Central Transp. Co. v. Atkins

• Decision Date: 29 July 1957
• Citation: 305 S.W.2d 940,6 McCanless 512,202 Tenn. 512
• Parties: , 202 Tenn. 512 CENTRAL TRANSPORTATION COMPANY v. Z. D. ATKINS, Commissioner, etc.
• Court: Tennessee Supreme Court

Page 940

305 S.W.2d 940

6 McCanless 512, 202 Tenn. 512

CENTRAL TRANSPORTATION COMPANY v. Z. D. ATKINS, Commissioner, etc.

Supreme Court of Tennessee.

July 29, 1957.

Rehearing Denied Oct. 4, 1957.

Eugene D. Jackson and Andrew D. Tanner, Nashville, for appellant.

George F. McCanless, Atty. Gen., Allison B. Humphreys, Sol. Gen., Nashville, Milton P. Rice, Asst. Atty. Gen., for appellees.

BURNETT, Justice.

This is another sales tax case. The question here is whether a Tennessee corporation engaged solely in the business of leasing its trucks within the State to another Tennessee corporation, which uses these trucks in the course of its business of transporting agricultural produce within and without Tennessee, is subject to the sales tax with respect to the consideration received by it on account of such lease. The prime question thus presented is whether this tax on this lease, as applied to the appellant, infringes the commerce clause of the Federal Constitution. U.S.C.A. Constitution, Article 1, Sec. 8, cl. 3.

Appellant, a Tennessee corporation, was formerly engaged in the transportation business, but for the past several years (at least since the Sales Tax Act was enacted in this State) its sole activity has been in the leasing of trucks belonging to it to the Central Produce Company, another Tennessee corporation, engaged in the buying and selling at wholesale of agricultural produce. Both the appellant and its lessee's principal place of business is located in Nashville, Tennessee. The appellant has a written lease with its lessee which was originally entered into in 1940 and is about the same except for certain amendments that have been made since that time. This lease agreement provides in substance that the equipment is leased to the lessee for a stipulated amount of rental, which includes an agreed flat rental per month plus a stipulated amount per mile. The appellant, lessor, is required to furnish gasoline and oil and keep the trucks in a reasonable state of repair, and to replace worn out equipment upon demand. The lessee has agreed to keep strict account of every mile operated by the vehicles, use only experienced drivers, inspect the trucks before each trip, carry appellant's name upon each vehicle and pay the rental on the first of each month. The lessee is free to use the vehicles in any manner which it pleases and at any place and any time for any hauling which it may desire.

There are two classes of trucks covered by this lease, large trucks which are under this record used about 90% or better for hauling produce great distances and from without the State, while the smaller trucks are used for local delivery. There is nothing in the lease that precludes the use of any of these trucks for any purpose, or at any place, that the lessee may choose, nor is there anything said in the lease about the fact that the larger trucks are to be used largely in out of State traffic.

For all practical intents and purposes the expenses incurred upon the trucks traveling outside of Tennessee, except drivers' wages, were paid by the appellant, lessor. These expenses consisted, in addition to gas, oil and repairs, of ice to cool produce while in transit, food and lodging for the drivers, toll roads and bridges, weight scales, permits to operate and loading cost. The amounts paid for ice were reimbursed by the lessee.

The books of the appellant were checked in 1955 and the Commissioner on this check assessed the appellant with sales tax, penalty and interest based on the tax. The case was tried on a bill which sought to recover the tax and penalties which were paid under protest, the Commissioner's answer as amended and proof which consisted of depositions of the president of the appellant corporation and its chief bookkeeper. The Chancellor held that the appellant was liable for the tax and dismissed the bill. It is from this that the appellant has seasonably perfected its appeal and filed excellent briefs. The matter has been ably argued, and after reading the record, the briefs, the authorities there cited and others, we are now ready for a determination of the matter.

'A sales tax is a tax on the freedom of purchase--a freedom which wartime restrictions serve to emphasize'. McLeod v. J. E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 1026, 88 L.Ed. 1304.

