Colonial Stores, Inc. v. South Carolina Tax Commission

• Decision Date: 30 June 1969
• Docket Number: No. 18933,18933
• Citation: 168 S.E.2d 774,253 S.C. 14
• Court: South Carolina Supreme Court
• Parties: COLONIAL STORES, INCORPORATED, Respondent, v. SOUTH CAROLINA TAX COMMISSION, Appellant.

Page 774

168 S.E.2d 774

253 S.C. 14

COLONIAL STORES, INCORPORATED, Respondent, v. SOUTH CAROLINA TAX COMMISSION, Appellant.

No. 18933.

Supreme Court of South Carolina.

June 30, 1969.

Atty. Gen., Daniel R. McLeod, Joe L. Allen, Jr., Asst. Attys. Gen., G. Lewis Argoe, Jr., Columbia, for appellant.

Albert L. Moses, of McKay, McKay, Black & Walker, Columbia, for respondent.

BUSSEY, Justice.

The respondent, Colonial Stores, Incorporated, which will be hereinafter referred to simply as Colonial, commenced this action pursuant to the provisions of Sec. 65--2684 of the 1962 Code of Laws for the recovery of certain taxes paid by it to the Appellant, South Carolina Tax Commission. The amount involved is $17,747.41, paid by Colonial, without protest, during the years 1958--1960. While there is some confusion in the record and briefs as to whether the particular taxes involved were sales taxes or use taxes, it appears to us that the amount involved was paid by Colonial and collected by the Commission as use taxes, pursuant to Sections 65--1421, 65--1432 and 65--1448 of the Code. In any event, the record is clear that both parties regarded and treated the taxes involved as being use taxes, at the time of collection and payment.

The case was submitted to the lower court on a stipulation of facts and the Commission appeals from a judgment ordering a refund. During the years in question, Colonial operated a chain of supermarkets in South Carolina and, in order to maintain and increase its business, promulgated a Sav-A-Stamp plan whereby it advertised to the general public that there would be issued free to customers, who purchased regular merchandise, Sav-A-Stamps exchangeable for various items referred to as premium merchandise. Colonial issued and redeemed the stamps itself and was thus a self-redeemer. The stamps were distributed one stamp for each ten cents of regular merchandise purchased. Upon the purchase of $100 worth of merchandise at regular retail prices, whether in a single purchase or a series of purchases, a customer would acquire, if he saved them, stamps worth approximately $1.00, when and if later exchanged for premium merchandise. Upon such exchanges, Colonial did not collect from its customers or pay to the Commission a sales tax.

Customers were not required to accept the stamps and no differential or reduction was made in the price of the regular merchandise when the stamps were not accepted. The expense of Colonial's stamp program, including the cost of the premium merchandise, was carried on Colonial's books and on its profit and loss statement as 'trading stamp expense', and was treated the same as other selling expenses and not as a cost of goods sold. The cost of said premium merchandise to Colonial was an expense of its doing business and, like all other costs or expenses of doing business, was reflected in the retail prices charged its customers for good and other items purchased in its supermarkets.

During the period of time here involved, Colonial collected from its customers and paid to the Commission the sales tax imposed by Sec. 65--1401 of the 1962 Code upon the gross proceeds of sales derived from the sale of regular merchandise to its customers. In addition, Colonial, when and as it exchanged premium merchandise for Sav-A-Stamps, included in its returns and paid a use tax on the cost to it of the premium merchandise exchanged. This latter is the tax it seeks to recover. That both parties regarded such as a use tax is evidenced by the following stipulation,

'9. That pursuant to the provisions of Section 65--1448, the plaintiff was authorized by the defendant to purchase the premium merchandise free of the sales tax and to account directly to the defendant for the tax on such merchandise when the same was exchanged for the stamps. The plaintiff sold at retail some of the premium merchandise and exchanged other items for stamps.'

Section 65--1448 reads as follows:

'Procedure when segregation of sales and use tax impracticable. Notwithstanding other provisions of this chapter, when in the opinion of the Commission the nature of a taxpayer's business renders it impracticable or inequitable for the taxpayer to account for the taxes imposed by articles 3 and 4 of this chapter separately, the Commission may issue its certificate to such taxpayer authorizing the sale at wholesale and such taxpayer shall thereupon be accountable for the tax levied by said articles with respect to the gross proceeds of sale of the property withdrawn, used or consumed by such taxpayer for use, consumption or application within this State.'

That both parties regarded the premium merchandise as being acquired for use by Colonial rather than for resale and, hence, subject to a use tax is further evidenced by the fact that the tax was paid and collected on the basis of the cost of the premium merchandise to Colonial in accordance with Sec. 65--1421 of the Code, rather than its reasonable market value. A different rule of valuation applies where goods are purchased for resale but later withdrawn from stock and used by the taxpayer. In such case, the withdrawal is, in effect, treated as a sale at retail and the basis of valuation for tax purposes is 'the reasonable and fair market value' of the tangible property withdrawn. See Code Section 65--1353.

For the purpose of Chapter 17, Title 65, the term 'use' is defined in Sec. 65--1367, as follows:

'Use. The term 'use' includes the exercise of any right or power over tangible personal property incident to the ownership of that property or by any transaction in which possession is given, except that it shall not include the sale of that property in the regular course of business.'

Either the stamps, and consequently the premium merchandise, were given free to its customers as advertised by Colonial, or, if not completely free, the entire Sav-A-Stamp plan was nothing more than an advertising or business promotion plan by Colonial. In either event it would seem to clearly follow that the premium merchandise was not sold 'in the regular course of business', but used by Colonial, with the consequence that a use tax was properly collected and paid.

Colonial contends, however, that the premium merchandise was not used by it, but, to the contrary, was actually sold to the customers in connection with the purchase of regular merchandise, because the cost thereof was included in its overall price structure; that a sales tax had already been paid on its entire gross proceeds of sales, and that the imposition of the use tax would result in double taxation, which was not the intent of the legislature in enacting Chapter 17, Title 65 of the 1962 Code of Laws, entitled, 'Retail License, Sales and Use Taxes'. The lower court found both of these contentions meritorious, but we think it was in error.

The conclusion of the lower court to the effect that the premium merchandise had been previously sold, before being exchanged for the stamps, is predicated in part on decisions of courts of other states dealing with somewhat similar questions, some of which decisions will be hereinafter discussed, and upon Sec. 65--1360 of the 1962 Code of Laws defining the term 'sale' for the purpose of Chapter 17, Title...