Bank of America Nat. Trust & Sav. Ass'n v. State Bd. ofEqualization

• Citation: 209 Cal.App.2d 780,26 Cal.Rptr. 348
• Court: California Court of Appeals
• Decision Date: 20 November 1962
• Parties: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Respondent. Civ. 20120.

Page 348

26 Cal.Rptr. 348

209 Cal.App.2d 780

BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Respondent.

Civ. 20120.

District Court of Appeal, First District, Division 1, California.

Nov. 20, 1962.

Hearing Denied Jan. 16, 1963.

George H. Koster, Bayley Kohlmeier, San Francisco, for appellant.

Stanley Mosk, Atty. Gen., Dan Kaufmann, Asst. Atty. Gen., Ernest P. Goodman, Deputy Atty. Gen., San Francisco, for respondent.

MOLINARI, Justice.

Statement Of The Case

This is an appeal from a judgment in favor of the respondent (hereinafter referred to as the State) in an action by the appellant (hereinafter referred to as the Bank) for the recovery of $41,401.11, with interest, charged to and collected from the Bank by the State as use tax for the period from April 1, 1952, to March 31, 1955. The taxes involved were based upon purchases of specially printed checks by depositors of the Bank which taxes were charged against the Bank on the ground that the Bank was required to collect use taxes from the purchasers, and having failed to do so, became liable for the payment of taxes and interest thereon from its own funds. The Bank contested liability for the taxes, paid the taxes and interest under protest, filed a written claim for refund, and upon rejection of the claim, filed this action for recovery of the amounts so paid by it. The action was determined adversely to the Bank by the trial court. The cause was tried upon a written 'Stipulation of Facts,' which was admitted in evidence as exhibit No. 1; the testimony of one witness, L. J. Tobey, an assistant vice-president of the Bank; and other documentary exhibits admitted at the trial.

The Stipulated Facts

Pursuant to the written 'Stipulation of Facts' filed in open court and also marked as an exhibit as aforesaid, the parties stipulated and agreed therein that either party could present other evidence which did not qualify, change or contradict the facts stipulated to, and that the court could find the facts stipulated to. The stipulated facts are essentially as follows:

The bank is a national bank maintaining its principal place of business in San Francisco, California. During the period from April 1, 1952, to March 31, 1955, the Bank made available to its depositors checks on which the name and address of the depositor were printed. These were referred to as 'personalized checks.' The Bank displayed and distributed at its place of business literature with regard to personalized checks prepared by DeLuxe Check Printers, Inc. (hereinafter referred to as DeLuxe), a corporation organized under the laws of the State of Minnesota, which maintained its principal office in Chicago, Illinois, did not maintain an office or place of business in California and was not qualified to do business in California. Brochures describing these checks and containing an order blank provided by DeLuxe were on occasions transmitted to the customers of the Bank with their monthly bank statements. The orders for personalized checks could be mailed to the offices of the Bank and this practice was followed by some of the Bank's customers. The design and the statement of price in said brochure was changed during the period involved herein, but the wording of the order blank contained in said brochure remained the same throughout the entire period.

Depositors who desired to purchase personalized checks printed by DeLuxe completed the order form contained in said brochure by filling in the number of checks desired, the name and address to be printed thereon, special instructions, if any, signed the order, and then delivered the order to an employee of the Bank either in person or by mail. If the order was accepted by the Bank the order was then transcribed onto another order blank provided by DeLuxe, which contained space for three orders and which also provided duplicates for use as labels and as vouchers for the charge to the depositor. Said orders were then transmitted by the Bank to DeLuxe at the Chicago office of said corporation. The same form with appropriate notations was used regardless of whether the checks were to be mailed directly to the customer or mailed to the Bank's branch for delivery to the customer. The checks were printed by DeLuxe pursuant to the orders, and when printed were mailed directly to the depositor or to the designated branch office of the Bank in accordance with the instructions of the depositor contained in the order. Printed checks mailed to the Bank were delivered by it to the depositor when he called for them at its branch office.

