C. R. Fedrick, Inc. v. State Bd. of Equalization

• Decision Date: 27 February 1974
• Court: California Court of Appeals Court of Appeals
• Parties: C. R. FEDRICK, INC., a corporation, Plaintiff and Respondent, v. The STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant. Civ. 40930.

Page 598

112 Cal.Rptr. 598

38 Cal.App.3d 385

C. R. FEDRICK, INC., a corporation, Plaintiff and Respondent, v. The STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant.

Civ. 40930.

Court of Appeal, Second District, Division 3, California.

Feb. 27, 1974.

As Modified on Denial of Rehearing March 20, 1974.

Hearing Denied April 24, 1974.

Opinion Republished, see 120 Cal.Rptr. 434.

Evelle J. Younger, Atty. Gen., Philip C. Griffin, Deputy Atty. Gen., for defendant and appellant.

Clyde R. Maxwell, Newport Beach, Karl F. Geiser, Kopald & Mark, Richard M. Mark and Lawrence W. Hait, Beverly Hills, for plaintiff and respondent.

LORING, ^* Associate Justice.

C. R. Fedrick, Inc., a California corporation (hereafter Fedrick) filed a complaint against the State Board of Equalization of the State of California as an agency of the State of California (hereafter Board) under Revenue and Taxation Code section 6933 ¹ on a claim for refund of sales and use taxes seeking repayment of the sum of $13,129.48. In its complaint, Fedrick alleged that Board conducted an audit of plaintiff's business; it concluded that there was a deficiency in sales and use taxes and interest in the sum of $13,073.97 for the period July 1, 1962, to September 30, 1965; that the determination was erroneous because it was based on 'grossly incorrect and arbitrary assumptions without foundation in fact . . . included items not taxable' or which were 'not the obligation of the plaintiff'; 'erroneously included machinery and equipment furnished and sold to the United States Government or sold for resale to other contractors for sales to the United States Government or its agencies which were not properly taxable to the plaintiff'; 'erroneously included as taxable sales or uses items which had either been taxed at the source . . . [or] which were not taxable at all to the plaintiff'; 'erroneously included items of labor and transportation expense'; included items 'upon which plaintiff has reported and paid Sales Tax'; included items of machinery which 'has not been sold used and which is still in inventory.' Other items of overpayment were alleged for the same period, making a total alleged overpayment of $13,129.48; that a claim for refund was filed July 6, 1967, and denied by Board on August 8, 1967, and notice of denial was given by mail on August 14, 1967.

After Board filed an amended answer and counterclaim, the parties entered into a stipulation of facts, which allowed for the introduction of additional evidence. The case proceeded to nonjury trial on April 29, 1971, which resulted in a judgment for Fedrick in the sum of $7,931.76 in refund of tax, $1,513.35 interest, and in favor of Board on the balance of Fedrick's claim of $3,023.08 tax and $434.03 interest. The judgment was also in favor of Fedrick on the counterclaim. Fedrick was awarded costs.

Board appeals from those portions of the judgment in favor of Fedrick. Fedrick does not not from those portions of the judgment in favor of Board.

Contentions

1. Board contends that the use by Fedrick of various items of tangible personal property in the performance of the contract with the United States Government for the construction of improvements to California real property was a taxable use under sections 6384, ² 6094, ³ and 6202. ⁴

2. The sale of capital equipment to Action Equipment Company was a sale subject to sales and use tax laws.

3. Fedrick cannot raise any legal issue in the action for refund not stated in the claim for refund.

4. The Board is entitled to judgment on its counterclaim.

Facts

Fedrick was a subcontractor to the prime contractor, United States Corps of Engineers, under contract to furnish and install certain alterations and improvements of the air fields and air navigation equipment at March Air Force Base near Riverside, California, ⁵ the Siskiyou County Airport Siskiyou County, California, ⁶ and certain similar improvements at other military airfields and installations. ⁷

In addition, Fedrick's claims for refund and complain for refund included a claim for refund of sales and use taxes on the installation of various items of personal property in connection with a 'linear acceleration installation,' located on real property owned by Stanford University, and leased by it to the United States Government. The trial court decided that Fedrick was taxable on such items and, as noted, Fedrick does not appeal from that judgment.

