Dain Mfg. Co. of Iowa v. Iowa State Tax Commission
| Decision Date | 07 May 1946 |
| Docket Number | 46799. |
| Citation | 22 N.W.2d 786,237 Iowa 531 |
| Parties | DAIN MFG. CO. OF IOWA v. IOWA STATE TAX COMMISSION. |
| Court | Iowa Supreme Court |
[Copyrighted Material Omitted]
John M. Rankin, Atty. Gen., Jens Grothe, Sp. Asst. Atty. Gen Dickinson & Dickinson, of Des Moines, and Henry W Wormley, Sp. Asst. Atty. Gen., for Iowa State Tax Commission.
Pike, Sias & Butler, of Waterloo, and Jones & White, of Ottumwa, for appellee.
Defendant commission having first appealed, will be referred to as appellant. The pertinent statutory provisions are found in Chapter 329.4, and particularly in the following part of section 6943.102, Iowa Code 1939:
'The following words, terms and phrases when used in this chapter shall have the meanings ascribed to them in this section:
1. 'Use' means and includes the exercise by any person of any right or power over tangible personal property incident to the ownership of that property, except that it shall not include processing, or the sale of that property in the regular course of business. Property used in 'processing' within the meaning of this subsection shall mean and include * * * (c) industrial materials and equipment, which are not readily obtainable in Iowa, and which are directly used in the actual fabricating, compounding, manufacturing or servicing of tangible personal property intended to be sold ultimately at retail.' (Italics supplied.)
Code, section 6943.103, imposes an excise tax of two percent of its purchase price upon the use in Iowa of tangible personal property purchased for such use. Section 6943.104 provides various exemptions not necessary to be set out here.
The facts are all stipulated. There are numerous items of property involved, purchased by appellee outside the state at various times and under varying conditions and circumstances which concern their purchase and use. It will save time to discuss the facts of each item as we proceed.
I. We start with the proposition that the burden of proof was on appellee in seeking relief from the assessment. Sections 6943.086, 6943.116, Iowa Code 1939. But we have here a question of statutory construction rather than of fact. Appellee invokes the rule that in the interpretation of taxing statutes doubtful language is to be resolved in favor of the taxpayer and against the taxing body. Appellant urges that this rule is reversed in construing statutory exceptions and tax exemptions. Both propositions are too well established to require extensive citation of authority. See Palmer v. State Board of Assessment and Review, 226 Iowa 92, 94, 283 N.W. 415.
We are agreed, however, that the result here does not depend upon whether we adopt a liberal or strict rule of construction. In either case the conclusions hereinafter announced must be reached.
II. The purpose of the Use Tax law is indirectly to tax sales that cannot be directly taxed under the Iowa Sales Tax Law. Since sales of property designed for use in Iowa cannot be taxed if consummated outside the state, our Legislature has resorted to the plan (not uncommon in recent years) of taxing the use of such property in the state. The tax is on the use but it presupposes a prior sale. The tax serves the double purpose of producing revenue that otherwise might not be available, and of furnishing some measure of protection to Iowa dealers from competition with outside vendors not subject to liability for sales tax. See discussion in Henneford v. Silas Mason Co., 300 U.S. 577, 581, 57 S.Ct. 524, 526, 81 L.Ed. 814, quoted in Zoller Brewing Co. v. State Tax Commission, 232 Iowa 1104, 1106, 5 N.W.2d 643, and Id., Iowa, 6 N.W.2d 843. The law is at the same time apparently drawn with the purpose of avoiding double taxation. See Code, sections 6943.104 (subsections 1 and 4) and 6943.125. Section 6943.102, subsection 1(c) also seems designed for a somewhat similar purpose as it expressly excludes use by resale and use by processing for the production of property for ultimate sale at retail, in either of which cases a sales tax would probably result.
III. The phrase, 'not readily obtainable in Iowa' has an innocent but deceptive appearance of simplicity. The various items here involved illustrate the difficulties that arise in applying it to the varied transactions of present day business. Let us take first those items held by the trial court to be not subject to the tax. For convenience of reference and identification we shall use the item numbers as they appear in the stipulation of facts.
