Garden Spot Market, Inc. v. Byrne

• Citation: 141 Mont. 382,378 P.2d 220
• Decision Date: 24 January 1963
• Docket Number: No. 10528,10528
• Parties: GARDEN SPOT MARKET, INC., a Montana Corporation, Plaintiff and Respondent, and Gordon's Jeweiry, Inc., Plaintiff, Intervenor and Appellant, v. E. J. BYRNE, Dan Fulton and John C. Alley, as Members of and Constituting the State Board of Equalization of the State of Montana, Defendants and Appellants, and Robert Abel, Defendant and Appellant.
• Court: Montana Supreme Court

Page 220

378 P.2d 220

141 Mont. 382

GARDEN SPOT MARKET, INC., a Montana Corporation, Plaintiff and Respondent, and Gordon's Jeweiry, Inc., Plaintiff, Intervenor and Appellant, v. E. J. BYRNE, Dan Fulton and John C. Alley, as Members of and Constituting the State Board of Equalization of

the State of Montana, Defendants and

Appellants, and

Robert Abel, Defendant and Appellant.

No. 10528.

Supreme Court of Montana.

Submitted Dec. 17, 1962.

Decided Jan. 24, 1963.

Patrick F. Hooks (argued), John R. Kline (argued), Edwin S. Booth (argued), Cordell Johnson, Helena, for appellants.

Henry Loble (argued), Helena, Jerome Anderson (argued), Billings, for respondent.

CASTLES, Justice.

This is what has been described as 'The Killum Dead Trading Stamp Case'. An unknown reporter fashioned the title for the Thirty-Seventh Legislative Assembly's Chapter 153 of the Session Laws of Montana, 1961, and that appellation appears in the record before us.

This appeal involves a question of the constitutionality of Chapter 153, Laws of Montans, 1961.

In summary, Chapter 153, hereinafter referred to as the Act, provides that every individual, partnership, corporation, association, or any other organization with a place of business in the state, who, with the retail sale of merchandise or service, for any marketing purpose advertises the giving of or gives any stamp, coupon, certificate, ticket, card or similar device which is redeemable in merchandise, service or cash, shall be subject to an annual license tax of $100 plus two percent of his total gross receipts received from the sale of merchandise at such place of business during the preceding calendar year. Every person or business entity who 'sells directly to the consumer' including 'any manufacturer, processor, distributor, jobber, wholesaler, retailer or any combination thereof engaged in selling directly to the consumer' is considered a retailer for the purpose of the Act.

Redeemable devices used by the manufacturer or packer of an article in advertising or selling it, or any redeemable device issued and redeemed by a newspaper, magazine or other publication is exempt by section 2 of the Act.

The remaining sections of the Act provide that the State Board of Equalization shall promulgate application and license forms and provide for the filing of applications for a license on or before January 1, following the effective date of the Act, which is June 30, 1962.

Any person referred to in section 1 of the Act who fails to pay the license tax, or any part thereof, when due, is made liable for three times the amount of the tax which was due, and may be enjoined from continuing to issue redeemable devices.

This action, for a declaratory judgment declaring Chapter 153 unconstitutional, and to enjoin its enforcement, was brought by Garden Spot Market Inc., plaintiff and respondent, against the State Board of Equalization. Gordons Jewelry, Inc., intervened as a party plaintiff, and Robert Abel intervened as a party defendant.

For clarity, hereinafter Garden Spot will be referred to as plaintiff, intervenor Gordons Jewelry as Gordons, the State Board of Equalization as the Board, and intervenor Abel as Abel.

The record contains a hard-fought pleading route through the district court. The action finally came on for trial before District Judge W. W. Lessley in September 1962. On October 20, 1962, Judge Lessley made separate, detailed findings of fact and conclusions of law, holding the Act unconstitutional and void. Judgments permanently enjoining enforcement of the Act were entered on November 7, 1962, whereupon this appeal was had. The Board and Abel are appellants while intervenor Gordons, respondent as to most questions, cross-appealed on one matter only.

The findings will be enlarged upon later. Suffice to say, the trial court found the Act unconstitutional on numerous grounds, making a conclusion that the only thing about the Act that was constitutional was its title. As to this even Gordons cross-appealed. Thus we have a 'broadside' problem of constitutionality presented.

