Franklin Fibre-Lamitex Corp. v. Director of Revenue

Decision Date08 February 1985
Docket NumberFIBRE-LAMITEX
Parties42 UCC Rep.Serv. 1205 FRANKLINCORPORATION, Appellant, Respondent Below, v. DIRECTOR OF REVENUE, Appellee, Petitioner Below. . Submitted:
CourtDelaware Superior Court

Upon appeal from the Tax Appeal Board. Affirmed.

Francis J. Trzuskowski, Trzuskowski, Kipp, Kelleher & Pearce, Wilmington, for appellant.

J. Patrick Hurley, Wilmington, for appellee.

Norris P. Wright and Richard D. Kirk, Morris, James, Hitchens & Williams, Wilmington, for C.E. Minerals, Inc., amicus curiae.

GEBELEIN, Judge.

This is an appeal by Franklin Fibre-Lamitex, petitioner below, from a decision of the Tax Appeal Board dated March 9, 1984 upholding a decision of the Director of Revenue including certain sales of appellant within those sales upon which a gross receipts tax would be imposed and assessing taxes thereon. C.E. Minerals, Inc., a subsidiary of Combustion Engineering, a corporation having its principal place of business in Stamford, Connecticut, was granted leave to appear as amicus curiae in this appeal as it has a similar case pending before the Tax Appeal Board. Appellant is a Delaware corporation with its principal place of business in Wilmington and is also a "wholesaler" as defined by 30 Del.C. Chapter 29.

According to the stipulated facts, a large percentage of appellant's sales are made by common carrier to out-of-state buyers F.O.B. (free on board) a shipping point located in Delaware. 1 This means that the buyer pays shipping costs, bears the risk of loss, and acquires title to the goods. See p. 3-4, infra.

The first issue presented by this appeal is whether the above sales were made "within this State" as that term is used in 30 Del.C. § 2902(c) which states "every wholesaler shall also pay a license fee at the rate of 4/10 of one percent of the aggregate gross receipts attributable to all goods sold by the wholesaler within this State."

"Sold within this State" is not expressly defined; it is therefore permissible to look to related statutes 2 and principles of statutory construction to determine its meaning.

The Corporation Income Tax, 30 Del.C., Chapter 19, employs the concept of "gross receipts" in its apportionment formula. That statute provides: Gross receipts from sales of tangible personal property physically delivered within this State to the purchaser or his agent (but not including delivery to the United States mail or to a common or contract carrier for shipment to a place outside this State).... 30 Del.C. § 1903(b)(6)(c). 3

This section does not include the language "sold within this State" nor does it seek to define such language. It does not say as appellant contends that goods delivered to common or contract carrier for delivery outside the State are not sold within the State. It is only saying that such goods will not be included in "gross receipts" in applying the income tax apportionment formula.

Another principle of statutory construction is "whenever the Legislature enacts a provision it is presumed to have had in mind the previous statutes relating to the same subject matter." Getty Refining and Marketing Co. v. Leavy, Del.Super., 438 A.2d 1236, 1238 (1981). The Legislature with the previous statute, 30 Del.C. § 1903(b)(6)(c), in mind, enacted 30 Del.C. § 2902(c) without the limiting language relating to delivery to a common carrier. This purposeful omission is a clear indication that the Legislature did not intend to limit the later statute in the same manner as it did the income tax. 4

There are other principles of statutory construction that can be used to determine what the Legislature intended by "sold within this State." When a revenue statute, like any other statute does not define its terms, it is proper to refer to common law. Wilmington Suburban Water Corp. v. Board of Assessment, Del.Super., 291 A.2d 293 (1972). The common law definition of a sale is the passage of title for money or consideration. In Re Pennsylvania Distributing Corp., 11 N.Y.S.2d 718, 256 App.Div. 781 (1939); Benner v. Tacony Athletic Ass'n., 328 Pa. 577, 196 A.390 (1938). The Uniform Comercial Code carries on this definition by defining "sale" as "the passing of title from the seller to the buyer for a price." 6 Del.C. § 2-106(1). The U.C.C. further states, "if the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment...." 6 Del.C. § 2-401(2)(a). This section has its basis in the Uniform Sales Act. See U.C.C. § 2-401 Official Comment (1978). And the Uniform Sales Act was "to a large extent merely declaratory of common law." 67 Am.Jur.2d, Sales § 2. In addition, 6 Del.C. § 2-401(2)(a), can be viewed as providing statutory guidelines for the implementation of the common law definition of sale in commercial law. Either way, these definitions and/or guidelines can be used in construing the term, "sold within this State", as used in 30 Del.C. § 2902(c)(1). Used as such, they provide strong support to the Board's conclusion that the Legislature intended to include this category of sales within those to be taxed.

