State Tax Report

In a decision that reinforces the state’s right to tax companies on all transactions, Chancellor Carol McCoy ruled against Pfizer, Inc., in its lawsuit against Tennessee Commissioner of Revenue Loren Chumley.

“Pfizer has misconstrued the statutory classifications,” McCoy said in her judgment. “To adopt Pfizer’s argument would void the statute’s purpose and the legislature’s intent to tax all retail and wholesale sales.”

Pfizer filed suit against Chumley earlier this year claiming it was charged taxes of more than $2 million during 2000 and 2001 on sales made from its Memphis warehouse to McKesson & Robbins, Inc., a pharmaceutical wholesaler that sells consumer products to retailers all over the country. More than 80 percent of Pfizer’s Memphis inventory is sold to McKesson & Robbins, which also maintains a warehouse in Memphis.

The lawsuit stated that because Pfizer’s sales to McKesson & Robbins could only be classified as wholesaler-to-wholesaler sales under the Tennessee Business Tax Statute, these deals are not subject to retail business taxes.

Plaintiff attorney Michael Sontag of Bass, Berry, and Sims, PLC, expressed confidence earlier this month that McCoy would rule in his client’s favor, saying the statute “absolutely, positively, without a doubt does not apply to wholesaler-to-wholesaler sales.”

However, McCoy rejected his argument, saying that, “when construing a statute, the court is instructed to interpret the words used in the statute in a manner that will carry out [their] legislative intent.”

Sontag said, “You could more or less say that Chancellor McCoy ignored the arguments made in our briefs, which is disappointing because we spent an inordinate amount of time preparing them.”

Sontag has appealed McCoy’s decision.

Christine Lapps, tax counsel for the Tennessee Department of Revenue, said she was “very pleased” with McCoy’s decision adding that she believes it to be “absolutely correct.”