Sears, Roebuck & Co. v. Roddewig
| Decision Date | 14 May 1940 |
| Docket Number | 44997. |
| Citation | 292 N.W. 130,228 Iowa 1273 |
| Parties | SEARS, ROEBUCK & CO. v. RODDEWIG et al., State Board of Assessment and Review. |
| Court | Iowa Supreme Court |
Appeal from District Court, Polk County; John J. Halloran, Judge.
Suit in equity to enjoin the defendants, as members of the State Board of Assessment and Review, from undertaking to cancel plaintiff's permit to do business in Iowa for failure to pay a use tax on mail order sales made by plaintiff outside of Iowa. The court granted the injunction. Defendants appeal.
Affirmed.
Fred D. Everett, Atty. Gen., and John E. Mulroney, Asst. Atty Gen., for appellants.
Gamble Read, Howland & Rosenfield, of Des Moines, for appellee.
The plaintiff's petition asserts that it is a non-resident corporation licensed to do business in the State of Iowa. Pursuant to such license, it has established and is now conducting various retail stores in Iowa which constitute a substantial investment on its part. It has reported to and paid the State Board of Assessment and Review the amount of tax due on all sales made in Iowa through the operation of such retail stores. In addition to the business conducted in Iowa, it has for many years and is now conducting a mail order business through mail order stores or establishments, all of which are located outside of Iowa. The orders from customers in Iowa are sent to such stores by mail, are there filled, and the merchandise shipped to the purchasers in Iowa. Plaintiff has not collected nor paid a use tax on such mail order sales made outside of Iowa to customers residing in Iowa. There are numerous firms who maintain no place of business in Iowa who conduct a mail order business with residents of Iowa in competition with plaintiff, who are not required to and do not collect the use tax on sales made by them. The defendants, acting as the State Board of Assessment and Review, construed the statute as authorizing and empowering them to require plaintiff to collect the use tax on mail order sales made and consummated outside of Iowa with customers located in Iowa. The Board adopted a resolution, threatening to cancel plaintiff's license as a retailer and its permit to do business in Iowa for failure to collect and pay the use tax on mail order sales made outside of Iowa to residents of Iowa.
Plaintiff asserted that the statute, insofar as it purports to authorize such procedure by the board, is unconstitutional in violation of Sections 8 and 10 of Article I of the United States Constitution, and Section 1 of the 14th Amendment to such Constitution, and is also an attempt on the part of the State of Iowa to make its laws operate extraterritorially. Plaintiff prayed that the board be enjoined from finding that it has failed to comply with the use tax law and from taking any steps to secure the cancellation of its license as a retailer or its permit to do business in Iowa, and for general equitable relief.
A hearing was had and the court granted a temporary injunction restraining the defendants from making any finding that plaintiff had failed to comply with the provisions of the use tax law, or taking any steps to secure the revocation of plaintiff's license as a retailer or permit to do business as a non-resident corporation.
The defendants filed an answer admitting all allegations of the petition not specifically denied, modified or qualified. Defendants asserted that the state has the power and authority to adopt the use tax law and make it applicable to plaintiff's mail order business as a condition to its right to continue to do business in Iowa. Various allegations of the petition are denied. The effect of the answer, however, was primarily to put in issue the constitutional questions presented by the allegations of the petition.
At the trial, it was stipulated that the plaintiff, in the conducting of its business, made sales of tangible personal property to residents or persons within the State of Iowa, by three methods, referred to as types. Type I involves sales made in its retail stores located in Iowa, which sales are subject to the Iowa sales tax. Type II involves special order sales wherein the purchaser orders from one of plaintiff's retail stores in Iowa tangible property not carried in stock by the store, but carried by one of the mail order establishments located outside of Iowa; the order is given to the local store with the purchase price, which includes transportation charges; the store orders the shipment to be made direct to the purchaser from a mail order establishment, where the order is filled charging the local store with the cost price, plus overhead and transportation charges; the purchase price paid to and received by the local store is retained by it and included in the volume of its gross sales. Type III involves mail order sales. A person or resident of Iowa prepares his order, or has it prepared for him, sends it to one of plaintiff's mail order establishments located outside of Iowa, with a remittance of the purchase price, plus transportation charges, specifying the means of transportation; the order is accepted or refused at the mail order establishment; if accepted, the order is filled by direct shipment to the purchaser through the United States mail, or some common carrier specified by the purchaser.
