Engs Motor Truck Co. v. State Bd. of Equalization

• Decision Date: 11 February 1987
• Citation: 235 Cal.Rptr. 117,189 Cal.App.3d 1458
• Court: California Court of Appeals Court of Appeals
• Parties: ENGS MOTOR TRUCK COMPANY, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. A031354.

Page 117

235 Cal.Rptr. 117

189 Cal.App.3d 1458

ENGS MOTOR TRUCK COMPANY, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

A031354.

Court of Appeal, First District, Division 2, California.

Feb. 11, 1987.

As Modified March 9, 1987.

Certified for Partial Publication. ^*

[189 Cal.App.3d 1462] George F. Jansen, San Francisco, for plaintiff and appellant.

John K. Van de Kamp, Atty. Gen., Patricia Streloff, Deputy Atty. Gen., San Francisco, for defendant and respondent.

SMITH, Associate Justice.

Plaintiff Engs Motor Truck Company (Engs), a retail truck dealer, appeals following summary judgment for defendant State Board of Equalization (the board) in this action for a refund of sales tax and interest paid under protest. (Rev. & Tax.Code, § 6933; all further section references are to the same code unless stated otherwise.)

The issues are (1) whether trucks sold for ostensible delivery to an out-of-state point must actually be so delivered in order to gain the seller a sales tax exemption under section 6396 of the Sales and Use Tax Law (§ 6001 et seq.), (2) if so, whether the buyer's certification that the trucks will be delivered out-of-state shifts liability for the sales tax to the buyer under section 6421, and (3) whether the board may be estopped to collect the tax on the facts of this case.

BACKGROUND

The case concerns 42 Peterbilt trucks sold by Engs during March 1976 to May 1978 for shipment by a carrier to designated locations in Arizona where delivery to the buyer was to have occurred. The sales invoice and bill of lading in each instance reflected an Arizona delivery point, and each buyer certified on a Department of Motor Vehicles "Statement of Facts" form as follows (brackets ours): "The above mentioned Vehicle was delivered to me and I took possession and title thereof at [designated Arizona location]. [p ] This vehicle is currently engaged in Inter-State Commerce prior to its return to the State of California and will be so used continuously hereafter."

The deliveries in fact occurred in California. During an audit of Engs, the board discovered post-sale service records showing odometer readings too low for the trucks to have been driven to their designated Arizona delivery points and back to their California servicing sites, and a check with some of the buyers confirmed that trucks had been delivered in California.

The board asserted a tax deficiency for the 42 sales Engs challenged the deficiency determination and, after exhausting its administrative remedies without success, paid under protest. The amount paid was $206,544.58, consisting of $112,524.48 tax and the rest interest.

Engs filed the instant action in superior court after the board denied a refund claim. This appeal by Engs is from a judgment entered in favor of the board after the court denied summary judgment to Engs and granted it as to the board.

APPEAL

Summary judgment may be granted only where there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Code Civ.Proc., § 437c, subd. (c).) We will uphold the judgment. As will appear, those factual questions in this case potentially requiring resolution by trial become immaterial in light of the proper resolution of purely legal questions (Frazier, Dame, Doherty, Parrish & Hanawalt v. Boccardo, Blum, Lull, Niland, Teerlink & Bell (1977) 70 Cal.App.3d 331, 338, 138 Cal.Rptr. 670), and the superior court correctly resolved those legal questions.

I

The initial question for review is whether section 6396, which exempts from the computation of sales tax the gross receipts from tangible personal property sold in interstate commerce, requires actual delivery of the property to an out-of-state point or could reasonably be so interpreted by the board in the exercise of its powers. There is no dispute that the trucks in this case were not actually delivered outside California. The parties accordingly acknowledge that a pure question of law is presented, that is, the applicability of a taxing statute to undisputed facts. (Montgomery Ward & Co. v. State Bd. of Equalization (1969) 272 Cal.App.2d 728, 734, 78 Cal.Rptr. 373, cert. den. (1970) 396 U.S. 1040, 90 S.Ct. 688, 24 L.Ed.2d 684.)

Section 6396 provides in pertinent part: "There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property which, pursuant to the contract of sale, is required to be shipped and is shipped to a point outside this state by the retailer by means of: (a) facilities operated by the retailer, or (b) delivery by the retailer to a carrier, customs broker or forwarding agent, whether hired by the purchaser or not, for shipment to such out-of-state point."