We shall briefly summarize the testimony of the witnesses in order to orient our inquiry. In order to further orient our inquiry we also make these observations. The Act itself makes no legislative findings. The title of the Act begins: 'An Act to Regulate the Giving or Furnishing of Trading Stamps or Other Similar Devices * * *.' Emphasis supplied. Yet in the body of the Act nothing is regulated.

Richard Pinsoneault, the first witness called by plaintiff, testified that he canvassed the state to obtain examples of redeemable devices other than those commonly known as trading stamps. He gave many and various examples of devices used for promotional and advertising purposes. The examples ranged from tickets, which, when stamped by certain merchants, were redeemable for free parking, to a newspaper advertisement which could be redeemed at a hardware store for a photograph. They included coupons or devices used by manufacturers, packers, and producers from outside the state in sales at the retail level within the state, and trading stamps and other devices offered from out-of-state mail order merchants in connection with mail order sales to Montana residents.

Upon cross examination, Mr. Pinsoneault testified he did not investigate the cost to the merchants of the use of the devices, and that he did not investigate the financial arrangements under which any of the promotional plans were carried out.

The second witness for plaintiff, Paul Stewart, President and Manager of plaintiff store, testified that plaintiff used and wished to continue to use a wide variety of redeemable devices in promoting sales; that continuously since June 15, 1952, plaintiff used trading stamps, and such use increased sales volume and helped establish a more steady clientele. Mr. Stewart testified that a tax based on two percent of plaintiff's gross sales would prohibit the use of trading stamps by plaintiff since it could not afford to pay such a sum; and plaintiff's markup could not be increased to pay the tax because plaintiff could not then meet competition.

Upon cross examination, Mr. Stewart testified that the stamps cost two percent of gross sales. The reason why plaintiff could pay that amount and continue to show the same net profit, as was realized before the use of stamps, was that the use of stamps increased sales volume while operating expenses increased only slightly and fixed costs remained the same. He said that the manufacturers' coupons, identified on direct examination, cost plaintiff nothing. He testified that when plaintiff began using stamps none of its competitors used them, but subsequently plaintiff's major competitors began using some brand of trading stamps.

In lieu of testimony by the Chairman of the State Board of Equalization, by stipulation, his answers to seven interrogatories of plaintiff were received in evidence. The substance of the interrogatories is that the Board could not tell in advance what the administration of the Act would cost or what the cost to the Board would be to regulate plaintiff if it were licensed under the Act, but that the cost of processing an application for a single license should be $1.00.

On behalf of Gordons it was established that Gordons could not afford to pay a license fee if required under the Act. It was admitted in the pleadings that among the sales promotion devices used by Gordons are coupons which are given to customers with minimum purchases and which are redeemable from dertain moving picture theaters for admission to movies and merchandise from the theater confectionary counter. It was also admitted that the aforementioned coupons constituted redeemable devices within the meaning of the Act. It was shown that Gordons opened a retail store in Helena in August 1962, and that the store building used by Gordons formerly had been occupied by another jeweler, but that Gordons did not purchase any assets of the other jeweler and there was no connection between the business of the two.

Subject to objections, which are not now important, a deposition of Abel and some exhibits were admitted into evidence. Abel, an independent service station operator, leases from Texaco and handles Texaco petroleum products. He also sells tires, batteries and accessories and does greasing, washing and minor tuneup and repair work. He has some parking space and allows regular customers to park there, but he does not operate a parking business as such.

Abel gave trading stamps from February 1960, to some time in October 1960. He quit giving stamps without relation to the other dealers. Most of the other dealers stopped stamps but there are about six, including some Texaco dealers, giving stamps now.

Abel's business volume has constantly increased, notwithstanding the fact that he dropped giving trading stamps, and the six other dealers continue to use them. Abel did not increase prices when he began using stamps, nor did he decrease prices when he discontinued their use.

Abel has also used other promotional devices including discounts at certain times for certain services, certificates put out by Texaco to be redeemed for specials on merchandise, and other promotional devices distributed by the manufacturers of products sold by Abel.

Charles Davis, who operated a grocery store in Columbus, Montana, testified for Abel. Mr. Davis and his competitor used trading stamps, but after talking it over they gave up the use of stamps. If his competitor was to resume giving stamps, he believes he would have to also. He testified that he had an increase in volume when he began using stamps, but he could not recover the cost of the stamps out of the increase so he had to take the cost out of profits. Consequently, he did not increase prices when he began giving stamps, nor did he decrease prices when he dropped them.

The district court made and entered separate findings of...