B.F. Goodrich Co. v. State

• Decision Date: 15 May 1951
• Docket Number: No. 31681,31681
• Citation: 231 P.2d 325,38 Wn.2d 663
• Court: Washington Supreme Court
• Parties: B. F. GOODRICH CO. v. STATE et al.

Page 663

38 Wn.2d 663

231 P.2d 325

B. F. GOODRICH CO. v. STATE et al.

No. 31681.

Supreme Court of Washington, en Banc.

May 15, 1951.

Rehearing Denied June 26, 1951.

Hile, Hoof & Shucklin, Seattle, for appellant.

Smith Troy, C. John Newlands, Olympia, for respondents.

ROBINSON, Justice.

This action was brought to enjoin the recovery of certain business and occupation taxes assessed by the tax commission of the state of Washington. Appellant, The B. F. Goodrich Company, contends that the assessment of these taxes is in violation of the commerce clause of the United States constitution.

Appellant, a New York corporation qualified to do business in the state of Washington, is a manufacturer and wholesaler of various products. It engages in no manufacturing within this state, but its local selling activities are numerous and varied. Those sales, the gross receipts from which, appellant urges, have been improperly included within the measure of its business and occupation tax, may be divided into five general classification, as follows:

Class A Sales: These are sales by appellant's Automotive, Aviation, and Government Sales Division, which sells products to manufacturers, not for consumption, but for incorporation into articles manufactured by the purchasers, for example, fuel tanks for aircraft. This division maintains in Washington an office, a manager, and a secretary. The division manager solicits orders from Washington purchasers. These orders are received and acknowledged by him, and forwarded to appellant's main office at Akron, Ohio. Final acknowledgment and approval is made at Akron and transmitted to the Washington division office which, in turn, notifies the customer. The merchandise is shipped directly to the purchaser, f. o. b. Akron.

Class B Sales: These include sales by the Tire Replacement Sales Division, which handles sales of various automotive and domestic accessories for the replacement trade, as distinguished from sales of similar products to manufacturers for incorporation into products which they, in turn, sell; and sales by the Industrial and General Products Division, which sells items such as industrial belting, either through distributors or directly to consumers. The Tire Replacement Sales Division has nine salesmen, ten office employees, seven staff members, one warehouseman, and one hundred and one other employees in Washington. The products it handles are marketed through eleven retail stores owned and operated by appellant, and also through franchise dealers and distributors to whom wholesale sales are made. The Industrial and General Products Division maintains in Washington eight employees, including three salesmen. Both these divisions operate offices in Washington, and each maintains a warehouse containing a considerable inventory.

Those sales, denominated Class B, are initiated when orders are solicited and obtained from Washington purchasers by salesmen operating out of the Washington division offices, or when orders are received by these offices directly from the Washington purchasers. The orders are accepted in Washington and sent to appellant's Portland, Oregon warehouse for filling. The merchandise is shipped directly to the purchasers, f. o. b. Portland.

Class C Sales: These are also sales made by the Tire Replacement Sales and Industrial and General Products Divisions. Orders for merchandise not available in Washington are mailed by the Washington purchaser directly to the Portland office. If the purchaser has previously obtained a dealer franchise and credit approval for such sales from the proper Washington division office, and notice thereof has been sent to Portland, the orders are accepted and filled in Portland. If no such franchise or credit approval has been granted, the orders are referred to the Washington division office in order that this may be done. If the Washington office grants such franchise and credit approval, the merchandise is shipped directly to the purchaser, f. o. b. Portland.

Class D Sales: These are sales by the Hood Rubber Division, which is a complete operating unit, managing its own manufacturing and sales operations. It sells such articles as rubber and rubber-soled canvas footwear, flooring, battery boxes, and coated fabrics. In Washington, this division has sixteen employees, including salesmen, and it maintains a footwear sales office and warehouse in Seattle. Orders for footwear, of a type not warehoused in Washington, are solicited and obtained from Washington purchasers by salesmen operating out of the Washington division office, or they are received by this office directly from the Washington purchasers. After the approval of the purchasers' credit in Washington, the orders are sent to the main office of the Hood Rubber Division in Watertown, Massachusetts, where they are accepted, if the merchandise is available. The merchandise is shipped directly to the purchaser, f. o. b. Watertown.

