Blackmon v. Coastal Service, Inc., 46293

• Decision Date: 01 November 1971
• Docket Number: No. 3,No. 46293,46293,3
• Citation: 186 S.E.2d 441,125 Ga.App. 28
• Parties: John A. BLACKMON v. COASTAL SERVICE, INC
• Court: Georgia Court of Appeals

Page 441

186 S.E.2d 441

125 Ga.App. 28

John A. BLACKMON v. COASTAL SERVICE, INC.

No. 46293.

Court of Appeals of Georgia, Division No. 3.

Nov. 1, 1971.

Rehearing Denied Nov. 18, 1971.

Syllabus by the Court

1. The Federal cigarette tax imposed by Subtitle E, Ch. 52 of the Internal Revenue Code (26 U.S.C.A. § 5701 et seq.) is an element of the 'cost of the property sold' and is therefore included in 'gross sales' and 'sales price' as those terms are defined in the Sales and Use Tax Act (Code Ann. Ch. 92-34A).

2. The State cigarette tax imposed by Ga.L.1955, p. 268, as amended (Code Ann. § 92-2201 et seq.) is not an element of the 'cost of the property sold' and is not, therefore, included in 'gross sales' and 'sales price' upon which the sales and use tax is calculated.

This is an appeal by the Revenue Commissioner from a judgment entered in the superior court sustaining an illegality of Coastal Service, Inc., d/b/a Coastal Cigarette Service, to the Commissioner's execution for sales and use taxes. The execution was issued because Coastal did not include in the retail sales price, for purposes of computation of the sales tax, the Federal cigarette taxes imposed by 26 U.S.C.A. (I.R.C.1954) § 5701 et seq. (hereafter Federal Act) and the State cigarette taxes imposed by Ga.L.1955, p. 268, as amended (Code Ann. § 92-2201 et seq.) (hereafter State Act).

Coastal is a dealer in cigarettes, selling them to consumers through vending machines. It purchases the cigarettes from distributors licensed by the Commissioner under the State Act, who, prior to sale to Coastal, had paid the State cigarette taxes and affixed tax stamps to the cigarettes. Similarly, prior to the time Coastal purchased from the distributor, the Federal taxes had been paid by the manufacturer who had sold to the distributor. Coastal is not a distributor as that term is defined in the State Act, nor is it licensed as such by the commissioner. It makes no returns or direct tax payments under either the Federal or State Act. Before computing sales taxes under the Sales and Use Tax Act (Code Ann. Ch. 92-34A), Coastal deducted from the sales price of cigarettes it had sold amounts equal to the Federal and State cigarette taxes previously paid by the manufacturer and distributor; and the execution issued for the sales taxes that would have been paid if the amounts of these taxes had not been deducted. The judgment sustaining the illegality was entered upon an order denying the Commissioner's motion for summary judgment and granting Coastal's motion on these facts.

Arthur K. Bolton, Atty. Gen., Harold N. Hill, Jr., Executive Asst. Atty. Gen., Richard L. Chambers, Timothy J. Sweeney, Asst. Attys. Gen., Atlanta, for appellant.

William T. Gerard, Athens, for appellee.

EBERHARDT, Judge.

We come again to a 'tax on tax' problem. The questions presented are whether the federal and State cigarette taxes are elements of the 'cost of the property sold' within the meaning of the Sales and Use Tax Act (Code Ann. § 92-3403a(E)) and hence, to the consumer purchaser, a part of the sale price. This ground has been plowed before in Undercofler v. Capital Automobile Co., 111 Ga.App. 709, 143 S.E.2d 206 and State v. Thoni Oil Magic Benzol Gas Stations, 121 Ga.App. 454, 174 S.E.2d 224, affirmed 226 Ga. 883, 178 S.E.2d 173. The principle of those cases is that if the imposition of taxes, such as those involved here on cigarettes, falls upon the consumer or the incident of the sale by the retailer to the consumer they are not included as part of the retail sale price for calculating the sales and use tax; if, however, the tax is imposed at a time prior to the point of retail sale or other consumer transaction, it is an element of the cost of the property sold and must be included as part of the retail sale price for purposes of calculating the sales and use tax. In determining the point at which any such tax falls, primary consideration must be given to the applicable taxing statutes, to which we now turn.

