Arizona State Tax Commission v. Southwest Kenworth, Inc.

• Decision Date: 04 January 1977
• Docket Number: No. 1,CA-CIV,1
• Citation: 114 Ariz. 433,561 P.2d 757
• Parties: ARIZONA STATE TAX COMMISSION, a body corporate and politic, and John M. Hazelett, Waldo L. DeWitt and Bob Kennedy, as members constituting said Arizona Tax Commission and the State of Arizona, Appellants, v. SOUTHWEST KENWORTH, INC., an Arizona Corporation, Appellee. 2996.
• Court: Arizona Court of Appeals

Page 757

561 P.2d 757

114 Ariz. 433

ARIZONA STATE TAX COMMISSION, a body corporate and politic, and John M. Hazelett, Waldo L. DeWitt and Bob Kennedy, as members constituting said Arizona Tax Commission and the State of Arizona, Appellants, v. SOUTHWEST KENWORTH, INC., an Arizona Corporation, Appellee.

No. 1 CA-CIV 2996.

Court of Appeals of Arizona, Division 1, Department B.

Jan. 4, 1977.

Rehearing Denied Feb. 18, 1977.

Review Denied March 22, 1977.

Bruce E. Babbitt, Atty. Gen. by James D. Winter, Asst. Atty. Gen., Phoenix, for appellants.

Jones, Teilborg, Sanders, Haga & Parks, P.C. by David L. Haga, Jr., Arnold, Schneider, Moore & Demaree by Joseph L. Moore, Phoenix, for appellee.

OPINION

WREN, Acting Presiding Judge.

This appeal concerns the applicability of the Transaction Privilege and Education Excise Tax, Title 42, Ch. 8, Art. 1, Arizona Revised Statutes, to the sale of certain off-highway vehicles by the appellee, Southwest Kenworth, Inc. (Kenworth). However, before reaching the merits of the tax question we must consider appellant's contention that the trial court erred in treating the verdict of the jury as advisory only. The action is one at law and not equity and was scheduled for trial to a jury. Yet in a pretrial conference with the trial judge appellee's attorney stated that the jury was to be an advisory one. Appellant admittedly failed to comment on or object to this assertion by appellee and characterized his own conduct as amounting to 'passive acquiescence' insufficient to constitute a waiver of his right to trial by jury, citing Rule 39A, Arizona Rules of Civil Procedure, 16 A.R.S. Rule 39A requires that when a jury has been demanded the jury will try the issues unless both parties stipulate in open court or in writing that the case may be tried to the court. Appellant notes that no such stipulation appears in the record and argues that he was deprived of his right to a jury trial because the verdict and answers to the special interrogatories submitted were considered by the court as being advisory only, in that the judgment rendered by the court was contra to the verdict of the jury.

We would agree that treating the verdict and interrogatories of the jury in a non-equity case as being advisory only would, when properly objected to, amount to a denial of the right of trial by jury. However, the facts here reflect implicit consent by appellant that the jury act solely in an advisory capacity and Rule 39A is therefore inapplicable.

Contrary to the apparent suggestion by appellant, trial by an advisory jury is still a trial by jury. In an equity case the jury is always advisory yet this has been held to be sufficient to afford the parties the right to a jury trial. Stukey v. Stephens, 37 Ariz. 514, 295 P. 973 (1931); Mozes v. Daru, 4 Ariz.App. 385, 420 P.2d 957 (1966).

The central question before us on this issue is whether the trial court acted properly in using the jury in an advisory capacity. As a general rule the verdict of the jury and answers to special interrogatories are binding on the court when the action is one at law, but are only advisory and not binding upon the court in an equitable proceeding. Bohmfalk v. Vaughan, 89 Ariz. 33, 357 P.2d 617 (1960). However, we have found no authority nor has any been cited to us which would prohibit the parties and the court from agreeing to and using such a jury in a non-equity case. We believe that the record here shows that there was an implicit understanding that the jury would be advisory and the appellant is estopped from arguing to the contrary. See Mozes v. Daru, supra; Johnson v. Neel, 123 Colo. 377, 229 P.2d 939 (1951). The record reflects not only appellant's admission that the fact that the jury would be advisory was mentioned in chambers prior to trial, but also that special interrogatories which were to be answered 'Yes', 'No', or in some instances, 'Undecided' were submitted to the jury without objection from appellant. Although a general verdict was also submitted, such a verdict is not inconsistent with the advisory nature of the jury. Cf. Merryweather v. Pendleton, 90 Ariz. 219, 367 P.2d 251 (1961). Moreover, even though the appellant received a favorable verdict, its counsel, after the return thereof, submitted a form of judgment to the court which awarded only the jury fees and did not purport to render judgment on the merits. Trial memoranda were thereafter submitted by both parties and appellant's memorandum contained this statement:

'The ultimate question to be decided at the present time is whether or not the plaintiff, Southwest Kenworth, Inc. is entitled to a refund . . ..'

