HC&D Moving & Storage Co. v. Yamane

• Decision Date: 04 August 1965
• Docket Number: No. 4397,4397
• Citation: 48 Haw. 486,405 P.2d 382
• Parties: HC&D MOVING & STORAGE COMPANY, Inc., a Hawaii Corporation, City Transfer Company, Ltd., a Hawaii Corporation, Y. Higa Enterprises, Ltd., a Hawaii Corporation, Hawaiian Hauling Services, Ltd., a Hawaii Corporation, v. Harold YAMANE, State Tax Collector, First Taxation Division.
• Court: Hawaii Supreme Court

Page 382

405 P.2d 382

48 Haw. 486

HC&D MOVING & STORAGE COMPANY, Inc., a Hawaii Corporation City Transfer Company, Ltd., a Hawaii Corporation, Y. Higa Enterprises, Ltd., a Hawaii Corporation, Hawaiian Hauling Services, Ltd., a Hawaii Corporation, v. Harold YAMANE, State Tax Collector, First Taxation Division.

No. 4397.

Supreme Court of Hawai'i.

Aug. 4, 1965.

Syllabus by the Court

1. A state tax imposed on the privilege of doing business within the state measured by gross receipts, levied against locally incorporated corporations for services rendered wholly within the state to carriers in initiating or completing the interstate shipment of goods to or from the state under through bills of lading, the compensation for which services constituting the gross receipts taxed, the same being paid by the carriers to the taxpayers under contract separate and apart from that entered into between the carriers and shippers although included in the cost to the shippers, is not unconstitutional as violative of the Commerce Clause of the Constitution.

2. Shipments involving the transporation of goods from a place in one state to a place in another fall within the realm of interstate commerce and the fact that all of a taxpayer's activities in connection with such shipments are performed within the state does not render them intrastate commerce.

3. The congressional power under the Commerce Clause of the Constitution does not proscribe all burdens imposed by a state upon commerce, but only undue or discriminating ones.

4. The test to be used in determining that a state tax does not impose an undue or discriminatory burden on interstate commerce so as to render it unconstitutional under the Commerce Clause is: Has the state exercised its power of taxation in proper propertion to a taxpayer's activities within the state and to the taxpayer's concomitant enjoyment of the opportunities and protections which the state has afforded?

Frank D. Padgett, Honolulu (Robertson, Castle & Anthony, Honolulu, on opening brief; John H. R. Plews, Honolulu, on reply), for plaintiffs-appellants.

Allen I Marutani, Deputy Atty. Gen. (on the brief), for defendant-appellee.

Before TSUKIYAMA, C. J., CASSIDY and WIRTZ, JJ., and TASHIRO, Circuit Judge, in place of LEWIS, J., disqualified, and KITAOKA, Circuit Judge, in place of MIZUHA, J., disqualified.

WIRTZ, Justice.

This appeal is taken from the consolidated judgment entered in five tax cases in the Circuit Court of the First Circuit. ¹ The State, pursuant to Chapter 117, Revised Laws of Hawaii 1955, as amended, levied and assessed general excise taxes at the rate of 3 1/2% on the income (gross receipts) arising out of the transactions hereinafter described. Plaintiff-appellants, claiming the assessment was unconstitutional, sued defendant-appellee, the State Tax Collector, for the refund of these taxes which was paid under protest. Except as below noted, the judgment was against each of the taxpayers in all cases. ²

Taxpayers were all engaged in the general trucking business in the State of Hawaii, hauling goods by truck to and from the various piers in Honolulu, and in the instance of Hawaii Hauling Services, Ltd., from Honolulu International Airport as well, and the various places of residences or places of business of the consignees. For these trucking services, as well as for accessorial services, involving packing, unpacking and crating, and for storage in transit (temporary storage in their warehouses) pending determination of the ultimate destination of the goods, they received the compensation which is the object of the tax in question in this case.

Essentially, the transactions here under scrutiny concern shipments originating at a point in Hawaii and going to a point on the mainland of the United States and vice versa, that is, those originating at a point on the mainland of the United States and going to a point in Hawaii. All shipments were on through bills of lading issued by mainland carriers, such as Beacon Van Lines, Lyon Van Lines, Mayflower Transit Company, National Carloading Corporation, to name a few. In all cases, except as to Hawaii Hauling Services, the transactions were largely concerned with military personnel and involved household goods under shipments originating both in Hawaii and on the mainland of the United States. In the case of Hawaii Hauling Services the Shipments involved mostly commercial goods from suppliers on the mainland of the United States to local business concerns, all originating on the mainland of the United States under arrangements with Emory Air Freight, an air freight forwarder, and two surface freight forwarders, Hawaii Consolidators of Los Angeles and Hawaiian Express of San Francisco. These goods were likewise handled under through bills of lading and roughly the same services were performed as in the case of the other taxpayers.