1. The Federal Act. 26 U.S.C.A. § 5701(b) imposes certain taxes by weight, length, and number 'on cigarettes, manufactured in or imported into the United States.' Section 5703(a)(1) provides: 'The manufacturer or importer of tobacco products ¹ . . . shall be liable for the taxes imposed thereon by § 5701.' (Emphasis supplied.) This language more strongly supports the conclusion that the tax liability is imposed directly upon the manufacturer and not upon the retail sale than did the language of the applicable Federal statutes in Capital Automobile Co. and Thoni, supra, where it was held that the respective Federal taxes on automobiles and gasoline were includable as part of the retail sale price. In Capital Automobile Co. we said: 'Federal excise taxes may be classed in two general categories: Some Internal Revenue Code provisions for Federal excise taxes . . . create tax liability only as of the time of a retail sale or other dealer-consumer transaction. Other provisions for Federal excise taxes generally create tax liability prior to the point of retail sale or consumer transaction: See 26 USC (IRC 1954) . . . Subtitle E (alcohol and tobacco taxes and taxes upon firearms).' 111 Ga.App. 709, 711-712, 143 S.E.2d 206, 209 (Emphasis supplied.) The Supreme Court of the United States, in dealing with similar taxes under § 401 of the Revenue Act of 1926 (44 Stat. (Part 2) 9, 88), held that the federal tax on tobacco was a tax upon the manufacturer and not upon the retail sale, so that a sale to a state-operated hospital was not exempt from the tax. Liggett & Myers Tobacco Co. v. United States, 299 U.S. 383, 57 S.Ct. 239, 81 L.Ed. 294. Coastal contends, however, that the original tax liability imposed upon the manufacturer by the Federal Act under consideration here, unlike the Acts construed in Capital Automobile Co., Thoni, and Liggett & Myers, supra, is inchoate and ultimately dependent upon a consumer sale. In support are cited § 5704(b) of the present Act, which provides an exemption from the cigarette tax for cigarettes removed 'for consumption beyond the jurisdiction of the internal revenue laws of the United States . . .'; § 5705(a), which provides for a refund to the manufacturer who has paid taxes on cigarettes which are withdrawn by him from the market or which are lost, destroyed by fire, etc.; and § 5708, which provides for a similar refund for cigarettes lost, etc., because of a major disaster.

However, the issue involved in Liggett & Myers, 299 U.S. 383, 57 S.Ct. 239, 81 L.Ed. 294, supra, arose in January, 1932, after the Act of March 3, 1931 (46 Stat. 1510) became effective. That Act, similar to the sections cited by Coastal here, provided for redemption of tax stamps issued after December 31, 1931, and affixed to cigarettes 'which, after removal from factory or customhouse for consumption or sale, the manufacturer or importer withdraws from the market.' See Stephano Bros. v. United States, 89 F.Supp. 693 (Ct.Cl.) for the statutory history. In Liggett & Myers, supra, petitioners sought to recover the value of tax stamps affixed to tobacco sold to a state-operated hospital. Similar to the provisions under consideration here, the statute there levied a tax 'upon all tobacco and snuff manufactured in or imported into the United States, and hereafter sold by the manufacturer or importer, or removed for consumption or sale, (the tax) to be paid by the manufacturer or importer thereof.' (Emphasis supplied). Petitioners contended, inter alia, that the tax was laid upon the sale of the tobacco and amounted to an imposition upon the state; the government, on the other hand, contended that the tax was upon the manufacturer with duty of payment postponed until removal or sale. Holding that the tax was upon the manufacturer and that the effect upon the purchaser was indirect, the Supreme Court observed: 'True the limit of time for making payment is when the product is sold or removed, but this is a privilege designed to mitigate the burden; it indicates no purpose to impose the tax upon either sale or removal.' 299 U.S. 386, 57 S.Ct. 241, 81 L.Ed. 294.

We conclude, for reasons stated in Undercofler v. Capital Automobile Co., 111 Ga.App. 709, 143 S.E.2d 206, supra, State v. Thoni Oil Magic Benzol Gas Stations, Inc., 121 Ga.App. 454(1), 174 S.E.2d 224, supra, and Liggett & Myers Tobacco Co. v. United States, 299 U.S. 383, 57 S.Ct. 239, 81 L.Ed. 294, supra, that the Federal tax does not fall upon the incident of a retail sale and must be included as a part of the retail sale price on which the sales tax is calculated.

2. The State Act. Ga.L.1955, p. 268, before amendments to be considered later, provided in § 3(a): 'A privilege tax is hereby levied on every person selling cigars and cigarettes or possessing cigars or cigarettes for sale, said tax to be measured by and graduated in accordance with the volume of cigars or cigarettes sold or possessed for sale . . .' This section, taken alone, would indicate that there was imposed a privilege tax, not on the consumer, but on persons selling or possessing for sale, and the incident of the tax would fall upon the enjoyment of the privilege of sale or possession for sale and not upon the sale itself. Cf. Oxford v. J. D. Jewell, Inc., 215 Ga. 616, 112 S.E.2d 601; Novak v. Redwine, 89 Ga.App. 755, 81 S.E.2d 222.

Turning to other portions of the Act, § 2 defined 'distributor' to mean, inter alia, an importer or in-state manufacturer; 'dealer' was defined as one other than a distributor who was engaged in the business of selling cigars or cigarettes. The general distributive process contemplated by the Act as a whole, and particularly in view of Ga.L.1960, p. 125, redefining 'distributor' and 'dealer,' appear to be that the goods flowed from the manufacturer to the distributor, who in turn sold to a dealer for resale to consumers. Sections 4(a) and 9(a) as amended by Ga.L.1960, p. 125, provided that the tax would be...