Foremost Dairies, Inc. v. Tax Commission

• Decision Date: 17 April 1969
• Docket Number: No. 39694,39694
• Citation: 453 P.2d 870,75 Wn.2d 758
• Court: Washington Supreme Court
• Parties: FOREMOST DAIRIES, INC., a corporation, Appellant, v. TAX COMMISSION of the State of Washington, Respondent.

Page 758

75 Wn.2d 758

453 P.2d 870

FOREMOST DAIRIES, INC., a corporation, Appellant, v. TAX COMMISSION of the State of Washington, Respondent.

No. 39694.

Supreme Court of Washington, En Banc.

April 17, 1969.

Gagliardi & Gagliardi, S. A. Gagliardi, Tacoma, for appellant.

Slade Gorton, atty. Gen., Henry W. Wager, Timothy R. Malone, Asst. Attys. Gen., Olympia, for respondent.

NEILL, Judge.

Plaintiff has paid a deficiency assessment of a wholesale functions tax levied by the State Tax Commission and brings this action for a refund. Judgment was entered upholding the ruling of the tax commission and denying the refund. Plaintiff appeals, contending that its activities as herein set out do not constitute a 'wholesale function' within the meaning of RCW 82.04.270(2).

The facts are agreed. Plaintiff maintains a dairy manufacturing and processing plant in Seattle from which dairy products are sold and delivered throughout the Seattle area. Distribution of products from this plant is made by a fleet of delivery trucks. The company maintains an office in this plant where all the records are kept and processed. Sales of the products are accomplished principally by solicitations by route salesmen. Some orders are by telephone calls from customers, and a very few by route drivers contacting new residents on their routes.

Each day the office prepares a load sheet for each delivery truck. This sheet contains a complete list of dairy products which have been ordered and which that particular driver is to deliver that day. The loads are in accordance with the predetermined orders as called for by the route book, which each driver obtains daily from the office, with some extra products for use when a housewife or other consumer requests some additional item. Each driver delivers the products in accordance with the route book.

The company has two loading stations, one at Northgate and one at Renton. The Northgate station is a building equipped with a refrigerated storage room. The company operates four milk routes from this location. It also furnishes dairy products to 15 independent distributors from this location, but these products are not here in issue. Each day a large van loaded with products as determined by the daily order sheet is dispatched from the central plant to the Northgate station where two loaders unload the van onto the station platform and thereafter into the company's route trucks. After the drivers of the delivery trucks have completed their work, they make their reports for that day to the central office in writing or by telephone. The station has a listed telephone, kept mainly for intercommunication with the company office. If any orders for dairy products are received at the station by telephone or otherwise, the request is immediately relayed to the central office for approval or rejection to be processed there.

Any products left over after the route is completed for the day are stored in the cold storage unit overnight for use by the route driver the next day, or products might be left on the route truck overnight if the truck is refrigerated.

The route driver is forbidden by union rules and the bylaws of the union to solicit any business, except that if a new family moves into the district served by him, and such family is not served by any other dairies, he is permitted to solicit their business. Any new orders obtained by the driver are reported to the central plant for approval or disapproval and are processed there.

The building at the Renton location is equipped with a cold storage room and automotive repair shop. The only differences from the routine described at Northgate are: The large van makes two trips a day from the plant. The products are unloaded into the refrigerated room. During the night, two loaders load the delivery trucks from the cold storage room. All trucks are loaded prior to 7 a.m., at which time the drivers report to work and proceed as described above.

The company maintains four relief drivers and one supervisor of the drivers at this Renton facility. The relief drivers are there to take over the routes of any driver who fails to report for work or is unable to carry one his route. The supervisor supervises the work of all the drivers. There are two office girls who check the products in and out, make settlement with the drivers and deposit any cash collected directly into the company's bank account. These girls report their actions to the central office, and that office makes permanent records of all transactions. This facility also has a listed telephone which is mainly for intercommunication between this station and the main plant.

