American Cast Iron Pipe v. Boswell

• Decision Date: 30 September 1977
• Parties: AMERICAN CAST IRON PIPE COMPANY, a corporation v. Charles A. BOSWELL, Commissioner of Revenue, etc. SC 2448.
• Court: Alabama Supreme Court

Page 438

350 So.2d 438

AMERICAN CAST IRON PIPE COMPANY, a corporation v. Charles A. BOSWELL, Commissioner of Revenue, etc.

SC 2448.

Supreme Court of Alabama.

Sept. 30, 1977.

William F. Murray, Jr., Birmingham, for appellant.

William J. Baxley, Atty. Gen., and Herbert I. Burson, Counsel, Dept. of Revenue and Asst. Atty. Gen., and B. Frank Loeb, Asst. Counsel, Dept. of Revenue and Asst. Atty. Gen., for appellee.

BEATTY, Justice.

This is an appeal from a final judgment holding that certain sales of steel pipe by an Alabama manufacturer to a Mississippi contractor with consequent delivery in Mississippi were intrastate in character, and thus subject to the Alabama sales tax. We affirm.

The case was submitted to the circuit court upon a stipulation of facts supplemented by exhibits, the essentials of which follow.

American Cast Iron Pipe Company (Acipco) is a Georgia corporation qualified to do business in Alabama. Its principal office is located in Birmingham where it manufactures and sells metal products. The sale in question is an outgrowth of a contract made by the Mississippi Fuel Company (a subsidiary of Mustang Fuel Corporation of Oklahoma) with Mississippi Light and Power Company whereby the former agreed to construct a gas pipeline in Mississippi and, upon completion, sell the pipeline to the latter. Mississippi Fuel Company, in turn, ordered from Acipco quantities of pipe to specifications for this job. H. C. Price Company, the general contractor for the project, became the assignee of that contract. In due course the pipe contracted for was manufactured by Acipco at its Birmingham plant and, under a verbal agreement between Acipco, Mississippi Fuel, and Price, Acipco delivered the pipe to Gaido Lingle, Inc., whose plant was immediately adjacent to Acipco, for coating and wrapping. Acipco invoiced Price as this pipe was delivered to Gaido Lingle. Price separately contracted with Gaido Lingle for the coating and wrapping and also made payment directly to Gaido Lingle for those services. Whether Gaido Lingle or Price contracted with the common carrier, Parkhill Pipe Services Company, to deliver the pipe to the Mississippi job site is not clear, but it is conceded that Acipco did not arrange those shipments. Parkhill itself invoiced the freight charges to Price.

The Price Company subcontracted some of its work to Howard Berry Construction, and after the Berry Company purchased from Acipco quantities of pipe to be installed along the Mississippi right-of-way, shipment to Berry was made in the same way as the Price shipments. In summation then, we have the purchases and sales of pipe to Price and Berry from Acipco for ultimate installation in Mississippi; delivery of the pipe by Acipco to Gaido Lingle for coating and wrapping, and invoices for the purchase price sent by Acipco to Price and Berry at that time; Price or Lingle arranged for shipment to the Mississippi job-site; Parkhill, the carrier, invoiced the freight charges to Price.

Following submission upon the stipulation and exhibits, the trial court found that the sales were consummated by passage of title and delivery completed in Alabama because Acipco was required under its agreement to transport the pipe only to the coater. According to the trial court, the plaintiff's responsibility having ended upon delivery to Gaido Lingle, the transaction became a closed one under Ala.Code tit. 51, § 786(2)(e). Citing Rite Tile Company v. State, 278 Ala. 100, 176 So.2d 31 (1965) and State v. Mobile Stove & Pulley Mfg. Co., 255 Ala. 617, 52 So.2d 693 (1950), it held that the transaction was taxable under state law.

Characterizing this conclusion of the trial court as "a rather facile consideration of a complex case," the defendant contends that the essential character of the transaction is the factor which determines whether the sale is intrastate. Such an ungenerous description overlooks the fact that the essential character of the transaction may be determined by giving some attention to the respective contractual duties of the parties, which apparently is what the trial court did.