This tax of course is a privilege tax and is upon the privilege of 'lease or rental' of tangible personal property in this State. Section 67-3003, T.C.A.; Broadacre Dairies v. Evans, 193 Tenn. 441, 246 S.W.2d 78; Saverio v. Carson, 186 Tenn. 166, 208 S.W.2d 1018. The Act defines the term 'sale' for the purpose of this Act to include any transfer by 'lease or rental' of tangible personal property and such terms as 'lease or rental' mean the leasing or renting of tangible personal property. Sections 67-3002(b), T.C.A., and 67-3002(f), T.C.A.

The tax is collectible from persons engaged as 'dealers', Section 67-3016, T.C.A., and a 'dealer' includes one who leases or rents tangible personal property with or without transferring the title to the other person. Section 67-3017, T.C.A. In other words the incidence of the sales tax in this State is upon the seller (Hooten v. Carson, 186 Tenn. 282, 209 S.W.2d 273) or as imposed in this case was on the lessor (appellant). This tax is not upon the buyer, or lessee even though the lease shifts the economic burden to the buyer with respect to the transaction.

Of course the State is powerless to levy a tax upon interstate commerce and so far as this tax act is concerned in this particular instance we can find no effort of the State to be unfair in levying a tax which is a burden on interstate commerce. Just because the lessee under this lease might want to use the leased goods in interstate commerce is a matter entirely up to the lessee's choice and control. It must be remembered that this lease was executed in Tennessee between two Tennessee corporations. The tax is on the lessor and on the making of the lease and nothing is contemplated by the terms of this lease that the tax would be a burden on commerce between the States. The lessor, under the terms of this lease, reserved no power to determine when and where and how the lessor used these trucks and did business. All the appellant did was to furnish it the trucks to do business with.

As just said this tax is on the privilege of engaging in the business of leasing tangible personal property in this State. The measure of this tax is by law the gross proceeds derived from such leasing. If a portion of this rental accrued by reason of mileage traveled outside of Tennessee this is a situation about which the parties arranged in their lease. The State had nothing to do with the establishment of the measure by which these parties determined the amount of the rental to be paid in their contract.

Under this tax as applied here the lessor, appellant, is taxed just like anyone else would be in Tennessee who makes a lease. The tax is no higher and made in no different manner with respect to this lease to the Central Produce Company than it would be in respect to a lease of its property to a lessee confining its operations wholly within the City of Nashville. In other words the tax is on the lease and the base of this tax is on the gross proceeds derived from the lease transaction and nothing else.

The very able argument is made by the appellant that:

'Had complainant's vehicles been transferred by sale to lessee instead of by lease, the sale would have been a taxable event since the sale would have spent its force as all other sales to consumers in Tennessee, prior to the use of said trucks in hauling exempt agricultural products.'

In other words this argument is that if the appellant had sold outright its trucks to the Central Produce Company, its lessee, it admittedly would pay tax on this sale but since the tax is based upon the amount of money that this lessor is to get from this lease and that 90% plus of the use of these large trucks is in other States rather than in Tennessee that then that the making of the lease does not cover the entire transaction but the force of the lease is the use in these other States. As we said above, the incidence though of the Tennessee State Sales Tax is on the leasing of the property in Tennessee. It is not on taking them into some other State or here or there but it is on that transaction of making the lease and as far as the taxable act is concerned it has been spent when the lease was made. In other words the able argument is made, 'that a lease or rental of tangible personal property does not create a taxable transaction in Tennessee unless the leased property is used and consumed in Tennessee, * * *.' As we see it and under the decisions of the Supreme Court of the United States this though is not the test. The test is where the lease was made upon which the tax is based. The tax is based upon the making of the lease in Tennessee. It is not upon what was going to be done under the lease because that is a thing that the parties could work out among themselves.

In determining the question here, naturally since it involves the Constitution of the United States, we must turn to the Federal cases.

The Supreme Court of the United States sustained the tax where the course of business and the agreement for sale plainly contemplated the shipment interstate in fulfillment of the contract. Wiloil Corp. v. Com. of Pennsylvania, 294 U.S. 169, 55 S.Ct. 358, 79 L.Ed. 838; Graybar Electric Co. v. Curry, 308 U.S. 513, 60 S.Ct. 139, 84 L.Ed. 437. The author of American Jurisprudence sums up the question here involved in very apt words thus:

'* * * there are a number of other decisions, among which are several by the Supreme Court of the United States, which hold that a general sales tax does not unconstitutionally burden interstate commerce as applied to sales (1) on orders solicited in the taxing jurisdiction (the contracts...