Columbia Steel Co. v. State

• Citation: 30 Wn.2d 658,192 P.2d 976
• Decision Date: 06 May 1948
• Docket Number: 30475.
• Parties: COLUMBIA STEEL CO. v. STATE.
• Court: United States State Supreme Court of Washington

192 P.2d 976

30 Wn.2d 658

COLUMBIA STEEL CO. v. STATE.

No. 30475.

Supreme Court of Washington, En Banc.

May 6, 1948

Action by Columbia Steel Company, a corporation, against the State of Washington to recover business and occupation taxes paid for years 1943, 1944, and 1945. From judgment dismissing the action, plaintiff appeals.

Judgment reversed with instructions.

HILL J., and MALLERY, C.J., dissenting.

Appeal from Superior Court, Thurston County; D. F. Wright, judge.

Evans McLaren, Lane, Powell & Beeks, of Seattle (Walter Shelton and Thomas Ashby, both of San Francisco, Cal., of counsel), for appellant.

Smith Troy and Max Kaminoff, both of Olympia, for respondent.

SIMPSON Justice.

This action was instituted by plaintiff when it filed its complaint, for the recovery of taxes paid, and as a notice of appeal from a deficiency assessment levied by the state tax commission.

The pertinent allegations of the complaint are: Plaintiff is a Delaware corporation, and is qualified to transact business in the states of Washington, California, Utah, and Oregon. Its principal place of business is in San Francisco, California, but it maintains a sales office in this state whose personnel consists of salesmen residing in the state of Washington. Plaintiff manufactures iron and steel products, and the by-products thereof, in California Utah, and Oregon. It is engaged in foreign, interstate, and intra-state commerce. October 3, 1947, the tax commission of the state of Washington levied a deficiency, or additional assessment against plaintiff, in the sum of $101,105.23 together with interest and penalties thereon, which made a total of $118,281.38. The deficiency assessment covered the years, 1943, 1944, and 1945. It was based upon the business and occupation tax imposed upon persons engaged within the state in the business of making sales at wholesale, by chapter 180, Laws of 1935, Am.L.1943, ch. 156, § 1, p. 487, in an amount equal to the gross proceeds of such business, multiplied by the rate of one-quarter of one per cent. Plaintiff paid the assessment October 22, 1947, and then brought this action to recover.

Plaintiff owns a warehouse in the city of Seattle, but uses it only in connection with its intra-state and local business. Twenty per cent of the interstate business consists of the handling of iron and steel products and by-products manufactured by plaintiff in the states of California and Utah, which, when sold, are delivered from those states into the state of Washington by common carriers, who transport the products from the state of origin into this state on straight bills of lading to various customers in the state. Dealing in products purchased from manufacturers in Massachusetts, Pennsylvania, Ohio, Indiana, Illinois, Minnesota, Alabama, and other states and then shipped by common carrier from the states of manufacture into this state, comprised eighty per cent of plaintiff's business upon which the deficiency assessment was based. Forty per cent of the business on which the assessment was based, was done upon contracts negotiated, made, and concluded outside the state of Washington, with the result that the only thing that transpired in the state of Washington was the delivery of the steel products to various customers by common carriers. The remainder of the business was done upon contracts negotiated, made, and concluded through the joint efforts of plaintiff's sales personnel residing in this state, and other employees and officers of plaintiff residing and having their offices in other states. The deficiency assessment is based upon a tax upon amounts derived from business which the state of Washington is prohibited from taxing under clause 3, Art. I, § 8, of the constitution of the United States.

The state tax commission demurred on the ground that the complaint did not constitute a cause of action. The court sustained the demurrer, and upon refusal of the plaintiff to plead further, entered judgment dismissing the action. Plaintiff then appealed to this court.

Appellant's assignments of error are: (1) The sustaining of the demurrer; and (2) the determination that the tax assessed and collected was not in violation of Art. I, § 8 of the constitution of the United States.

The tax here involved is the Washington state business and occupation tax, Rem.Supp.1943, § 8370-4 et seq., which, so far as this case is concerned, imposes a tax upon those making sales at wholesale, at the rate of one-quarter of one per cent of the gross sales proceeds. Appellant's contention is that the business and occupation tax law, as applied to its transactions in interstate commerce, violates the commerce clause of the constituion of the United States. Respondent takes the position that gross receipts taxes, measured by the gross proceeds from interstate sales, when imposed by the state of the buyer, are legal, and not within the prohibition of the federal constitution.

There have been hundreds of cases decided which deal with the imposition of taxes of the nature here involved. However, our view of the applicable rules of law makes it unnecessary to review many of the cases on the subject of taxing interstate commerce in so far as this case is concerned. The one question presented here is: May this state collect from those engaged in interstate commerce, taxes based on our business and occupation tax, Rem.Supp.1943, §§ 8370-4 et seq.?

The portions of the statute calling for our interpretation are as follows:

'From and after the first day of May, 1935, there is hereby levied and there shall be collected from every person a tax for the act or privilege of engaging in business activities. Such tax shall be measured by the application of rates against value of products, gross proceeds of sales, or gross income of the business, as the case may be * * *.'

Subdivision (a) of this section levies a tax upon every person engaged within this state in business as an extractor.

Subdivision (b) exacts a tax from 'every person engaging within this state in business as a manufacturer.'

Subdivision (c) taxes every person in this state who is in the business of making sales at retail.

And subdivision (e) imposes a tax upon those in this state who are wholesalers.

Rem.Supp.1943, § 8370-5(e), defines the term 'sale at wholesale' or 'wholesale sale' as 'any sale of tangible personal property and any sale of or charge made for labor and services rendered in respect to real or personal property, which is not a sale at retail.'

Subdivision (j) of the above section reads:

'The word 'manufacturer' means every person who, either directly or by contracting with others for the necessary labor or mechanical services, manufactures for sale or commercial use from his own materials or ingredients any articles, substances or commodities. * * *'

Rem.Supp.1943, § 8370-6 provides:

'Every person engaging in activities which are within the purview of the provisions of two or more of paragraphs (a), (b), (c), (d), (e), (f) and (g) of section 4 [§ 8370-4], shall be taxable under each paragraph applicable to the activities engaged in: Provided, however, That persons taxable under paragraphs (a) or (b) of said section shall not be taxable under paragraphs (c) or (e) of said section with respect to making sales at retail or wholesale of products extracted or manufactured within this state by such persons.' (Italics supplied.)

Regardless of the uncertainty on the question of what types of state taxation...