Arizona State Tax Commission v. Garrett Corp.

• Decision Date: 08 December 1955
• Docket Number: No. 6179,6179
• Citation: 79 Ariz. 389,291 P.2d 208
• Parties: ARIZONA STATE TAX COMMISSION, a body politic and corporate, Warren Peterson, Thad M. Moore and William Stanford, as Members of and constituting the Arizona State Tax Commission, Appellants, v. The GARRETT CORPORATION, Appellee.
• Court: Arizona Supreme Court

Page 208

291 P.2d 208

79 Ariz. 389

ARIZONA STATE TAX COMMISSION, a body politic and corporate, Warren Peterson, Thad M. Moore and William Stanford, as Members of and constituting the Arizona State Tax Commission, Appellants, v. The GARRETT CORPORATION, Appellee.

No. 6179.

Supreme Court of Arizona.

Dec. 8, 1955.

Robert Morrison, Atty. Gen., and D. Kelly Turner, Asst. Atty. Gen., for appellants.

Kramer, Roche & Perry and Raymond Huffsteter, Phoenix, and C. W. Leinbach, Jr., and Brian G. Manion, Los Angeles, Cal., for appellee.

STRUCKMEYER, Justice.

This appeal is from a judgment entered in the Superior Court of Maricopa County against appellant State Tax Commission in favor of appellee, the Garrett Corporation, for the sum of $13,587.20. Appellee is engaged in the business of manufacturing in the State of Arizona under the division name of AiResearch Manufacturing Company of Arizona, selling the products of its business to the United States government. Appellants levied an assessment on the gross receipts of these sales, which was paid under protest and this suit instituted for its recovery.

It is appellee's position that the Excise Revenue Act of 1935,, as amended, A.C.A.1939, § 73-1301 et seq., as amended, is in practical and legal effect a sales tax and that as such it imposes a direct tax upon the United States government. If this is sound then the action of the State Tax Commission is invalid and void as violating the Federal government's immunity from state taxation.

Section 73-1303, A.C.A.1939, as amended, is nearly word for word identical to its counterpart in the Act as originally passed in 1935:

'73-1303. Imposition of Tax.-From and after the effective date of this act, there is hereby levied and shall be collected by the tax commission * * * annual privilege taxes measured by the amount or volume of business done by the persons on account of their business activities and in the amounts to be determined by the application of rates against values, gross proceeds of sales, or gross income, as the case may be, in accordance with the following schedule:

'(c) At an amount equal to two per cent (2%) of the gross proceeds of sales or gross income from the business upon every person engaging or continuing within this state in the following businesses:

'1. Selling any tangible personal property whatsoever at retail, * * *'.

We have repeatedly held of this section and in fact of the entire Excise Revenue Act that the tax imposed is a tax on the privilege or right to engage in business and is not a sales tax: 'Trico Electric Cooperative v. State Tax Commission, 79 Ariz. 293, 288 P.2d 782; Arizona State Tax Commission v. Ensign, 75 Ariz. 220, 254 P.2d 1029, on rehearing 75 Ariz. 376, 257 P.2d 392; State Tax Commission v. Quebedeaux Chevrolet, 71 Ariz. 280, 226 P.2d 549; Duhame v. State Tax Commission, 65 Ariz. 268, 179 P.2d 252, 171 A.L.R. 684; Pratt-Gilbert Hardware Co. v. O'Neil, 64 Ariz. 393, 173 P.2d 91, on rehearing, 65 Ariz. 90, 174 P.2d 620; Arizona State Tax Commission v. Frank Harmonson Co., 63 Ariz. 452, 163 P.2d 667; Moore v. Pleasant Hasler Const. Co., 50 Ariz. 317, 72 P.2d 573; White v. Moore, 46 Ariz. 48, 46 P.2d 1077. For example, we said in State Tax Commission v. Quebedeaux Chevrolet, supra, after an extended discussion of the nature of the Excise Revenue Act:

'In conclusion we hold: (1) that the Act does not impose a tax upon the purchaser nor upon sales, but rather places a tax upon the seller for the privilege of engaging in business and fixes the gross income from sales as the base for computing the tax, (Citation of cases); (2) that the Act makes the tax the direct obligation of the retailer and not that of the consumer; (3) that there is no statutory authority for the retailer attempting to constitute himself a mere collector or agent of the state for the purpose of receiving same and transmitting it to the commission; (4) that the terms 'gross proceeds of sales' or 'gross income from the business' upon which the tax is based includes any and all sums received, regardless of whether or not the retailer separately bills to his customers the privilege tax he is passing on to them, and whether or not he segregates the amounts thus received.' 71 Ariz. 289, 226 P.2d 555.