The order signed by the depositor authorized the Bank to charge the depositor's bank account with the Bank for the entire cost of the checks. During the period from April 1, 1952, to October 19, 1953, DeLuxe charged $1.30 for each book of 200 checks, plus ten cents additional if the book of checks was mailed directly to the depositor. During the period from October 19, 1953, to March 31, 1955, DeLuxe charged $1.40 for each book of 200 checks, plus ten cents additional if the book of checks was mailed directly to the depositor. An additional amount of five cents was added to the charge to the depositor for each book of 200 checks and said additional amount was retained by the Bank. Charges for personalized checks, including the amount retained by the Bank, were either collected by the Bank from the depositor or charged to his account at the time of acceptance of orders. In the Bank's statement sent to the depositor the amount so retained by the Bank was not separately stated.

The amount received from the depositor or charged to his account was credited to an account designated "Bancontrol: DeLuxe Check Printers, Inc." DeLuxe sent a monthly statement to the Bank's Accounting Department, Head Office, for the total charges at the rate charged by DeLuxe for all orders forwarded from all branches of the Bank during the period covered by the statement. Payment of the total amount shown on said monthly statements was made from the headquarters office of the Bank. The statement sent to the Bank by DeLuxe showed the charges which were allocable to each branch of the Bank. The amounts allocable to each branch were then charged to the various branches through the branch clearings and these amounts were entered on the books of the branch in the account titled "Expense" through a debit entry. The branch verified the charges shown on the statement of DeLuxe by comparing them with copies of orders on file at the branch. Then, the full amount collected from the customers on the completed orders covered by the statement was subtracted from the account designated "Bancontrol: DeLuxe Check Printers, Inc." by means of a debit entry and such amount was credited to the account titled "Expense." The effect of the above accounting entries was to fully offset the amount charged to expenses as a result of the billing from DeLuxe and also, to reduce the amounts in the account titled "Expense" by an additional five cents per order of 200 checks. This amount of five cents per order which had originally been included in the credit to the Bancontrol Account represented the income received by the Bank on each order of 200 checks over and above the charges made by DeLuxe.

Each book of personalized checks contained a reorder blank. Said reorder blanks were completed by the depositor and delivered to the branch of the Banmk either in person or by mail. The procedure followed by the Bank in transmitting reorders and payments to DeLuxe and charging the depositor's account was the same as that described above in the case of original orders.

During the period from April 1, 1952, to March 31, 1955, the total charges which the Bank made to the accounts of depositors who purchased said checks printed by DeLuxe during the said period, pursuant to the orders and procedure above described, amounted to $1,229,949.70. The Bank did not collect sales tax reimbursement from its customers who purchased personalized checks and did not pay sales tax with respect thereto, nor did it collect from the depositors who purchased such checks and delivered to the branch of the Bank either to the purchase of such checks. The Bank did not report the purchases and distribution of personalized checks in a sales or use tax return.

The State, through its agents, examined the books and records of the Bank pertaining to the purchases of personalized checks by the Bank's depositors. At the termination of the examination, the State forwarded to the Bank a copy of 'Report of Field Audit,' and thereafter, on July 29, 1955, issued to the Bank a 'Notice of Determination Under the Sales and Use Tax Law,' which referred to said audit. Within the time provided by law the Bank filed with the State a 'Petition for Redetermination of Sales and Use Tax.' After oral hearing, the State issued to the Bank under date of February 8, 1956, a 'Notice of Redetermination Under the Sales and Use Tax Law.' The additional taxes shown on the 'Field Audit Report' for the period April 1, 1947, to March 31, 1952, were abated by the State Board of Equalization by reason of the expiration of the statute of limitations. As the result of the receipt of said 'Notice of Redetermination,' the Bank paid the sum of $41,401.11 to the State, under written protest. Thereafter the Bank filed with the State a written claim for the refund of said sum in the amount of $41,401.11, which claim was denied by the State.

The State did not make any determination of the tax measured by the cost of personalized checks against any of the purchasers of said checks.

It was further stipulated and agreed in said 'Stipulation of Facts' that the exhibits attached thereto (A, B, C, D, E, F, G and H) and incorporated therein by reference were included for the sole purpose of describing the transactions...