General Motors Corp. v. State, 36001

• Decision Date: 06 December 1962
• Docket Number: No. 36001,36001
• Citation: 376 P.2d 843,60 Wn.2d 862
• Parties: GENERAL MOTORS CORPORATION, a corporation, Respondent-Cross Appellant, v. The STATE of Washington and William S. Schumacher, Clark Squire and A. E. Hankins, as the Tax Commissioners of the State of Washington, Appellants.
• Court: Washington Supreme Court

Page 862

60 Wn.2d 862

376 P.2d 843

GENERAL MOTORS CORPORATION, a corporation, Respondent-Cross Appellant, v. The STATE of Washington and William S. Schumacher, Clark Squire and A. E. Hankins, as the Tax Commissioners of the State of Washington, Appellants.

No. 36001.

Supreme Court of Washington, En Banc.

Dec. 6, 1962.

John J. O'Connell, Atty. Gen., John W. Riley, Deputy Atty. Gen., Timothy R. Malone, Asst. Atty. Gen., Olympia, for appellant.

Rosling, Williams, Lanza & Kastner, DeWitt Williams, Seattle, Aloysius F. Power, Donald K. Barnes and Thomas J. Hughes, Detroit, Mich., for respondent and cross-appellant.

FINLEY, Chief Justice.

This action was commenced by respondent cross-appellant, General Motors Corporation, for a refund of certain business and occupation taxes imposed by the State Tax Commission and for injunctive protection against similar assessments in the future.

The taxes involved were measured by gross receipts to General Motors from wholesale sales of automobiles, trucks, parts and accessories to independent retail dealers in the state. Assessments were made pursuant to RCW 82.04. General Motors duly protested the assessments, and hearings were held by the Tax Commission. The hearings resulted in Tax Commission orders concluding that General Motors had conducted business activities within the State of Washington during the audit periods in question, which are from January 1, 1949, through June 30, 1953, which were sufficiently related to the sales in question to meet the requirements of the due process clause of the federal and state constitutions and the commerce clause of the federal constitution. Accordingly, the tax was imposed. Thereupon, General Motors sought relief in the Superior Court for Thurston County. The Superior Court granted portions of General Motors' prayer for relief and denied the balance. Both parties have appealed.

The amounts of gross receipts from the transactions which are included in the assessment base are not in question. There is no question either as to the rate of the tax, which, during the audit periods herein involved, was three-tenths of one per cent (.003%), measured by the taxpayer's gross receipts from its taxable activities (wholesaling). The computation of the tax assessment and the interest involved have been settled by stipulation of the parties. The basic question presented to this court is whether General Motors is liable for the tax assessed.

General Motors is a Delaware Corporation, qualified to do business in Washington. The corporation conducts much of its business through divisions which operate substantially independently of each other. The transactions of only Chevrolet, Pontiac, Oldsmobile, and General Motors Parts Divisions are included in the tax base involved in this action, although other General Motors divisions and subsidiaries are engaged in business within this state.

General Motors owns and operates factories for the manufacture of automobiles, trucks and other merchandise. Sales of these products are made by General Motors to retail dealers in this state pursuant to orders initiated by the dealers. All of the products herein concerned are manufactured outside of the state and shipped into the state. Activities conducted primarily outside the state include the design, engineering, fabrication, assembly and delivery of products; the procrement of materials, components and supplies; the general, executive, operating, financial and sales management; the receipt, processing, recording, approving, accepting and filling of orders; the billing and receipt of payment, the investigation, approval and execution of customer contracts (dealer franchises); the investigation and extension of credit; the composition and placement of advertising; and others.

During the audit periods her in question, the trial court found that General Motors was engaged in business activity within the state. This activity involved the sale of automobiles, trucks, parts and accessories to retail dealers, and also included the establishment and maintenance of effective dealer representation, partially accomplished by arranging various sales and incentive contests and programs offered and conducted, separately or jointly, with the dealer and other components of the General Motors organization; national and local advertising programs conducted by General Motors through various media; joint programs conducted at the dealer's place of business to assist the dealer in maintaining and developing a prosperous used-car department, including training of dealer's service personnel in the art of reconditioning automobiles utilizing mobile trainers; and on the job training of dealer employees seeking to develop a strong and capable service department so as to increase the quality of service rendered to the retail purchaser of General Motors' products.