We believe this statement tacitly admits that the ultimate question of taxability was still to be decided despite the jury's verdict.

Oral arguments were heard after the trial memoranda were submitted and in a minute entry order of July 9, 1974 more than 13 months after the jury verdict, judgment was rendered in favor of appellee. Proposed findings of fact and conclusions of law were submitted by appellee, and in a memorandum in opposition thereto, appellant for the first time asserted that the verdict of the jury was binding on the court. Under the circumstances, principles of estoppel preclude this issue being raised, and the facts show implicit consent to an advisory jury. Turning to the tax question itself, the pertinent facts are as follows:

Kenworth is an Arizona corporation engaged in the business of selling heavy-duty trucks and off-highway vehicles. It is a franchise dealer for K. W. Dart, a Kansas City truck manufacturer. In addition to sales of vehicles, Kenworth also maintains a parts and service department located in Arizona.

Sometime in 1965, Kenworth became aware that American Smelting and Refining Co. (ASARCO) and later that Kennecott Copper Co., two mining companies with corporate headquarters in New York, were in the market for some new vehicles for use in their Arizona mines. Technical employees from Kenworth and from the mines met in Arizona to work out specifications for the vehicles. Kenworth's president then entered a series of negotiations with the corporate officers in New York and there he submitted a bid for the contract. Kenworth was orally informed in New York that its bid had been accepted, and the actual purchase orders were later received in Arizona.

When the vehicles were completed they were shipped by K. W. Dart to the purchasers f.o.b. Kansas City. Invoices were sent by Kenworth when the vehicles were shipped and payment was received in Arizona. The risk of loss passed at the f.o.b. point to the purchaser, but final inspection and acceptance was to occur in Arizona, the destination point.

The trial judge concluded as a matter of law that the sale occurred outside Arizona; that the taxable event occurred outside Arizona; that the transactions were therefore interstate in nature and not subject to the Arizona transaction privilege tax.

The first issue that must be addressed is whether the sale must take place in Arizona for the transaction to be taxable. The applicable statute, A.R.S. § 42--1312A, provides, inter alia:

'A. The tax imposed by subsection A of § 42--1309 shall be levied and collected at an amount equal to two per cent of the gross proceeds of sales or gross income from the business upon every person engaging or continuing Within this state in the business of selling any tangible personal property whatever at retail, but the tax shall not apply to the gross proceeds of sales or gross income from: . . .' (Emphasis added.)

It has been firmly established that this tax is not one levied on the sale itself but on the privilege of engaging in business in Arizona, measured by the gross receipts from sales. Arizona Department of Revenue v. Mountain States Telephone and Telegraph Co., 113 Ariz. 467, 556 P.2d 1129 (filed Nov. 3, 1976); Tower Plaza Investments, Limited v. DeWitt, 109 Ariz. 248, 508 P.2d 324 (1973); State Tax Commission v. Quebedeaux Chevrolet, 71 Ariz. 280, 226 P.2d 549 (1951). The taxable event is the engaging in Business within the state. Arizona State Tax Commission v. Ensign, 75 Ariz. 220, 254 P.2d 1029 (1953).

A factual situation similar to the instant case was present in Arizona State Tax Commission v. Ensign, supra. The appellee was the exclusive dealer for an out-of-state manufacturer of pumps. The transactions upon which the controversy arose concerned the assessment of the privilege tax to the sale of pumps to certain large Arizona companies who did their own installation work and repairs. Orders for pumps were placed with appellee who forwarded them to the manufacturer. The manufacturer delivered them f.o.b. Los Angeles directly to the Arizona user and payment was made to appellee.

The applicable statute provided that the tax would be levied on 'the gross proceeds of sales at gross income from the business upon every person engaging or continuing Within this state in the following businesses: . . .' (Emphasis added.) A.C.A. 1939, § 73--1303(c), Excise Revenue Act of 1935. The Court, in interpreting the language of the statute specifically noted:

'(T)he 2% Rate upon the applicable indicia, 'gross proceeds of sales or gross income' , (is) without a limitation to sales made 'in the state'.

'Had the legislature intended to measure the tax by sales made only a Arizona it would doubtless have included in subsection (c) 1 the phrase 'in the state' or 'in this state', as it did in the business of transmitting long distance messages by telephone or telegraph, or of transporting for hire freight or passengers by motor vehicle or railroad, or of transporting products such as oil or gas in pipes or conduits where the transmission or movement is between points 'in this state'. Also, where the transmissions or movements are through the state or between a point inside and a point outside the state, the tax is 'imposed only upon such part of such business as is transacted or...