The issue is not free from difficulty, to be sure, and as the defendant has requested, in our review we have taken into consideration the administrative ruling of the Alabama Department of Revenue, dated December 18, 1967, which resulted from conferences between that department and the defendant. That ruling exempted from state taxation transactions similar to the present ones, with a significant difference. In the transactions covered by that ruling, the agreement between the parties required the manufacturer

(T)o cause the pipe to be transferred to a pipe coater's plant for coating or wrapping, and after it has been coated or wrapped to cause it to be delivered to a common or contract carrier by rail or truck for transportation outside the state. The manufacturer is responsible for arranging with the carrier for the transportation of the pipe to an out-of-state destination and pays the freight to the carrier. . . .

The facts of the instant case call for the manufacturer to deliver the pipe to the coater's plant, without any further obligation for shipment. That difference is enough to place the facts of this case outside the ruling of December 18, 1967.

In response to any argument that the State is bound by that administrative ruling, we need only cite International Union of Operating Engineers, Local 321 v. Water Works Board, 276 Ala. 462, 163 So.2d 619 (1964) in which this Court stated:

Such administrative construction is neither binding on the State nor its agencies nor on the court. . . .

It is well established that a state may tax everything that is "the general mass of property" of that state, and things intended to be sent out of a state, but which have not left it, may remain a part of that general mass and subject to state taxation. Diamond Match Co. v. Village of Ontonagon, 188 U.S. 82, 23 S.Ct. 266, 47 L.Ed. 394 (1903). The protection of the Commerce Clause begins at that moment when "they commence their final movement for transportation from the state of their origin to that of their destination" (emphasis added); Coe v. Town of Errol, 116 U.S. 517, 6 S.Ct. 475, 29 L.Ed. 715 (1886). See also McCluskey v. Marysville & Northern Railway, 243 U.S. 36, 37 S.Ct. 374, 61 L.Ed. 578 (1917), and Empresa Siderurgica, S.A. v. County of Merced, 337 U.S. 154, 69 S.Ct. 995, 93 L.Ed. 1276 (1949) ("It is the entrance of the articles into the export stream that marks the start of the process of exportation."). These cases illustrate the reason why the responsibility for shipment is important in this frame of reference, i. e., whether the shipment interstate actually has begun.

In Diamond Match Co., supra, the plaintiff cut and put into a river a much larger number of logs than its mills located in another state could utilize. It was the plaintiff's intention to move them downriver after the spring thaw, load them onto railway cars and ship them to another state. Although the Court recognized that there had been some movement of the commodities ("(W)e may say that the cases establish that there may be an interior movement of property which does not constitute interstate commerce, though property . . . be destined to another State." Ibid at 96, 23 S.Ct. at 271), the Court reasoned that they could be taxed by the state because the commodities had not started on their final journey.

Coe v. Errol, supra, also upheld a state tax against logs which had been gathered and then moved to another point on a river for the purpose of shipment to another state. The question was aptly put:

Are the products of a State, though intended for exportation to another State, and partially prepared for that purpose by being deposited at a place or port of shipment within the State, liable to be taxed like other property within the State?

Do(es) the owner's state of mind in relation to the goods, that is, his intent to export them, and his partial preparation to do so, exempt them from taxation?

The opinion then distinguished between preparatory movements and that point in shipment when they become an interstate shipment:

When the products . . . are collected and brought in . . . to a . . . station serving as an entrep ot . . such products are not yet exports, nor are they in process of exportation, nor is exportation begun until they are committed to the common carrier for transportation out of the State to the State of their destination, or have started on their ultimate passage to that State. Until then it is reasonable to regard them as not only within the State of their origin, but as a part of the general mass of property of that State, . . .

And the Court continued:

(S)uch goods do not cease to be part of the general mass of property in the State . . . until they have been shipped, or entered with a common carrier for transportation to another State, or have been started upon such transportation in a continuous route or journey. . . . (emphasis added).

However, it has been held that once the interstate shipment has begun, an intermediate holding or delay caused by natural forces does not give the property a local situs. State v. Hammermill Paper Co., 149 Minn. 414, 184 N.W. 182 (1921).

In this case it is contended that the pipe was intended to be shipped in interstate commerce, and thus the delivery to Gaido Lingle had no effect upon their status as exempt property. But it has been held that commodities intended for interstate commerce which have had work performed on them in preparation for the shipment nevertheless are not exempt from state taxation. A case in point is Federal Compress & Warehouse Co. v. McLean, 291 U.S. 17, 54 S.Ct. 267, 78 L.Ed. 622 (1934). There the plaintiff taxpayer operated a cotton compress which received ginned cotton shipped in interstate commerce for storage, compressed it, and moved it out of its warehouse according to orders received from...