In view of such positive unequivocal statements repeated over a period encompassing two decades, it would seem that a question so well settled is not now open to further argument, particularly where long continued legislative acquiescence warrants the presumption that it is in accord with legislative intent.

However, appellee seriously urges that a fundamental change has been made in the basic nature of the Act by reason of recent amendment thereot. It is argued that the amendments expressly sanction the passing on of the tax to the purchaser so that there is clearly and definitely imposed a sales tax on such purchaser regardless of the nomenclature used elsewhere in the Act. The changes relied on occur by the addition of Section 73-1302a, providing:

'Exclusion of tax.-For the purpose of this act the total amount of gross income, gross receipts or gross proceeds of sales shall be deemed to be the amount received, exclusive of the tax imposed by article 13, chapter 73, Arizona Code of 1939, provided the person upon whom the tax is imposed shall establish to the satisfaction of the commission that the tax has been added to the sale price and not absorbed by him, but in no event shall the person upon whom the tax is imposed, where an added charge is made to cover the tax levied by this act, remit less than the amount so collected to the commission.' (Italics ours.)

That portion of the quoted section which is not italicized was added to the Excise Revenue Act by the Laws of 1952; the italicized portion was added by the Laws of 1954.

In 1951, in State Tax Commission v. Quebedeaux Chevrolet, supra, we held that the base for computing the tax was the gross income or gross proceeds of sale without first deducting the amount of the tax so charged. One year later the legislature, seemingly as the result of our opinion, changed the Act so as to permit the taxpayer to avoid the payment of a tax on the amount of the tax by excluding the tax from the gross proceeds of sale where added as a separate item to the sale price. Cf. Western Lithograph Co. v. State Board of Equalization, 11 Cal.2d 156, 78 P.2d 731, 117 A.L.R. 838.

The record in this cause does not reflect the purpose of the amendment of 1954 but the language is plain and unambiguous and what is to be its result is readily ascertainable. In the event the amount charged by the seller-if he adopts the practice of adding the tax as a separate item in the sale price to the purchaser's bill-is greater than two percent of the seller's annual gross proceeds of sale, then that amount is the amount of the tax. But, if the amount charged against the purchaser is less than two percent of the seller's annual gross proceeds of sale or gross income then two percent is still the ultimate measurement of the taxpayer's liability. It should be noticed that the Act has never purported to make the seller the collector of the tax from the purchaser, and no provision has been made to regulate the amount of the tax which the seller may charge to the purchaser on each individual sale. We take judicial notice that some vendors, particularly those handling numerous small sales under one dollar, itemize on the purchaser's billing one cent as purported tax commencing at 15cents, and two cents above fifty cents. By such practice the retailer may collect from the consumer, under the guise of a tax by the state, an amount in excess of two percent of his gross proceeds of sale. The difference was retained by the seller until the amendment of 1954. It is thus apparent that by the amendment the seller is prevented from profiting at the expense of the purchaser under the guise of a compulsory tax. The amendment tends to cause the seller to absorb the tax rather than add it as a separate item to the sale price since it eliminates at least in part the incentive for a continuation of that practice.

We cannot agree with appellee's argument that Section 73-1302a changes the fundamental nature of the Act. The amendments contained in such section are no more than legislative recognition of the common practice which has grown up since the passage of the Act of separately stating the tax independent of the sales price. The section does not specifically authorize such practice; neither does it forbid it. It simply reflects the indifference of the legislature as to the business practices adopted by the taxpayer in conducting his affairs. Certainly the retailer may not, by adopting a particular form of billing as a business practice, change the fundamental nature of the Act. State Tax Commission v. Quebedeaux Chevrolet, supra. The liability for the tax is still the personal liability of the seller. There is no authorization whatsoever to directly shift the tax to the purchaser, nor is the seller made the agent of the...