Additional support for this position is found in other states where the courts have used the Uniform Commercial Code to interpret provisions of taxing statutes. See, Crown Iron Works Co. v. Commissioner of Taxation, 214 N.W.2d 462 (Minn.1974); and City of Richmond v. Petroleum Markets, Inc., 269 S.E.2d 389 (Va.1980).

Finally, Comment 1 to § 2-401 indicates that the draftsmen of the U.C.C. anticipated that courts would use § 2-401 in situations where the passage of title is important.

It is therefore necessary to state what a "sale" is and when title passes under this Article in case the courts deem any public regulation to incorporate the defined term of the "private" law.

U.C.C. § 2-401 Official Comment (1978).

The second issue presented by this appeal is the constitutionality of imposing the Delaware Wholesaler Gross Receipts Tax on sales made to out-of-state buyers with delivery by common carrier, F.O.B. shipping point.

Appellant argues that the sales in question are in interstate commerce because the physical delivery to the out-of-state buyers occurred outside the State of Delaware. Appellee does not contest this and the Court holds these sales to be in interstate commerce.

Any tax on interstate commerce, to be constitutional, must pass the four-prong test of Complete Auto Transit v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). That test can be summarized as follows: The tax must (1) be "applied to an activity with a substantial nexus to the taxing state"; (2) be "fairly apportioned"; (3) "not discriminate against interstate commerce"; and (4) be "fairly related to the services provided by the State." Id., 430 U.S. at 279, 97 S.Ct. at 1079. Appellant concedes that prongs (1) and (4) of the test are met. Our inquiry, therefore, is focused on the second and third prongs.

Turning to prong (2), it is clear the tax is " 'apportioned exactly to the activities taxed,' all of which are interstate." Standard Pressed Steel Co. v. Washington Revenue Dept., 419 U.S. 560, 564, 95 S.Ct. 706, 709, 42 L.Ed.2d 719, 724 (1975). As will be discussed later, no other state can constitutionally impose the same tax on the same gross receipts. This, in itself, is strong evidence that the tax is properly apportioned. As Amicus states in its reply brief, prongs (2) and (3) are somewhat similar in that the basic evil to be avoided is the disadvantage to which multiple taxation would put sellers in interstate commerce as compared to sellers in local commerce.

In addition, the Supreme Court has consistently upheld the taxing of 100% of the local incidents of interstate commerce. American Mfg. Co. v. St. Louis, 250 U.S 459, 39 S.Ct. 522, 63 L.Ed. 1084 (1919); Western Livestock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823 (1938); Department of Treasury v. Wood Preserving Corporation, 313 U.S. 62, 61 S.Ct. 885, 85 L.Ed. 488 (1941); Tax Commission of Utah v. Pacific Pipe Co., 372 U.S. 605, 83 S.Ct. 925, 10 L.Ed.2d 8 (1963); Washington Rev. Dept. v. Stevedoring Ass'n., 435 U.S. 734, 98 S.Ct. 1388, 55 L.Ed. 682 (1978). Delaware is doing no more than that which the Supreme Court found constitutional in the above cases.

The State is taxing the privilege of doing business in Delaware measured by the gross receipts from sales made in Delaware only. Although it is on 100% of those local incidents, by taxing only local incidents, the tax is apportioned by its very nature.

As already stated, prong (3) of the Complete Auto Transit test (discrimination against interstate commerce) is also satisfied. In Armco v. Hardesty, 467 U.S. 638, 81 L.Ed.2d 540, 104 S.Ct. 2620 (1984), the court discloses it is the potential of multiple taxation that violates prong (3).

This raises the question of whether another state could constitutionally impose the same tax on the same gross receipts, i.e., a tax on the privilege of doing business within that state measured in part by the gross receipts from sales made F.O.B. Wilmington. In Norton v. Department of Revenue, 340 U.S. 534, 71 S.Ct. 377, 95 L.Ed. 517 (1951), at issue was the Illinois occupation tax, which was imposed upon persons engaging in the business of selling tangible personal property at retail in Illinois. The tax was measured by gross receipts. Although the Court found the tax to be constitutional as it applied to a Massachusetts...

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