Drennen Motor Co. v. State

• Decision Date: 15 April 1966
• Docket Number: 6 Div. 28
• Citation: 279 Ala. 383,185 So.2d 405
• Parties: DRENNEN MOTOR COMPANY, Inc. v. STATE of Alabama.
• Court: Alabama Supreme Court

Page 405

185 So.2d 405

279 Ala. 383

DRENNEN MOTOR COMPANY, Inc. v. STATE of Alabama.

6 Div. 28.

Supreme Court of Alabama.

April 15, 1966.

Moore, Thomas, Taliaferro, Forman & Burr, Birmingham, for appellant.

Richmond M. Flowers, Atty. Gen., Willard W. Livingston and Herbert I. Burson, Asst. Attys. Gen., for appellee.

COLEMAN, Justice.

The State Department of Revenue made an assessment against taxpayer, an automobile retailer, for sales tax claimed to be due for the period from March 1, 1958, through March 31, 1961. The assessment is dated June 5, 1961. Taxpayer appealed to the circuit court as provided by Title 51, § 140, Code 1940. The circuit court affirmed the assessment and taxpayer has appealed from the decree of the circuit court.

On the trial, the substance of the issue tried was stated by counsel for taxpayer and agreed to by the state as follows:

'This assessment . . . arises out of a claim by the Department of Revenue that . . . new automobiles are used . . . as demonstrators and that the using of an automobile as a demonstrator constitutes a withdrawal or consumption or use . . . so as to make that a taxable event even though later on that demonstrator is sold at retail as a new automobile and the tax is collected from that purchaser of the automobile.'

The question for decision is whether the designation and use of new automobiles as demonstrators, followed by the sale of such demonstrators, as shown by the facts in this case, constitutes a taxable event under the definitions of gross proceeds of sales set out in Act No. 100, Acts of Alabama 1959, Vol. 1, page 298, § 1(f)(h)(j)(l); see Pocket Parts, 1958 Recompilation of Code of 1940, Title 51, § 785(2)(1)(f)(h)(j)(l).

Act No. 100 levies on every person engaged in selling at retail any automotive vehicle a tax equal to one and one-half per cent of the gross proceeds of the sale of such vehicle. Section 2(d).

The term, gross proceeds of sales, is defined in Act No. 100 to 'include the reasonable and fair market value of any tangible personal property previously purchased at wholesale which is withdrawn or used from the business or stock and used or consumed in connection with said business, and shall also . . . include the . . . value of any tangible personal property previously purchased at wholesale which is withdrawn from the business or stock and used or consumed by any person so withdrawing the same. . . .' Section 1(f).

The facts are without dispute in any material respect.

'The presumption traditionally indulged in favor of the trial court's finding of fact is inapplicable where there is no substantial conflict in the evidence.--State v. Mobile Stove & Pulley Manufacturing Co., 255 Ala. 617, 52 So.2d 693; Alabama Farm Bureau Mut. (Casualty) Ins. Co. v. Mills, 271 Ala. 192, 123 So.2d 138.' State v. Kershaw Manufacturing Company, 273 Ala. 215, 218, 137 So.2d 740, 743.

Pertinent testimony is as follows:

The assessment included Buicks, Chevrolets, and Cadillacs which had been designated as demonstrators. The practices of taxpayer are substantially the same for all three makes. Every car, the value of which the state seeks to include in gross proceeds as tangible personal property withdrawn from stock and used or consumed in the business, has been sold and the sales tax collected and paid to the state. The state, by the instant assessment, seeks to collect another tax on the value of these same cars on the theory that the prior designation and use of these cars as demonstrators constituted a taxable event.

Taxpayer's Buick Sales Manager testified that in accomplishing the sale of automobiles, taxpayer employs salesmen, shows new automobiles, and allows prospective customers to drive new automobiles which are offered for sale; most often cars are driven before they are bought; for the customers to be able to drive a car before purchase is most helpful in effecting sales and is necessary to effect sales in most cases.

The Sales Manager further testified that when new cars are received, they are left on the storage lot until they are 'road-checked' and any deficiency corrected. The cars are then cleaned up and placed on the showroom floor or in the warehouse. As soon as a car comes in it is available for sale.

Taxpayer does not order any cars as demonstrators but orders 'the allotment' and if there are any duplications in models or colors, then it would be best to designate one of the duplicates as a demonstrator. Cars which are used as demonstrators are available for sale immediately and are retained in taxpayer's new car inventory. A demonstrator is available for sale at all times.

