Scholastic Book Clubs, Inc. v. State Bd. of Equalization

• Decision Date: 30 January 1989
• Docket Number: No. A040915,A040915
• Citation: 255 Cal.Rptr. 77,207 Cal.App.3d 734
• Court: California Court of Appeals Court of Appeals
• Parties: , 51 Ed. Law Rep. 569 SCHOLASTIC BOOK CLUBS, INC., Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

Page 77

255 Cal.Rptr. 77

207 Cal.App.3d 734, 51 Ed. Law Rep. 569

SCHOLASTIC BOOK CLUBS, INC., Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

No. A040915.

Court of Appeal, First District, Division 5, California.

Jan. 30, 1989.

Richard E. Levine, Fenwick, Davis & West, Palo Alto, for plaintiff and appellant.

Prentiss Willson, Jr., Morrison & Foerster, San Francisco, Judith B. Tucker, Bennett J. Bernblum, Wiggin & Dana, New Haven, Conn., amicus curiae on behalf of plaintiff and appellant.

John K. Van de Kamp, State Atty. Gen., Timothy Laddish, Supervising Deputy Atty. Gen., Richard F. Finn, Deputy Atty. Gen., San Francisco, for defendant and respondent.

HANING, Associate Justice.

Plaintiff/appellant Scholastic Book Clubs, Inc. appeals a summary judgment in favor of defendant/respondent State Board of Equalization in appellant's action for refund of use taxes. Appellant contends there is an insufficient nexus between its out-of-state business and its California contacts to permit imposition of a use tax. We affirm.

Appellant is a corporation organized and existing under the laws of the state of New Jersey and engaged in the interstate business of mail order book sales. It maintains a warehouse in Jefferson City, Missouri. It has no physical facility, bank account, or regular employees in California. It conducts its business by distributing catalogs through the mail to teachers and librarians in elementary and high schools throughout the United States. It mails its catalogs to teachers and librarians who have previously placed orders or specifically requested catalogs. It also purchases mailing lists from third parties and maintains address lists of schools. If it does not know the name of a teacher, it sends the catalog to the grade or classroom, for instance: "Third Grade Teacher."

Each catalog includes approximately 30 offer sheets listing books and other items available for purchase. Teachers are under no obligation to distribute the offer sheets. A typical annual response rate to the catalogs is 14.6 percent. Teachers who elect to do so distribute the offer sheets to their students. The student then makes his or her selections and pays the teacher for the items selected. Method of payment varies. Some teachers have checks made out to them, and then write a single personal check for the total order. Some have the parents make out checks to appellant. Some have the check made on the school's account. The teacher consolidates the orders and payments received and submits full payment and a single order to appellant in the name of the teacher. Orders are filled and shipped from the Missouri warehouse to the teacher making the order, who then distributes the materials to the students who ordered them.

Appellant has a "premium" program to encourage teachers and librarians to place orders. They are given "bonus points" based on the size of their orders, which they may use to obtain merchandise from a gift catalog. The items in the gift catalog may be used either for classroom or personal use. Among the items available from the gift catalog are pocket calculators, books, audio cassettes, cameras, coffee makers, television sets, video cassette recorders, and microwave ovens.

Respondent assessed appellant a use tax deficiency based on its California sales for the period of September 1, 1980, to March 31, 1983. Appellant paid under protest and brought the instant action for refund.

The rules for review of summary judgment are well established and require no repetition. (See Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 851-852, 94 Cal.Rptr. 785, 484 P.2d 953; 6 Witkin, Cal.Procedure (3d ed. 1985) Proceedings Without Trial, § 274 et seq.) It suffices to say that if the record reflects no triable issues of material fact and that the moving party is entitled to judgment as a matter of law, the motion must be granted. (Code Civ.Proc., § 437c, subd. (c).)

A use tax is an excise tax "imposed on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer ... for storage, use, or other consumption in this state." (Rev. & Tax Code, § 6201.) Every "retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state ... shall, at the time of making the sales or, if the storage, use, or other consumption of the tangible personal property is not then taxable hereunder, at the time the storage, use, or other consumption becomes taxable, collect the tax from the purchaser and give to the purchaser a receipt therefor.... 'Retailer engaged in business in this state' as used in this ... section means and includes any of the following: ... Any retailer having any representative, agent, salesman, canvasser, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, or the taking of orders for any tangible personal property." (Rev. & Tax Code, § 6203, subd. (b).) A foreign retailer who fails to collect the amount of use taxes due becomes indebted to the state for that sum. (Rev. & Tax Code, § 6204.)

Appellant first contends it is statutorily exempt, claiming the teachers are not "operating in this state under the authority of [appellant] for the purpose of selling, delivering, or the taking of orders for any tangible personal property." (Rev. & Tax Code, § 6203, subd. (b).) Appellant stresses the fact that the teachers have no initial obligation to act, and argues therefrom that they are not acting under its authority. We conclude otherwise. The teachers are certainly not acting under anyone else's authority, and once they undertake to act, they are obviously acting under appellant's authority, ¹ and certainly as appellant's agents or representatives. "An agent is one who represents another, called the principal, in dealings with third persons." (Civ.Code, § 2295.) The creation of an agency relationship is not dependent upon the existence of a written agreement. The relationship may be implied based on conduct and circumstances (Thayer v. Pacific Elec. Ry. Co. (1961) 55 Cal.2d 430, 438, 11 Cal.Rptr. 560, 360 P.2d 56; Pollack v. Lytle (1981) 120 Cal.App.3d 931, 940, 175 Cal.Rptr. 81), as well as by ratification. (Civ.Code, §§ 2307, 2310; Rakestraw v. Rodriques (1972) 8 Cal.3d 67, 73, 104 Cal.Rptr. 57, 500 P.2d 1401.) By accepting the orders, the payment and shipping the merchandise appellant clearly and unequivocally ratified the acts of the teachers and confirmed their authority as appellant's agents or representatives.

Although the constitutionality of use taxes in general is well-settled (see National Geographic v. Cal. Equalization Bd. (1977) 430 U.S. 551, 555, 97 S.Ct. 1386, 1389, 51 L.Ed.2d 631), such taxes may not be imposed unless a sufficient nexus exists between the foreign corporation and the taxing state. (Id., at p. 556, 97 S.Ct. at p. 1390.) "Generally speaking, the taxing state must have a substantial interest in the transactions in order to justify imposition of the tax. This interest is measured by the extent and nature of the contacts between the state and the foreign corporation (such as the presence of agents of the corporation within the state), and the benefits conferred on the corporation by the state." (Illinois Commercial Men's Assn. v. State Bd. of Equalization (1983) 34 Cal.3d 839, 844, 196 Cal.Rptr. 198, 671 P.2d 349.)

The requisite nexus has generally been found when the foreign retailer arranges for local representatives to make sales within the taxing state. (See, e.g., Tyler Pipe Indus. v. Washington Dept. of Revenue (1987) 483 U.S. 232, 107 S.Ct. 2810, 2821, 97 L.Ed.2d 199, 215; Scripto v. Carson (1960) 362 U.S. 207, 80 S.Ct. 619, 4 L.Ed.2d 660; General Trading Co. v. Tax Comm'n. (1944) 322 U.S. 335, 64 S.Ct. 1028, 88 L.Ed. 1309; Felt & Tarrant Co. v. Gallagher (1939) 306 U.S. 62, 59 S.Ct. 376, 83 L.Ed. 488.) However, when the foreign retailer has no direct personal contacts in the taxing state or does its business only by mail, the nexus does not usually exist. In Miller Bros. Co. v. Maryland (19...