Overseas Van, Limited, until its merger with HC&D Moving & Storage Company, Inc., and the latter corporation at the outset, limited their activities as generally above outlined. All other taxpayers and HC&D Moving & Storage Company, Inc. at a later date, likewise engaged in trucking from point to point within the State of Hawaii.

The contract for the shipment of the goods, as evidenced by through bills of lading, was entered into by the consignor, or the military authorities where their personnel were involved, with the mainland carriers or freight forwarders for the transportation above described. To handle these transportation services on the Hawaii end of the shipment, the mainland carriers or freight forwarders entered into a separate contract with the taxpayers, the local truckers. The compensation received by the taxpayers for the services above outlined were under this contract with the mainland carriers or freight forwarders for services rendered to them in fulfilling their contract with the consignor.

There were several arrangements of compensation entered into between the mainland carriers and the taxpayers. Originally, the usual form of compensation for the haulage was a percentage of the ocean freight 'override;' that is, the amount charged by the mainland carrier to the consignor in excess of the ocean freight rate of the steamship company. For the accessorial services the original arrangement was for a percentage of the charges made by the mainland carrier for such services. In both cases the percentage rate was higher for outgoing shipments, ranging from seventy to eighty per cent, than it was for incoming shipments which ranged from twenty to thirty per cent. This arrangement was later supplanted by a fixed rate by weight or measure. In addition the taxpayers received the full amount allocable to storage in transit. In some cases there was additional compensation for 'booking the job' or 'getting the business' by the taxpayer in Hawaii.

The tax here involved, insofar as it affects taxpayers, was levied under the following section of Chapter 117, R.L.H.1955, as amended:

' § 117-14. Imposition of tax. There is hereby levied and shall be assessed and colleced annually privilege taxes against persons on account of their business and other activities in the State measured by the application of rates against values of products, gross proceeds of sales or gross income, whichever is specified, as follows:

* * *

* * *

'(f) Tax on service business. Upon every person engaging or continuing within the State in any service business or calling not otherwise specifically taxed under this chapter, there is likewise hereby levied and shall be assessed and collected a tax equal to three and one-half per cent of the gross income of any such business.'

It is readily seen that the tax by its express terms is a privilege tax upon engaging or continuing within the State in any service business and is measured by the gross income of such business. As stated in General Motors Corp. v. Washington, 377 U.S. 436, at page 441, 84 S.Ct. 1564, at page 1568, 12 L.Ed.2d 430 (1964): 'For our purposes the decisive issue turns on the operating incidence of the tax.' Here the operating incidence of the tax is on the privilege of doing business in Hawaii measured by the gross income received therefrom.

The trial judge characterized the tax as a 'privilege tax on doing business, including the use of corporate powers in Hawaii.' We do not understand this language to mean that the incidence of the tax is on the right to exercise corporate powers but rather that it is descriptive of the manner in which taxpayers, as corporations, do business, as R.L.H.1955, § 117-2, includes the exercise of corporate or franchise powers in the definition of 'engaging' in business. The fact that taxpayers are all Hawaii corporations, while not determinative on the issue of the validity of the tax, still has a bearing on the relation or 'nexus' between the State and the business activities sought to be taxed. Cf., Washington-Oregon Shippers Cooperative Ass'n v. Schumacher, 59 Wash.2d 159, 367 P.2d 112, cert. denied, 370 U.S. 937, 82 S.Ct. 1585, 8 L.Ed.2d 807 (1962); Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573 (1951); Northwest Airlines, Inc. v. State of Minnesota, 322 U.S. 292, 64 S.Ct. 950, 88 L.Ed. 1283 (1944); City of Chicago v. Willett Co., 344 U.S. 574, 73 S.Ct. 460, 97 L.Ed. 559 (1953).

Taxpayers resist imposition of this tax by the State as being violative of the Commerce Clause of the Constitution of the United States. ³

Five of the six specifications of error pinpoint the contention that '* * * as applied here, [it] is a tax on the privilege of doing interstate business measured by the unapportioned gross receipts thereof' and as a result thereof 'is an invalid levy.' The remaining specification of error (Number 2) alternatively maintains that 'corporations engaged in doing exclusively interstate business are not subject to a tax for the privilege of doing such a business...