At the time new models are announced cars are fairly short and taxpayer designates only two or three (Buicks) as demonstrators. Frequently, on announcement day at nine o'clock in the morning, taxpayer designates a car as a demonstrator and by noon it is sold.

After the opening date, taxpayer generally has eight or ten Buick demonstrators. A car that has been a demonstrator can be and is from time to time put back on the floor or in the warehouse. If a demonstrator has not been sold when it has several thousand miles on it, taxpayer will withdraw the car from being a demonstrator by putting it on the showroom floor and leaving the car there until it is sold.

All cars are demonstrators in some fashion such as customers sitting in the car and adjusting the power seat or raising the power windows or things like that on floor models. Prospective customers are frequently permitted to take a floor model off the floor and drive it around the block, which is helpful in effecting a retail sale of an automobile. Taxpayer could not sell cars if customers were not allowed to do this.

Taxpayer has sometimes had a car to sit on the floor for two or three months, but tries to avoid this. If taxpayer has had a car for several months, the car is discounted to move it out of inventory.

When a demonstrator is sold to a customer, taxpayer gives the same warranty as taxpayer gives on a new car. Demonstrators are carried on taxpayer's books in the new car inventory, are listed as a current asset, and are not depreciated.

Taxpayer has two courtesy cars used to take customers over to town when they leave their cars for service, to make runs to the bank, and for general company business. These courtesy cars are carried on the books as fixed assets and are depreciated; as soon as they are placed in service, they are billed to taxpayer and sales tax is paid on them.

Demonstrators are use for carrying service customers only as a convenience. If a salesman had a customer he had sold or a prospect, and the customer or prospect is stranded, on occasions the salesman will take the prospect to town, but demonstrators are not normally used for that. Demonstrators are not used to run company errands such as going to the bank.

Taxpayer has some customers who prefer to buy demonstrators rather than an unused car. The advantage of buying a demonstrator is that a demonstrator is worth exactly the same as a new car three years from now, but the customer is able to get a current model with a new car warranty and does not have to bother to bring it back for minor adjustments and littles defects which have already been taken care of.

Normally, taxpayer tries to keep 70 or 80 new Buicks on hand and would have about eight on the floor, and eight or ten demonstrators available to be driven. All the units taxpayer has on hand are available to be driven if the customer wants to drive them, even those in the warehouse.

The demonstrators are never leased or rented or used for anything other than to accomplish a retail sale of a Buick automobile. The only purpose of a demonstrator is to sell new automobiles.

Very few new cars are sold at the factory suggested list price. Almost all new cars, during the period involved in the instant assessment, have been sold at a discount, whether the car came straight from the factory to a customer or was in the warehouse or showroom or had been used as a demonstrator.

Not infrequently, a demonstrator will sell for more than a comparable new car. The witness has made a table of the thirty-three Buick demonstrator automobiles involved in the assessment and has compared the prices for which they sold with the prices at which comparable new cars, which had not been used as demonstrators, sold for during the same period. The table or chart shows that the new cars, on the average, sold for 84.3 per cent of the list price and the thirty-three demonstrators, on average, sold for 79.8 per cent of the list price, a difference of 4.5 per cent.

Every car taxpayer has 'in stock is available to be driven and frequently they are driven.' Very infrequently, taxpayer permits prospective customers to take new cars home for the weekend. Sometimes, taxpayer permits them to take demonstrators home for the weekend.

Taxpayer normall has 60 to 80 Buicks, 130 to 140 Chevrolets, and less Cadillacs than Buicks. The designation of a car as a demonstrator in the morning and its sale in the afternoon of the same day is not rare or unusual during the first week or ten days after new models are announced. Such designation and sale on the same day would be more rare later on but it does happen.

Taxpayer has six Buick salesmen. Each car designated as a demonstrator is assigned to a salesman who drives it during the business day. Taxpayer's showroom is frequently open until nine o'clock at night, and frequently the salesmen have appointments at night. They carry the demonstrators home and then bring them back. 'The cars are there all day and except when being demonstrated are available for sale.' The salesman uses the demonstrator as transportation to and from his home.

Taxpayer finds that by having complete control and maintenance of the demonstrators, there is not really a great difference between the selling price of demonstrators and new cars not designated as demonstrators.

...