Broadacre Dairies v. Evans

• Decision Date: 09 February 1952
• Parties: , 193 Tenn. 441 BROADACRE DAIRIES, Inc. v. EVANS.
• Court: Tennessee Supreme Court

Page 78

246 S.W.2d 78

29 Beeler 441, 193 Tenn. 441

BROADACRE DAIRIES, Inc. v. EVANS.

Supreme Court of Tennessee.

Feb. 9, 1952.

Grimm, Tapp & Carson, Knoxville, for appellant.

Roy H. Beeler, Atty. Gen., Allison B. Humphreys, Jr., Asst. Atty. Gen., Milton P. Rice, Asst. Atty. Gen., for appellee.

BURNETT, Justice.

The question presented by this appeal is whether a lessee residing in this State of tangible personal property from an out of the State lessor, which property was leased and delivered into Tennessee prior to the effective date of the Sales Tax Act, is liable for the tax under said Act based on monthly rental paid after the effective date of the Act.

The appellant is a dairy establishment operating in Knox County, Tennessee. It sells its products to customers in paper cartons, which mode of doing business requires the use of special machinery to fill and seal said cartons. The appellant rented machinery for the purpose of putting its milk and products in these paper cartons under a lease agreement which was dated April 20, 1946. The machinery for this purpose was purchased in the State of Michigan and delivered to the appellant in Knoxville on December 20, 1946. The lease agreement provided, among other things, that the appellant was to pay base rental of $900 at the time of the execution of the lease agreement and forty-five consecutive monthly installments of $200 each, said monthly installments were to commerce thirty days after the installation of the machinery. The agreement further required that the appellant pay additional rentals designated as 'production rentals' based upon the quantity of containers formed on the machine and sold, less any returned containers, and that these 'production rentals' were to be paid monthly at a minimum rate of $300 per month.

Our Retail Sales Tax Act was passed in January, 1947, with its effective date as of June 1, 1947, is Chapter 3 of the Public Acts of 1947, and is carried in the Code under Section 1328.22 et seq.

The appellant from and after June 1, 1947, paid to its out of the State lessor various sums ranging from $500 upward depending of course upon its output and sales. The appellant apparently took the position that this was an out of the State purchase and since it had been purchased and the contract entered into prior to the effective date of the Act it did not owe the tax and consequently made no return thereon. Early in November, 1950, the agents of the State audited the books and as a result thereof the appellant paid to the State, under protest, $557.11 and the instant suit was filed by the appellant to recover this amount.

The appellee demurred to the bill and the Chancellor sustained the demurrer and it is from this that the present appeal comes.

Our Sales Tax is a privilege tax, based upon the privilege of selling at retail, leasing, renting, distributing, storing, using or consuming tangible personal property in Tennessee. Code, § 1328.24; Crescent Amusement Co. v. Carson, 187 Tenn. 112, 213 S.W.2d 27.

The appellant takes the position that this tax collected is a 'use tax' which has been illegally assessed and collected from it because of the following provision from Section 4 of the Act, Code, § 1328.25, which provides among other things, that: 'The 'use tax' shall not apply to tangible personal property owned or acquired in this state, or imported into this state, or held or stored in this state prior to the effective date of this act.'

We define the term 'use tax' as 'a tax upon the privilege of using, consuming, distributing or storing tangible personal property after it is brought into this State from without this State'. Madison Suburban Utility District of Davidson County v. Carson, 191 Tenn. 300, 306, 232 S.W.2d 277, 280. 'Use taxes are usually levied upon the use, storage, or consumption of tangible personal property purchased outside the taxing State but subsequently employed therein.' 47 Am.Jur., 249, Sec. 42.

The Use Tax is a tax on the enjoyment of that which was purchased after a sale has spent its interstate character. McLeod v. J. E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304. It is a compensating tax to place Tennessee manufacturers and merchants on a parity with non-residents doing business in the State. It prevents undue discrimination against local retailers. Its chief function is to prevent the evasion of the Tennessee Sales Tax by persons purchasing tangible personal property outside of Tennessee for 'storage, use, or consumption' within the State. It thus prevents unfair competition on the part of out of State merchants. Thus when we take the use tax portion of the Act as complementary to the Sales Tax when taken and applied together they provide a uniform tax upon either the sale or the use of all tangible personal property irrespective of where it may be purchased. These two taxes are complementary and functional parts of one system of taxation.

See Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 61 S.Ct. 586, 85 L.Ed. 888, 132 A.L.R. 475; Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814.

Sales tax is collectible from all persons defined in the Act as 'dealers'. Code, § 1328.24(e). One of the statutory definitions given of a dealer is found in the following Code, § 1328.25 as follows: 'The term 'dealer' is further defined to mean any person, as used in this act, who is the lessee or rentee of tangible personal property, as defined in this act and who pays to the owner of such property a consideration for the use or possession of such property without acquiring title thereto.' It is further observed that a tax at the rate of 2% is fixed by the Act on the monthly lease or rental price paid or contracted to be paid by the lessee or rentee...