Items 8(a) and 8(b) refer to purchases outside the state of material such as was not then physically present and subject to purchase in the state. However, as to 8(a) it is stipulated there was a 'person, firm or corporation' in Iowa that could have made a binding contract to sell and deliver the item to appellee by ordering it from sources outside Iowa; and as to 8(b) that there was one who could have accepted an order for the item, subject to approval outside the state, for sale and delivery to appellee.
Appellant contends such items were therefore 'readily obtainable in Iowa.' It cites Continental Supply Co. v. People, 54 Wyo. 185, 88 P.2d 488, 128 A.L.R. 127, and some other Wyoming Supreme Court decisions. However, the corresponding language of the Wyoming Use Tax law is materially different from our own. It is placed in the exemption statute and expressly exempts 'machinery * * * not generally stocked in Wyoming for sale' Laws Wyo. 1937, c. 118, § 4, or 'not promptly purchaseable in Wyoming from or through a regularly established Wyoming individual, firm or agency registered as a retailer under this Act.' (Italics supplied.)
The difference is obvious and it relates directly to the point in controversy here. There is not merely the difference between 'readily obtainable' and 'promptly purchasable' but there is the further qualification in the Wyoming law, not found in our own: 'from or through a regularly established Wyoming individual * * * registered as a retailer under this Act.' This latter language is broad enough to narrow the exemption materially and to leave taxable the use of items not directly or readily obtainable in the state but 'promptly purchasable' from sources outside, on order through a regular dealer in the state.
We cannot read these words into our statute unless they can reasonably be implied from the phrase 'readily obtainable in Iowa.' Appellant contends these words mean that such industrial materials and equipment are 'not readily obtainable in Iowa' only when they are not 'being sold by Iowa vendors subject to the Iowa sales tax.' This argument is based on the theory that because the sales tax and use tax are complementary every sale must be taxed under one or the other.
But if that were true, section 6943.102, paragraph 1, would be entirely superfluous. Sections 6943.103 and 6943.104 paragraph 1, would serve the purpose,--the former imposing the tax generally upon all uses and the latter exempting the use of property the sale of which had been already taxed under the sales tax law.
Manifestly section 6943.102, paragraph 1, is intended for another purpose, viz., to exclude two kinds of uses, both of which would contribute to future taxable transactions, either by direct resale 'in the regular course of business' or by 'processing' to produce or prepare property (or service) for future sale at retail.
Appellant argues further that to uphold the trial court's interpretation of the words 'not readily obtainable in Iowa' (in the respect here under consideration) would 'bring ruin to vendors in Iowa.' The consequent loss of revenue is also stressed. These are considerations for the Legislature to take into account. They should not control either the court or appellant in construing the language used by the Legislature.
When the statute was young (October, 1937) appellant interpreted 'readily obtainable in Iowa' to mean 'kept in Iowa for sale or manufactured in Iowa for sale as distinguished from being obtainable by giving an order to an agent in Iowa for delivery of the same from some point outside the state of Iowa.'
Some years later (1942), influenced perhaps by the considerations now urged, a new ruling was promulgated: 'The commission holds that, where industrial materials and equipment of the same general classification are offered for sale in Iowa, such material and equipment cannot be considered 'not readily obtainable in Iowa' and therefore would not be entitled to use tax exemption when purchased in interstate commerce from points outside the state.'
Insofar as these orders conflict we think the earlier interpretation more nearly expressed the legislative intent. Of course, neither is binding except so far as its reason and logic demonstrate its correctness.
The language of the stipulation is not broad enough to permit appellant to claim the benefit of the Wyoming rule, even if the language of our statute would justify its adoption. There is no showing here that the 'person, firm or corporation' which stood ready to furnish an order was a regular dealer in goods of a comparable kind, or whether the particular items purchased by appellee were temporarily out of stock or were of such character as not to be carried regularly in stock.
Our holding here is of course confined only to the facts as stipulated. A retailer might be temporarily out of an article just when the customer wanted it but still be in a position readily to furnish it if desired. We need not meet that question here. It is sufficient to say we think the trial court correctly held no use tax was assessable on account of items 8(a) and 8(b).
IV. Appellee was likewise held not liable for use tax on items 8(d) and 8(e). It was stipulated as to both that there were other items...
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