It was stipulated for the purposes of this case that plaintiff is obligated to collect and has collected and paid the tax imposed upon all sales made by it to residents of Iowa classified as Types I and II, but that as to Type III, mail order sales, it failed and refused to collect the use tax imposed by the use tax act.
There was testimony as to the activities of various competitors of plaintiff, engaged in mail order business without maintaining any place of business in Iowa. There was also testimony regarding the difficulty of collecting a use tax on mail order sales made to persons in Iowa through the mail order establishments of plaintiff located outside of Iowa. We do not undertake to review this testimony because we do not think it has any substantial bearing upon the questions to be decided by us.
The court held that the use tax law, insofar as it purports to authorize the defendants to insist upon plaintiff collecting and paying the use tax on mail order sales made to persons in Iowa through the mail order establishments located outside of Iowa, is unconstitutional and void, being contrary to Section 8 of Article I of the Constitution of the United States, and Section 1 of the 14th Amendment thereto. A permanent injunction was granted restraining defendants from making any finding that plaintiff has failed to comply with the provisions of the Iowa use tax law or taking any action to secure the revocation or cancellation of its sales permit covering the operation of its retail stores in Iowa or its license to do business as a foreign corporation in this state. From this decree defendants have appealed.
The statute involved herein was enacted as Chapter 198 of the Acts of the 47th General Assembly. Some amendments were adopted by Chapters 175 and 182 of the Acts of the 48th General Assembly. The statute, as amended, appears as Chapter 329.4 of the Code, 1939. The amendments do not appear to materially affect the questions presented by this litigation, and we will refer to the statute as it appears in the Code, 1939.
Section 8 of the Act (Section 6943.109 of the Code, 1939) provides that every retailer maintaining a place of business in this state and making sales of tangible property for use in this state, not exempt under Section 6943.104, exempting sales on which the sales tax is paid or by Section 6943.107, having reference to motor vehicles, " shall at the time of making such sales, whether within or without the state, collect the tax imposed by this chapter from the purchaser." Section 11 of the Act (Section 6943.112 of the Code) provides that the tax, required to be collected by the retailer and any tax collected by the retailer pursuant to said section, shall constitute a debt owed by the retailer to the state. Section 21 of the Act (Section 6943.122 of the Code) provides that, whenever the retailer maintaining a place of business in this state is a corporation authorized to do business in this state and fails to comply with the provisions of the chapter, a certificate may be made to the secretary of state of a finding that such retailer has failed to comply with such provisions, and the secretary of state shall, upon receipt of such certificate, revoke the permit authorizing the corporation to do business in this state, and shall issue a new permit only when the corporation shall have obtained an order finding that it has complied with its obligations under the chapter.
The question presented is whether Section 6943.109, requiring plaintiff to collect the tax on mail order sales made without the state, is constitutional when considered with the provision that, under Section 6943.112, the tax, collected or required to be collected, is a debt of plaintiff and, upon a finding that plaintiff has failed to pay such debt, under Section 6943.122, plaintiff's permit to do business as a foreign corporation in this state must be revoked. We are of the opinion that the court correctly held that the provisions of the chapter, as applied to the mail order sales shown by the record herein, are unconstitutional and, therefore, void.
If the plaintiff limited its activities to conducting a mail order business such as shown by the record herein, it would not be doing business in this state and the state could not require it to secure a license to do business here. Ryerson & Son v. Schraag, 211 Iowa 558, page 561...
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