Discussion

The Board claims that taxes are due from Fedrick under sections 6384, 6094 and 6202. Prior to 1941 there would have been, in our opinion, a serious question regarding the constitutionality of section 6384 under authority of Standard Oil Co. v. California, 291 U.S. 242, 54 S.Ct. 381, 78 L.Ed. 775. (See also Standard Oil Co. v. Johnson, 10 Cal.2d 758, 76 P.2d 1184.) However, in Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R 651 the United States Supreme Court upheld the constitutionality of a state sales tax levied on and collected from a contractor which the contractor in turn collected from its customer, even though the customer was the United States of America and the contract was a cost-plus contract. Thereafter, in 1947, Congress passed Public Law 819 (Buck Act, 4 U.S.C. § 105) which ceded to the states power to levy and collect sales use taxes 'in any Federal area within such State to the same extent and with the same effect as though such area was not a Federal area.' ⁸ The validity of such congressional act has been upheld by the United States Supreme Court. In Polar Ice Cream and C. Co. v. Andrews (1964) 375 U.S. 361, 84 S.Ct. 378, 11 L.Ed.2d 389, the Supreme Court said (at 375 U.S. 383, 84 S.Ct. at 403, at 11 L.Ed.2d 403): 'Besides, 4 USC § 105, enacted subsequent to James and Standard Oil, supra [James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155; Standard Oil Co. v. California, supra, 291 U.S. 242, 54 S.Ct. 381, 78 L.Ed. 775], confers upon the States jurisdiction to levy and collect a sales or use tax 'in Federal and collect a sales or use tax 'in any Federal area,' and a sales or use tax is defined measured by, sales . . . of tangible personal property. . . .' 4 USC § 110. We think this provision provides ample basis for Florida to levy a tax measured by the amount of milk Polar distributes monthly, including milk sold to the United States for use on federal enclaves in Florida.'

In United States v. Mississippi Tax Com., 412 U.S. 363, 93 S.Ct. 2183, 37 L.Ed.2d 1 (decided June 4, 1973), the Supreme Court was asked to consider the validity of a Mississippi state law imposing what appeared to be a tax on wholesale distributors of alcoholic beverages transported through Mississippi for sale at post exchanges on federal enclaves in Mississippi.

One of the arguments of the Mississippi State Tax Commission was that the tax should be considered as a sales tax which would therefore be valid under the Buck Act. A majority of the court concluded that the type of tax should be determined, at least initially, by the trial court and remanded the case, inter alia, for that purpose. In our view, the majority thereby tacitly held that if tax were a sales tax it would be valid under the Buck Act. Justice Douglas, with Justice Rehnquist concurring, argued that the Supreme Court itself could determine that the tax was a sales tax, valid under the Buck Act, and remand was necessary. The difference between the majority and minority opinions therefore was not over whether or not the Buck Act was constitutional, but over which court, the trial court or the Supreme Court, should initially determine whether or not the tax was a sales tax. Thus, in our view, all nine justices agreed that if the tax was a sales tax, it would be valid under the Buck Act. However, for our purposes, the importance of the decision is the summary of the historical background of the Buck Act set forth in the opinion of Justice Douglas when he said (412 U.S. at pp. 386-388, 93 S.Ct. at p. 2196, 37 L.Ed.2d at pp. 18-19):

'At least since Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R. 651, state taxes have been upheld on those doing business with the Federal Government even as respects cost-plus contracts where the terms of the contract forced their payment out of the federal treasury. The principle of King & Boozer permits no exception for distillers who make wholesale transactions with Post Exchanges, as the legal incidence of the tax is on the distillers, not on the Post Exchanges. Moreover, the Buck Act, 61 Stat. 641, 4 USC §§ 105 et seq. [4 USCS §§ 105 et seq.], authorizes the application of state sales and use taxes to all post exchange purchases where 'the sale or use with respect to which such tax is levied, occurred in whole or in part within a Federal area.' The Buck Act exempts from such taxes, sales, purchases, storage or use of personal property sold by the United States or any instrumentality thereof to 'any authorized purchaser' (§ 107) who is defined as one permitted to purchase at commissaries, ship's stores, post exchanges and the like, by regulations of the departmental Secretary.

'It also does not authorize 'the levy or collection of any tax on or from the United States of any instrumentality thereof.'

'The markup which the State requires wholesalers of liquor to make is in its worst light a sale tax. There is no 'levy or collection' by the State from a Post Exchange in any technical, legal sense. As noted, the economic but not the legal incidence of the tax is in the Post Exchanges. The Post Exchange is merely paying indirectly the cost of doing business in the manner in which King & Boozer held that there was no constitutional immunity from state taxation.' (Fn. omitted.)

Justice Douglas further stated (412 U.S. at pp. 389-390, 93 S.Ct. at p. 2198, 37 L.Ed.2d at pp. 20-21):

'While the Buck Act by § 107(a) bars a state tax on federal...