In all instances, the customers are billed from the central office. All records are kept at the central dairy plant. No permanent records are kept at either the Northgate or the Renton location.

RCW 82.04.270(2), insofar as the issue here is concerned, provides:

(2) The tax * * * shall be collected from every person engaged in the business of distributing * * * personal property, owned by them from their own warehouse or other central location in this state to two or more of their own retail stores or outlets, where no change of title or ownership occurs, the intent hereof being to impose a tax equal to the wholesaler's tax upon persons performing functions essentially comparable to those of a wholesaler, but not actually making sales: * * * Provided further, That delivery trucks or vans will not * * * be considered to be retail stores or outlets.

It was the obvious intent of the legislature to tax as a 'wholesaling function' the horizontal merchandising scheme which competes with and, except for change of title to goods, is essentially similar to the typical vertical division of merchandising whereby goods are sold by manufacturers/processors to a jobber/wholesaler and on to the retailer for sale to the ultimate consumer.

The tax commission relies on Standard Oil Co. of California v. State, 57 Wash.2d 56, 355 P.2d 349 (1960). There we held the wholesale functions tax applicable when the taxpayer delivered its own goods to its own bulk plants and such goods were then sold from the bulk plants to ultimate consumers. We stated, at 62, 355 P.2d at 352:

It (Standard Oil) does not deny that the sales made at its bulk plants were retail sales * * * but endeavors to persuade the court that they were not made from a retail outlet. We are at a loss to understand what a retail outlet is if it is not a place from which retail sales are made, and are unable to find in the statute any suggestion that the legislature intended another definition.

Standard Oil did not question that retail sales were being made from its bulk plants, and the question for this court was whether a place where retail sales were taking place was necessarily a 'retail outlet.' Accordingly, we held that the transfer of petroleum products from terminal tank farms to bulk plants from which sales were made to consumers was essentially comparable to wholesaling and subject to the tax.

The precise issue presented here, namely, whether there were retail sales taking place at the loading stations, was not raised in Standard Oil Co. of California v. State, Supra. The terms 'retail sale,' 'retail store,' and 'retail outlet' all connote some sort of merchandising activity where there is interaction with the market and the consumer.

The legislature has defined the term 'retail store or outlet' in RCW 82.04.212, but this definition is in the negative and is of no assistance in resolving the issue before us. Words of a statute, unless otherwise defined, must be given their usual and ordinary meaning. Pacific Northwest Alloys, Inc. v. State, 49 Wash.2d 702, 306 P.2d 197 (1957). Webster's International Dictionary (3d ed. 1963) defines 'retail store' as 'a place * * * in which merchandise is sold primarily to ultimate consumers,' and 'outlet' as a 'market for a commodity.'

When the term 'retail store or outlet' is read in toto, it obviously refers to the place where the creator of goods meets the consumer in the distributive process--the point at which the consumer becomes aware of the product, deals with the merchandiser or his agent, and eventually buys the product. Of course these various activities may occur at different times and locations. Advertisements to the consumer may originate from one outlet. The consumer may first see the product someplace else. A sale may be negotiated, a contract signed and accepted, and the goods eventually delivered, all at different locations. However, we can meet such problems when the arise. The point is that none of these activities occur on the loading platform at Northgate or in the refrigerated storage room at Renton.

The vast majority of the orders for plaintiff's products are solicited and all of the orders are accepted at the main plant. Some of the orders were taken and the goods were delivered by the delivery truck drivers--which trucks are specifically exempted by the statute from the class of 'retail stores or outlets.' In short, plaintiff meets the public almost entirely through its delivery drivers and its main office. Most of the public is probably not even aware of the loading stations, and plaintiff did not intend the public to be aware of them. The loading stations were not intended to be, nor were they used as retail outlets.

If plaintiff is performing functions essentially comparable to a wholesaler, it is doing so by sending goods to the loading stations, temporarily storing them there, and then delivering them to their true retail outlets--the delivery trucks. However, the delivery trucks, by statutory exemption, are not retail outlets. To...