Crucial to this case is the language mandating that the property "is required to be shipped and is shipped to a point outside this state" by means of a carrier. Engs contends that the condition "and is shipped" means that the exemption is obtained by mere delivery to the carrier for an out-of-state destination whereas the board contends that actual delivery of the property outside California must occur.

The board's interpretation is expressed in its sales and use tax regulations. (Cal.Admin.Code, tit. 18, ch. 2, subch. 4, § 1500 et seq.; all subsequent references to numbered regulations are to the corresponding section numbers of that code and subchapter.) Regulation 1620, captioned "Interstate and Foreign Commerce," states a general rule that sales tax applies to all sales in this state, regardless of whether the property is subsequently moved outside the state, except where prohibited by the federal Constitution or where the retailer establishes his right to a statutory exemption. (Reg. 1620, § (a)(1).) Subdivision (a)(3)(A) then addresses the subject of the section 6396 exemption as follows:

"Except as otherwise provided in (B) below [essentially restating the language of section 6396 ¹, sales tax applies when the property is delivered to the purchaser or the purchaser's representative in this state, whether or not the disclosed or undisclosed intention of the purchaser is to transport the property to a point outside this state, and whether or not the property is actually so transported. It is immaterial that the contract of sale may have called for the shipment by the retailer of the property to a point outside this state, or that the property was made to specifications for out-of-state jobs, that prices were quoted including transportation charges to out-of-state points, or that the goods are delivered to the purchaser in this state via a route a portion of which is outside this state. Regardless of the documentary evidence held by the retailer (see (3)(D) below) ² to show delivery of the property was made to a carrier for shipment to a point outside the state, tax will apply if the property is diverted in transit to the purchaser or his representative in this state, or for any other reason it is not delivered outside this state." (Emphasis added.)

The regulation is clear and, as applied to the undisputed facts of this case, forecloses the section 6396 exemption since the trucks were, for reasons not disclosed by the record, not delivered to their Arizona destinations. Engs argues, however, that section 6396 clearly does not require actual delivery outside California and, hence, that the regulation is a void attempt to alter or amend the statute or impair its scope. (Ontario Community Foundation, Inc. v. State Bd. of Equalization (1984) 35 Cal.3d 811, 817, 201 Cal.Rptr. 165, 678 P.2d 378; Woods v. Superior Court (1981) 28 Cal.3d 668, 679, 170 Cal.Rptr. 484, 620 P.2d 1032.) We disagree.

The board has promulgated regulation 1620 in the exercise of its powers. "The standard of our review of the ... regulation is clear. The Legislature has delegated to the [b]oard the duty of enforcing the sales tax law and the authority to prescribe and adopt rules and regulations. [Citations.] This delegation is proper even though it confers some degree of discretion on the [b]oard. So long as this discretion is exercised within the scope of the controlling statute, the administrative judgment will not be disturbed by the courts. [Citation.] In determining the proper interpretation of a statute and the validity of an administrative regulation, the administrative agency's construction is entitled to great weight, and if there appears to be a reasonable basis for it, a court will not substitute its judgment for that of the administrative body. [Citations.]" (Ontario Community Foundation, Inc. v. State Bd. of Equalization, supra, 35 Cal.3d 811, 816, 201 Cal.Rptr. 165, 678 P.2d 378.) Of course, where a statute empowers an administrative agency to adopt regulations, such regulations must be consistent with, not in conflict with, the statute and reasonably necessary to effectuate its purpose. Our limited scope of review is to decide whether the agency reasonably interpreted the statute, not to assess the wisdom of the regulations. (Ibid.)

At the outset, Engs argues that the section 6396 phrase "is shipped to a point outside this state" cannot reasonably be read as requiring actual out-of-state delivery because the verb "ship," as commonly defined, means only to place on board or deliver to a carrier for transportation. (See, e.g., Webster's Third New International Dict. (1965) p. 2096 ["to place or receive on board ... for transportation," "to cause to be transported"]; Black's Law Dict. (5th ed. 1979) pp. 1234-1235 ["to transport; to deliver to a carrier (public or private) for transportation"].) In Engs's view, the language is clear and therefore does not leave room for construction.

The argument is unsound. Our research reveals cases (discussed post ) in which the word "ship" has been construed as meaning completed shipment where the context and purpose of a statute require it. "The fundamental rule of statutory...