxes.  The plaintiff, Scholastic Book Clubs, Inc., is a Missouri corporation, which distributes and sells children's books and other related educational products to nursery, elementary and secondary schools throughout the United States, including Connecticut.  Connecticut schoolteachers have played a role in the plaintiff's sales and distribution process in that they have, among other things, distributed the plaintiff's catalogs to their students, collected student orders, mailed orders to the plaintiff's headquarters in Missouri, distributed the plaintiff's books to their students and resolved issues relating to defective books and the plaintiff's failure to send requested books.  Moreover, the plaintiff awarded "bonus points" based on the number of books that were ordered each month, which the teachers redeemed for more books or other items.  In 2003 and 2006, the defendant commissioner of revenue services issued two notices of assessment against the plaintiff, alleging that it owed over $3 million in sales and use taxes, plus interest and penalties.  In response, the plaintiff filed petitions for reassessment, which the commissioner denied on the ground that the assessments were proper under General Statutes § 12-407 (a) (15) (A) (iv) in light of the fact that the plaintiff engaged in business in Connecticut by using in-state representatives for the purpose of selling, delivering or taking orders.  On appeal, the trial court addressed the issue of whether the teachers functioned as the plaintiff's "representatives" within the meaning of § 12-407 (a) (15) (A) (iv).  It determined that the term "representative" means a person who participates in an in-state sales force for the purpose of selling, delivering or taking orders to generate revenue.  It then decided that the teachers were not part of the plaintiff's sales force because they had the discretion to determine whether they would participate in the program and because they purchased books as customers of the plaintiff.  The court further emphasized that the teachers were simply acting "in loco parentis," that is, as surrogate parents, when they assisted their students in the selection and ordering of books and that the plaintiff awarded the bonus points for the benefit of the classrooms, not the teachers.  Accordingly, it concluded that because the teachers did not take orders in Connecticut to produce revenue for themselves or the plaintiff, they were not the plaintiff's "representatives" for purposes of § 12-407 (a) (15) (A) (iv).  The court added that the teachers' administrative functions did not supply the requisite nexus between Connecticut and the plaintiff's business activities, and, therefore, the imposition of tax liability upon the plaintiff would violate the commerce clause of the United States constitution.  Based upon the foregoing, the court sustained the plaintiff's tax appeals.  In this appeal, the Supreme Court will determine whether the trial court's decision was proper.