Class E Sales: These are also sales made by the Hood Rubber Division and involve only flooring material. It is alleged in the complaint, and admitted by the answer, that solicitation of accounts is made for this product by mail or by salesmen reporting to Watertown only. It is further alleged and admitted that such salesmen have no connection with the Seattle office of the Hood Rubber Division; that no salesmen or sales offices concerned with this product are maintained in Washington; and that no stock or inventory of flooring material is maintained here. Orders for the product are mailed by Washington purchasers directly to a San Francisco office, where such merchandise is stocked or to the main division office at Watertown. The merchandise is shipped directly to the purchaser, f. o. b. Watertown or San Francisco, as the case may be.

Class F Sales: These are a special class of sales made by the Hood Rubber Division, pursuant to a contract negotiated between the main division office at Watertown, and the home office of the J. C. Penney Company at New York City. Orders are placed by the Washington outlets of the J. C. Penney Company with their New York office, which, in turn, transmits the orders to the Watertown office of the Hood Rubber Division. The merchandise is shipped directly to the J. C. Penney Company outlets in Washington as designated by the New York office. Shipments are made f. o. b., Watertown.

The trial court concluded that the gross proceeds from the sales in Classes A, B, C, D, and E were constitutionally includable within the measure of the business and occupation tax payable by The B. F. Goodrich Company. From this portion of the judgment, the company has appealed. The court further held that the gross proceeds from the sales in Class F could not properly be included within the tax assessment, and enjoined the tax commission from collecting any taxes based on sales in this class. From this portion of the judgment, the tax commission has cross-appealed.

The statute, by authority of which it is sought to include within the measure of appellant's tax the proceeds of these sales, is Rem.Rev.Stat. § 8370-4 et seq., as amended by chapter 5, Session Laws of 1950, Extraordinary Session. In pertinent part, this statute reads as follows:

'Section 4. From and after the first day of May, 1935, there is hereby levied and there shall be collected from every person a tax for the act or privilege of engaging in business activities. Such tax shall be measured by the application of rates against value of products, gross proceeds of sales, or gross income of the business, as the case may be, as follows: * * *

'(b) Upon every person * * * engaging within this state in business as a manufacturer; as to such persons the amount of the tax with respect to such business shall be equal to the value of the products, including by-products, manufactured, multiplied by the rate of one-quarter of one per cent;

'The measure of the tax is the value of the products, including by-products, so manufactured regardless of the place of sale or the fact that deliveries may be made to points outside the state; * * *

'(e) Upon every person * * * engaging within this state in the business of making sales at wholesale; as to such persons the amount of tax with respect to such business shall be equal to the gross proceeds of sales of such business multiplied by the rate of one-quarter of one per cent; * * *

'Section 6. * * * persons taxable under paragraphs * * * (c) * * * shall not be taxable under paragraphs * * * (b) * * * with respect to extracting or manufacturing of the products so sold.'

As amended in 1943, this statute provided that persons taxable as manufacturers should not be taxable as wholesalers. Rem.Supp.1943, § 8370-6. As so written, we held that it marked an unconstitutional discrimination against interstate commerce, in that it levied a tax upon wholesale activities of those engaged in such commerce, while exempting those who performed the same taxable act, to wit, the sale at wholesale, if they manufactured in the state of Washington. Columbia Steel Co. v. State, 30 Wash.2d 658, 192 P.2d 976; Weyerhaeuser Sales Co. v. State Tax Commission, 30 Wash.2d 947, 192 P.2d 979. In an attempt to cure this defect, the legislature, in its extraordinary session of 1950, rewrote the statute in the form quoted above, so that it now lays a tax equally upon all those selling at wholesale within the state, but further provides that those who are taxed as wholesalers shall not be taxed as manufacturers. The procedure for exemption of those who perform both the taxable acts of manufacture and sale has thus been exactly reversed; the local manufacturer-wholesaler, instead of being exempt from tax as a wholesaler, is instead exempt as a manufacturer.

Although respondents plainly regard this change as purely verbal (it may well be; but the cases in this field often turn, unfortunately, on just such verbal niceties), they also assert that it has...