Colonial Pipeline Co. v. Clayton

• Decision Date: 09 April 1969
• Docket Number: No. 10,10
• Citation: 275 N.C. 215,166 S.E.2d 671
• Parties: COLONIAL PIPELINE COMPANY, v. I. L. CLAYTON, Commissioner of Revenue of the State of North Carolina.
• Court: North Carolina Supreme Court

Page 671

166 S.E.2d 671

275 N.C. 215

COLONIAL PIPELINE COMPANY, v. I. L. CLAYTON, Commissioner of Revenue of the State of North Carolina.

No. 10.

Supreme Court of North Carolina.

April 9, 1969.

Robert Morgan, Atty. Gen., and Myron C. Banks, Asst. Atty. Gen., for defendant appellee.

HUSKINS, Justice.

The determinative questions involved in this action are primarily questions of law and may be stated as follows:

1. Are transportation charges paid by a purchaser for transporting tangible personal property from the point of purchase outside North Carolina to a point of use within this State properly includable in the North Carolina use tax base when the purchaser takes title to the purchased property at the point of origin outside the State, causes said property to be transported into the State and stores, uses or consumes said property so as to become liable for North Carolina use tax?

2. Are cash discounts properly includable in the North Carolina use tax base when the seller bills the purchaser for the full amount of the sales price but allows a cash discount when goods are paid for within a specified period of time, and the purchaser takes the discount by paying for the goods within the time specified and uses, stores, or consumes the property in this State so as to become liable for the North Carolina use tax?

3. Is any portion of defendant's counterclaim barred by any applicable statute of limitations?

The statute which imposes a sales and use tax on transportation charges reads as follows: 'Freight delivery, or other like transportation charges connected with the sale of tangible personal property are subject to the sales and use tax if title to the tangible personal property being transported passes to the purchaser at the destination point. Where title to the tangible personal property being transported passes to the purchaser at the point of origin, the freight or other transportation charges are not subject to the sales tax. For the purposes of this section it is immaterial whether the retailer or purchaser actually pays for any charges made for transportation, whether the charges were actually paid by one for the other, or whether a credit or allowance is made or given for such charges. Nothing in this section shall operate to exclude from the use tax any freight delivery or other like transportation charges. Such charges shall be included as a portion of the cost price and subject to the use tax.' (Emphasis ours.) G.S. § 105--164.12.

The commerce clause of the Federal Constitution provides that '(t)he Congress shall have Power * * * (t)o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.' U.S.Const. art. I, § 8. A sales tax on interstate transactions violates the commerce clause and is therefore void and uncollectible. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944; McLeod v. J. E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304. 'While a sales tax and a use tax in many instances may bring about the same result, they are different in conception. They are assessments upon different transactions and are bottomed on distinguishable taxable events. * * * A sales tax is a tax on the freedom of purchase and, when applied to interstate transactions, it is a tax on the privilege of doing interstate business, creates a burden on interstate commerce and runs counter to the commerce clause of the Federal Constitution. * * * Conversely, a use tax is a tax on the enjoyment of that which was purchased after a sale has spent its interstate character.' Johnston v. Gill, Comr. of Revenue, 224 N.C. 638, 643, 32 S.E.2d 30, 33.

A use tax 'does not aim at or discriminate against interstate commerce. It is laid upon every purchaser, within the state, of goods for consumption, regardless of whether they have been transported in interstate commerce. Its only relation to the commerce arises from the fact that immediately preceding transfer of possession to the purchaser within the state, which is the taxable event regardless of the time and place of passing title, the merchandise has been transported in interstate commerce and brought to its journey's end.' McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 49, 60 S.Ct. 388, 393, 84 L.Ed. 565.

In Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814, a Washington statute subjected every retail sale of tangible personal property made in that state to a 2% Sales tax. It also imposed a compensating tax on the privilege of using within the state any article of tangible personal property purchased at retail, at the rate of 2% Of the purchase price, Including in such price the cost of transportation from the place where the article was purchased. But the use tax did not apply to the use of any article which had already been subjected by the laws of Washington or any other state to a sales or use tax equal to or in excess of 2%. If the article had already been taxed at less than 2%, the Washington use tax rate was measured by the difference. This statute was attacked on the ground that it taxed the operations of interstate commerce and discriminated against such commerce unlawfully. Held: 'The tax is not upon the operations of interstate commerce, but upon the privilege of use after commerce is at an end. Things acquired or transported in interstate commerce may be subjected to property tax, nondiscriminatory in its operation, when they have become part of the common mass of property within the state of destination. * * * For like reasons they may be subjected, when once they are at rest, to a nondiscriminatory tax upon use or enjoyment. * * * The privilege of use is only one attribute, among many, of the bundle of privileges that make up property or ownership. * * * A state is at liberty, if it pleases, to tax them all collectively, or to separate the faggots and lay the charge distributively. * * * A tax upon the privilege of use or storage when the chattel used or stored has ceased to be in transit is now an impost so common that its validity has been withdrawn from the arena of debate.' Accord, Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 61 S.Ct. 586, 85 L.Ed. 888, 132 A.L.R. 475. See also Annot.: 129 A.L.R. 222. Thus, the constitutionality of a use tax has long been determined.

Here, however, plaintiff complains that transportation charges Are not included in the sales tax base when a sales tax is imposed on in-state sales with title passing at point of origin, while transportation charges Are included in the use tax base when a use tax is imposed on the use, storage or consumption in this state of property purchased out of state with title passing at point of origin. Plaintiff contends this results in an unconstitutional discrimination against interstate commerce. We now examine the validity of this contention.

Loss of business by local merchants because residents in the taxing state went outside to make tax-free purchases caused many states, including North Carolina, to resort to the use tax. 47 Am.Jur., Sales and Use Taxes, § 42. The legislative history of our sales and use tax discloses that when our sales tax was imposed in 1933, it tended to encourage residents to make out-of-state purchases to escape payment of the tax. As a result, the legislature enacted the use tax in 1937 intending by it to impose the same burdens on out-of-state purchases as the sales tax imposes on purchases within the state. Robinson & Hale, Inc. v. Shaw, Comr. of Revenue, 242 N.C. 486, 87 S.E.2d 909; Johnston v. Gill, supra.

A sales tax is assessed on the purchase price of property and is imposed at the time of sale. A use tax is assessed on the storage, use or consumption of property And takes effect only after such use begins. Atwater-Waynick, Hosiery Mills, Inc. v. Clayton, Com'r of Revenue, 268 N.C. 673, 151 S.E.2d 574. Regardless of the time and place of passing title, the taxable event for assessment of the use tax occurs when possession of the property is transferred to the purchaser within the taxing state for storage, use or consumption. McGoldrick v. Berwind- White Coal Mining Co., supra. The property has then come to rest, forms a part of the common mass of property within the taxing state, and the taxable moment is at hand. Watson Industries v. Shaw, Com'r of Revenue, 235 N.C. 203, 69 S.E.2d 505; Southern Pacific Co. v. Gallagher, 306 U.S. 167, 59 S.Ct. 389, 83 L.Ed. 586. Thus, the taxable event for assessment of the use tax occurs after purchase and after transportation of the property into the taxing state for storage, use or consumption. Hence, the state is at liberty, if it pleases, to include transportation charges in the use tax base and has done so by enactment of G.S. § 105--164.12. Such inclusion was approved in principle in Henneford v. Silas Mason Co., supra.

On the other hand, the taxable event for assessment of the sales tax occurs at the time of sale and purchase within the state. G.S. § 105--164.4(1). No transportation charges have been incurred by the Purchaser at that moment. The retail price upon which the sales tax is paid by the purchaser necessarily takes into account the transportation charges that have been paid on the goods to bring them to the retail outlet in North Carolina where the sale takes place. Gee Coal Co. v. Dept. of Finance, 361 Ill. 293, 197 N.E. 871, 102 A.L.R. 766; State v. Menefee Motor Co., 18 La.App. 694, 139 So. 61; Annot.: 102 A.L.R. 768. Thus, the net effect of including interstate transportation charges in the use tax base and excluding intrastate transportation charges in the sales tax base is to equalize the burden of the tax on property sold locally and property purchased out of state. 'When the account is made up, the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates. The one pays upon one activity or incident,...