Associated Beverage Co. v. Board of Equalization, B027964
| Decision Date | 28 September 1990 |
| Docket Number | No. B027964,B027964 |
| Citation | 224 Cal.App.3d 192,273 Cal.Rptr. 639 |
| Court | California Court of Appeals Court of Appeals |
| Parties | ASSOCIATED BEVERAGE COMPANY, INC., dba Seven-Up Bottling Companies of Southern California, a Corporation, Plaintiff and Appellant, v. BOARD OF EQUALIZATION, Defendant and Respondent. WESTINGHOUSE BEVERAGE GROUP, INC., (formerly Associated Beverage Company, Inc.) dba Seven-Up Bottling Companies of Southern California, a Corporation, Plaintiff and Respondent, v. BOARD OF EQUALIZATION, Defendant and Appellant. |
Poindexter & Doutre, Inc. and William M. Poindexter for plaintiff and appellant Associated Beverage Co., Inc.
John K. Van de Kamp, Atty. Gen., Edmond B. Mamer, Supervising Deputy Atty. Gen., and Richard E. Nielsen and Carol H. Rehm, Jr., Deputy Attys. Gen., for defendant and appellant.
INTRODUCTION
Defendant State Board of Equalization appeals from that portion of the judgment ordering a refund of sales taxes to plaintiff Westinghouse Beverage Group, Inc. (formerly Associated Beverage Company, Inc.) in Case No. C498944. Plaintiff Associated Beverage Company, Inc. appeals from that portion of the judgment ordering that plaintiff take nothing in Case No. C422313. 1
Seven-Up manufactures and sells soft drinks in Southern California to various customers, including grocery stores, restaurants and gasoline stations. Defendant audited Seven-Up for the period of December 29, 1973 through September 21, 1978 and determined there was a sales tax deficiency. After Seven-Up paid the sum demanded, it filed a claim for the refund of $424,258 on March 21, 1980. Thereafter, on August 30, 1983, Seven-Up filed a revised claim for refund.
This claim challenged the portion of the deficiency involving Seven-Up's sales to vending machine owners and lessees who had a fixed place of business. Defendant had projected this deficiency assessment from samples which revealed Seven-Up did not have resale certificates from all of its vending machine customers. Defendant assessed tax on the retail price of the product sold through the vending machines, less tax included therein. Seven-Up did not notify defendant of the names and addresses of those vending machine owners and lessees who had not furnished it with resale certificates.
In July 1968, defendant surveyed soft drink bottlers in Los Angeles County concerning the application of the regulation pertinent to vending machine sales. Revenue and Taxation Code section 6359.4 had become effective on August 1, 1967. The purpose of the survey was to "ascertain the extent and nature of administrative problems" created by this change in the law and the concomitant amendments to the pertinent regulation. Among other facts, the survey sought to ascertain the number of customers governed by Revenue and Taxation Code section 6015. Seven-Up was among those surveyed.
Seven-Up was aware of the regulation and of the proposed changes therein accompanying the enactment of section 6359.4. At the time, Seven-Up Bottling reported it had approximately 500 "section 6015" customers and 2,500 vending machine customers who held resale certificates; it reported "section 6015" customer sales as taxable at the retail price. According to Robert Peterson (Peterson), an auditor for defendant with more than 30 years' experience, the regulation has been applied to all suppliers of products normally sold through vending machines, specifically including beverage bottling companies, since at least 1950.
The price of Seven-Up's products did not rise above the exemption level of Revenue and Taxation Code section 6359.4 until late 1973 or 1974. According to Seven-Up's director of asset accounting and financial planning, Richard Ferguson (Ferguson), during the audit period of December 1973 through December 1978, Seven-Up had reported taxable sales at the wholesale price when the customer failed to supply a resale certificate rather than at the retail price as the regulation required.
Based on Peterson's long experience, many establishments with vending machines are not generally in the retail business and thus have no seller's permits. The absence of the regulation would create considerable administrative problems. Those establishments not otherwise engaged in sale activity or engaged only in exempt activity would be required to obtain a seller's permit to operate a single vending machine, and those selling products to vending machine operators would be required to obtain a resale certificate from In the absence of this increasingly burdensome administrative system, significant tax revenues would be lost. Over the years, the receipts from vending machine operations traditionally have not been reported by the vending machine customer but by the original "6015 retailer," unless the vending machine customer has a resale certificate. Eliminating this procedure generally would result in the collection of tax only on the supplier's gross receipts rather than the retail sales price of the vending machine product.
every vending machine customer no matter how small. This would be a substantial administrative burden.
