Appeal from the District Court for Lancaster County: Paul D. Merritt, Jr., Judge.
William Hargens, Nicholas K. Niemann, and Matthew R. Ottemann, of McGrath, North, Mullin & Kratz, P.C., L.L.O., for appellant.
Jon Bruning, Attorney General, and L. Jay Bartel for appellees.
Wright, Connolly, Stephan, McCormack, Miller-Lerman, and Cassel, JJ. Heavican, C.J., participating on briefs.
NATURE OF CASE
Between October 1, 2004, and December 31, 2009, Valpak of Omaha, LLC (Valpak), paid over $5.5 million to Val-pak [290 Neb. 498] Direct Marketing Systems, Inc. (Direct Marketing), to print direct mail advertisements and distribute them in and around Omaha, Nebraska. When Valpak was assessed use taxes on that amount, it asked for a redetermination that no taxes were due. It claimed that the payments to Direct Marketing were not transactions that were subject to use taxes under Nebraska law.
The Tax Commissioner of the Nebraska Department of Revenue (Department) rejected Valpak's argument and denied its petitions for redetermination. The district court affirmed, and Valpak now appeals. Because we conclude that Valpak was liable for use taxes on its payments to Direct Marketing, we affirm the judgment of the district court which affirmed the decision of the Tax Commissioner.
SCOPE OF REVIEW
A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified by an appellate court for errors appearing on the record. Nebraska Account. & Disclosure Comm. v. Skinner, 288 Neb. 804, 853 N.W.2d 1 (2014). When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. Skinner, supra.
In an appeal under the Administrative Procedure Act, an appellate court will not substitute its factual findings for those of the district court where competent evidence supports the district court's findings. Skinner, supra. " But '[t]o the extent that the meaning and interpretation of statutes and regulations are involved, questions of law are presented, in connection with which an appellate court has an obligation to reach an independent conclusion irrespective of the decision made by the court below.'" Id. at 806, 853 N.W.2d at 6 (alteration in original).
[290 Neb. 499] FACTS
Valpak is a Nebraska limited liability corporation with its principal place of business in Omaha. It is owned by Scott Farkas and Mary P. Rogers-Farkas and is a franchisee of Direct Marketing. Direct Marketing is a Delaware corporation with its principal place of business in Florida.
Direct Marketing sells advertising and marketing services. Principally, it offers
" cooperative direct mail services," which services consist of printing and distributing " cooperative direct mail advertising." This advertising is a " method of advertising in which advertisements from multiple businesses are included in a single envelope or package for mailing."
The cooperative direct mail advertising offered by Directing Marketing employs " VALPAK® Envelopes" (envelopes), which bear one or more of Direct Marketing's trade names, trademarks, or logos. The envelopes are filled with multiple printed advertisements from national, regional, and local advertisers.
Direct Marketing distributes the envelopes according to a " unique proprietary segmentation system" that allows for targeted advertising. This system is based on " Neighborhood Trade Areas." Each " Neighborhood Trade Area" (NTA) is a " geographic area containing 10,000 residential addresses" that have been grouped " based on income demographics, purchase behaviors, proximity to retail shopping locations, traffic patterns and postal carrier routes." The envelopes sent to each NTA contain different advertisements. Purchasers of Direct Marketing's ...