McCarroll v. Scott Paper Box Co.

• Decision Date: 18 April 1938
• Docket Number: No. 4-5116.,4-5116.
• Citation: 115 S.W.2d 839
• Parties: McCARROLL, Com'r of Revenues, v. SCOTT PAPER BOX CO. et al.
• Court: Arkansas Supreme Court

115 S.W.2d 839

McCARROLL, Com'r of Revenues, v. SCOTT PAPER BOX CO. et al.

No. 4-5116.

Supreme Court of Arkansas.

April 18, 1938.

Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor.

Suit by the Scott Paper Box Company and others against Z. M. McCarroll, Commissioner of Revenues, to enjoin defendant from collecting a retail sales tax on pasteboard boxes manufactured by the named plaintiff. From a decree permanently enjoining the defendant, defendant appeals.

Affirmed.

J. Hugh Wharton, of Little Rock, for appellant.

Pace & Davis and Henry E. Spitzberg, all of Little Rock, for appellees.

GRIFFIN SMITH, Chief Justice.

The question to be determined is whether appellee Scott Paper Box Company must collect and pay the Arkansas retail sales tax on pasteboard boxes it manufactures and sells to the Wortz Biscuit Company.

The case was tried on an agreed statement of facts, the material provisions of which are:

"The biscuit company, in the manufacture of its packaged articles, uses the paper boxes as a component part of the article and resells the same in unchanged form to the wholesaler, jobber, or retailer, who in turn sells the package in unchanged form to the ultimate consumer.

"The biscuit company sells said manufactured products in original containers or packages for a greater or larger amount of money than they sell the same cakes, cookies, etc., in bulk.

"The cost of the box merges into and is an element in the cost of the packaged article, representing twelve to fourteen per cent. of the net selling price of the finished article, and is so computed by the biscuit company and not considered by it as a part of its general overhead expense.

"The cost of the box is computed in arriving at the selling price of the finished article by the biscuit company the same as the cost of all other ingredients and constituents of the finished article.

"The biscuit company does not use the boxes for any other purpose than resale to the wholesaler, jobber, or retailer, as aforesaid, and the retail merchant ultimately sells the packaged goods in small quantities to the housewife or other consumer; that the said retailer in the ultimate sale of packaged goods places the same in a sack along with other goods purchased by the consumer, unless otherwise requested by the ultimate purchaser or consumer.

"The housewife or ultimate consumer can purchase from the retailer in bulk a greater quantity of the product for the same amount of money as the original packaged goods cost."

The tax sought to be sustained is levied by Act No. 154 of 1937, p. 513. Under "Definitions" in section 3 the act, p. 513, reads: "The term `sale at retail' shall mean any transaction, transfer, exchange, or barter by which is transferred for a consideration the ownership of any personal property." Subdivision 1 of paragraph (b), p. 514. "The test of a sale at retail is whether the sale is to a consumer for use and not for resale. Sales of goods which, as ingredients or constituents, go into and form a part of the tangible personal property for resale by the buyer are not within the Act." Subdivision (i), p. 515. Section 9, p. 518, directs that the tax "shall be collected by the retailer from the consumer." Section 14, p. 522, is: "Any person engaging or continuing in business as a retailer; and retailer and wholesaler or jobber shall keep his books so as to show separately the sales of each business. He shall consider as retail sales all sales made by him to any person other than a person purchasing for resale in the regular course of business or for processing."

In its decree permanently enjoining the commissioner of revenues the chancery court said: "The biscuit company does not change the form of the boxes which become a component part of the articles it sells in large quantities and at wholesale. Neither the Scott Paper Box Company nor the Wortz Biscuit Company uses or consumes the pasteboard or paper boxes, but both of them resell them at wholesale. * * The tax levied by act 154 is paid by the final purchaser of individually boxed products upon purchase by the final consumer from a retailer."

We agree with the chancellor's analysis of the transactions and his determination of the law applicable thereto.

The stipulation is not reasonably susceptible of any other interpretation. It is clear that the Wortz Company sells at wholesale to a retailer a package of its manufactured products — not a quantity of cakes or cookies or crackers inclosed in a box it has consumed.

It is shown that the container appreciates the selling price by 12 to 14 per cent. The stipulation makes use of the term "finished article" in identifying the object of ultimate sale. These commodities — cakes, cookies, and crackers — are also sold in bulk by the Wortz Company, and for less, proportionately, than the same merchandise is sold when supplied in packages. The conclusion is inescapable, and the stipulation concedes, that the cost of the packing is added to the sales price, just as the flour, sugar, and other constituents which enter into the manufacturing process become a part of the completed transaction.

Expressed differently, the Wortz Company proposes to prepare, box, and offer in the market at wholesale the particular commodities in question. It buys flour, sugar, soda, salt, shortening, flavoring, etc., as ingredients. None of these components is taxable under Act No. 154 when purchased for the purposes mentioned. The plan of sale, however, calls for wrapping or inclosure in individual cartons at the time of manufacture; and it is for the latter purpose that purchase of pasteboard boxes is made.

Appellant contends there is consumption when the packing operation occurs, and that the boxes form no part of the integration. It urges that the instant case is controlled by Wiseman, Commissioner, v. Arkansas Wholesale Grocers' Association, 192 Ark. 313, 90 S.W.2d 987, 989, where it was held that the sales tax applied to wrapping paper, paper bags, and twine sold by wholesalers to retailers, for use by the latter in facilitating individual sales. But there is this difference: In the suit at bar the retailer receives the completed, wrapped packages. In the Wiseman Case the wrapping paper, bags, and twine were sold for convenience of retailers in manually wrapping or inclosing bulk commodities. The price of a dozen oranges, a peck of potatoes, a roast, and other merchandise customarily found in a retail grocery store, is predetermined either by weight or count, without reference to the attributes of delivery.

The opinion in the Wiseman Case expressly declares that the subject of the tax was absorbed by the merchant as a part of the cost of doing business, "that is, they are taken care of out of his profits, and not added to the selling price."

In the instant case it is stipulated that the cakes, cookies, and crackers, when sold in bulk, retail for less than if delivered in packages. This admission by appellant shows that cost of packing was added to the wholesale price paid by the retailer; and the retailer, in turn, computed his or her profit by requiring the consumer to pay the wholesale cost, plus the percentage of gain which the circumstance justified.

The decree is affirmed.

FRANK G. SMITH and DONHAM, JJ., dissent.

FRANK G. SMITH, Justice (dissenting).

The conclusion appears to be inescapable that, if the decree here appealed from is correct, as the majority hold, we were in error in reversing the same chancellor in the case of Wiseman v. Arkansas Wholesale Grocers' Ass'n, 192 Ark. 313, 90 S.W. 2d 987, 988. His decrees in these two cases are consistent, and if he is right now he was not in error before.

When that case and this are read together, the...