For example, when a sale appears to have been made for resale but it is not certain at audit where or whether an item has been reported as subject to sales tax, in that the customer has not provided a resale certificate, a company such as Seven-Up may be required to send an "XYZ letter" to the customer involved so defendant can determine whether an item has been reported as subject to sales tax, is not so taxable or should have been but was not reported. More than 52 percent of those vending machine operators responding to Seven-Up's queries in a sampling covering July 1975 and February and October 1976 indicated they had not reported taxable sales. In contrast, only slightly more than 21 percent of non-vending machine customers had failed to report taxable sales.
If a purchaser lacked a resale certificate and sold a particular product partly over the counter and partly through a vending machine, both situations would present similar audit problems. In that case, it would be no more difficult to audit the sales made through vending machines than those made over the counter.
The vending machines supplied by Seven-Up carry the Seven-Up logo. They are of three types: those Seven-Up owns and from which it collects the receipts; those Seven-Up leases and from which the lessee collects the receiptsS and those Seven-Up has sold and from which the owner collects the receipts.
During the audit period of October 1, 1977 through December 31, 1980, Seven-Up purchased bottles, cans and other containers from various manufacturers. Thereafter, Seven-Up filled these containers with soft drinks it then sold primarily to retailers and occasionally to distributors. The beverage containers either were nonreturnable bottles and cans or reusable bottles. Defendant assessed sales and use taxes on Seven-Up's original purchase of reusable bottles, and Seven-Up paid sales tax reimbursement to California manufacturers from whom it purchased these bottles. Seven-Up seeks a refund of the sales and use taxes it paid.
All newly purchased beverage containers are rinsed before they are filled with soft drinks and sold. When reusable bottles are returned to Seven-Up, they are inspected for damage and washed thoroughly before they are refilled with soft drinks and resold. The reusable bottles are heavier to withstand more usage.
The only written agreement between the parties is the invoice for each transaction. The invoice specifies the product delivered, the price, the deposit charged for returnable containers of varying sizes and the deposit credit given in the event the returnable containers are returned to Seven-Up. The credit given is the same as the deposit charged.
In 1978, Seven-Up received 4,106,277 cases of bottles returned for reuse, while only 482,565 cases of such bottles were purchased new. During the same period, Seven-Up sold 3,643,791 cases of soft drinks. The returnable bottles are returned to plaintiff more than 50 percent of the time. On the average, the returnable bottles are reused four times; at that point, they generally have become chipped and must be discarded. Both returnable and nonreturnable containers bear Seven-Up's franchised trademarks. Returnable bottles are imprinted with such words as "Return for Deposit." From 1973 through 1979, Seven-Up treated the cost of new returnable bottles as a prepaid expense;
the cost was reflected as an asset and depreciated over a four-year period.
Defendant contends section 1574, subdivision (a)(4) (formerly subdivision (a)(6)) of the California Code of Regulations, title 18, properly was applied to Seven-Up, in that it is within the scope of Revenue and Taxation Code section 6015.
Seven-Up asserts the trial court erred in determining its purchase of reusable bottles was subject to the use tax, in that Seven-Up resold the bottles to its customers and neither the initial filling of new bottles nor the refilling of returned, reusable bottles constituted an intervening nonsale use.
Defendant contends section 1574, subdivision (a)(4) (formerly subdivision (a)(6)) of the California Code of Regulations, title 18, properly was applied to Seven-Up, in that it is within the scope of Revenue and Taxation Code section 6015. We agree.
It is well settled that in an action for the recovery of sales or use taxes paid under protest, the taxpayer plaintiff bears the burden of proving an excessive assessment or collection has been made. (Macrodyne Industries, Inc. v. State Bd. of Equalization (1987) 192 Cal.App.3d 579, 581-582, 237 Cal.Rptr. 537; Long Beach Firemen's Credit Union v. Franchise Tax Bd. (1982) 128 Cal.App.3d 50, 55, 179 Cal.Rptr. 869.) Where, as here, the basic facts are...
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