In order to provide for the distribution and sale of the manufactured products of Chevrolet, Pontiac, Oldsmobile and General Motors Parts Divisions, General Motors maintains organizations of employees serving each of its major subdivisions on a national, regional, zone and district level. This case is concerned with General Motors' business activities conducted within the State of Washington by its sales and promotion organizations--specifically, the divisions mentioned above during the audit periods here in question.

At all times during the audit periods, the State of Washington was included within the western region of General Motors' national organization covering eleven western states. Regions are divided up into geographical zones. At all times relevant herein, Washington was part of the Portland zone, which also included the States of Oregon and Idaho, the area that has now become the State of Alaska, and portions of Montana and Wyoming.

Each zone, including the Portland zone, is composed of geographical districts for the Chevrolet, Oldsmobile and Pontiac divisions. Within each district in the State of Washington are located the various retail dealers of General Motors' manufactured products, to whom wholesale sales of the manufactured products are made by General Motors.

The Portland zone organization for each of General Motors' Chevrolet, Pontiac and Oldsmobile divisions includes a staff of field representatives. Each zone organization is similar in all material respects, except that Pontiac and Oldsmobile have a lesser number of dealers than Chevrolet, and a correspondingly lesser number of districts. The operation of the General Motors Parts Division and certain differences between the Chevrolet organization and the others will be described later. Generally, a zone office is comprised of a zone manager and an assistant zone manager, a business management manager, a parts and service manager, an office manager--car distributor, a number of clerical assistants, and service representatives and managers for each of the zones' districts. We are most concerned with the activities of the district managers, and the functions of other personnel need not be described in detail.

General Motors' field organizations devote the bulk of their efforts to the assistance of General Motors' retail dealers with the view of obtaining maximum conformance to the specifications and conditions required of the dealers pursuant to the 'Dealer Selling Agreement,' the terms of which will be described later.

General Motors achieves its wholesale sales of the automobiles, trucks, parts and accessories by the development and maintenance of a strong retail dealer representation; and General Motors' zone employees, including district managers, are charged with the responsibility of developing, maintaining, and promoting retail dealer representation, along with the general duties of promoting, developing, and maintaining good will and public esteem for General Motors' products. The trial court found that the activities of the field organization have a direct effect upon the sales and operations of the independent retail dealers.

The district manager's function includes serving as the zone manager's direct contact with the dealer his place of business, receiving from him his complaints, observing his operations, reporting thereon to the zone office, and passing on to him such advice and counsel as the zone office can make available to strengthen his operation and make it more profitable, including passing on any knowledge gained of competitive products. District managers' contact and relationship with retail dealers is direct, almost entirely inside the State of Washington, and generally at the dealer's place of business. The frequency of contacts depends upon the size of the dealership and the nature and extent of the problems confronting the dealer and General Motors. The district manager usually resides within his assigned territory. With the exception of certain activities in relation to the Chevrolet Division, district managers have no Washington offices; however, they frequently use their place of residence for business phone calls and receipt of business mail. District managers do not accept or approve credit, receive payment, or make delivery.

The relationship between General Motors and each of its Chevrolet, Pontiac, and Oldsmobile retail dealers is defined by a written contract called a 'Dealer Selling Agreement,' which is in all material respects uniform for all dealers in the state. The dealer operates a retail store for the sale of automobiles, and sometimes also trucks, supported by the sale of parts and accessories, a repair and servicing operation according to customers' needs, and the marketing of used cars taken in trade. Dealers are individual proprietorships, partnerships, or corporations, having no corporate relationship to General Motors, except that in some instances another division, Motors Holding Division, lends, temporarily, portions of the substantial capital required to initiate or maintain a...