Glass-Tite Industries, Inc. v. State Bd. of Equalization

• Decision Date: 22 October 1968
• Docket Number: GLASS-TITE
• Citation: 266 Cal.App.2d 691,72 Cal.Rptr. 244
• Court: California Court of Appeals Court of Appeals
• Parties: INDUSTRIES, INC., Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant. Civ. 24781.

Page 244

72 Cal.Rptr. 244

266 Cal.App.2d 691

GLASS-TITE INDUSTRIES, INC., Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant.

Civ. 24781.

Court of Appeal, First District, Division 4, California.

Oct. 22, 1968.

Rehearing Denied Nov. 21, 1968.

Hearing Denied Dec. 18, 1968.

Thomas C. Lynch, Atty. Gen., Ernest P. Goodman, Asst. Atty. Gen., E. Clement Shute, Jr., Deputy Atty. Gen., San Francisco, for appellant.

Thacher, Jones, Casey & Ball, James F. Thacher, San Francisco, for respondent.

DEVINE, Presiding Justice.

The State Board of Equalization appeals from a judgment awarding respondent Glass-Tite Industries, Inc. the sum of $8,024 plus interest. The principal amount is for refund of taxes. It is conceded by appellant that respondent had exhausted its administrative remedies. Also, the parties are in agreement on the facts. The question is whether the sale of a business with all of its assets is, under the agreed facts, exempt from the sales tax.

THE FACTS

The Sale. On December 29, 1961, Saegertown Glasseals, Inc. (Saegertown) sold to Glass-Tite Industries, Inc. (Glass-Tite) all of its machinery and equipment, furniture and fixtures, and an automobile, the net book value of all being $198,508. In exchange, Saegertown received Glass-Tite common stock, valued at $200,615; and it is on this valuation that the tax was computed. Glass-Tite agreed to pay outstanding obligations of Saegertown, including the disputed assessment of the sales tax, and Glass-Tite did pay the tax.

By acquiring the Glass-Tite stock, the stockholders of Saegertown became owners of 48 percent of the capital stock of Glass-Tite.

The Product of Saegertown and Its Sales. Saegertown manufactured diode subassemblies. These consisted of a piece of copper wire slightly over one inch long sealed into a small piece of glass tube and another piece of copper wire of similar length toward the end of which was mounted an S-shaped piece of metal. Such subassemblies are so arranged that they can fit together and enclose a germanium crystal or similar semiconductor and are used in the construction of various electronic circuits for controls, missiles, and so forth. The subassemblies were incorporated into products of Saegertown's customers, and were manufactured for the customers' special demands. The customers sold the products to distributors or retailers. On occasion, the customers sold at retail.

Permit and Audit. From June 19, 1961, to December 29, 1961, Saegertown held a sales tax permit and filed sales and use tax returns. No sales of tangible personal property for use or consumption by Saegertown's customers were shown on the books and no sales tax was assessed except that in question, on the single sale to Glass-Tite of all of the property.

THE JUDGMENT

The conclusions of law made by the trial judge are these:

'1. The transaction in question, the exchange of plaintiff's stock for assets of the taxpayer, was not one of a series of sales sufficient in number, scope and character to constitute an activity requiring the taxpayer to hold a seller's permit.

'2. The sales by the taxpayer of the subassemblies in question did not constitute a business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of a sales tax.

'3. The property transferred by the taxpayer to plaintiff in the subject transaction was never used by the taxpayer in the course of an activity for which the taxpayer was required to hold a seller's permit under the sales the law.

'4. The taxpayer was not a 'retailer' within the meaning of Section 6015 and Section 6019 of the Revenue and Taxation Code or otherwise of the sales tax law.

'5. The taxpayer was not a 'seller' within the meaning of Section 6014 of the Revenue and Taxation Code or otherwise of the sales tax law.

'6. The transaction in question, the exchange of stock for business assets, was a sale of property not held or used by a seller in the course of an activity for which he is required to hold a seller's permit and was an occasional sale within the meaning of Section 6006.5(a) of the Revenue and Taxation Code and otherwise under the sales tax law.

'7. The transaction in question was exempt from sales tax.'

If the single transaction constitutes an occasional sale, as the court decided it does, it is not taxable. Occasional sale is defined, so far as relevant to this case, as 'A sale of property not held or used by a seller in the course of an activity for which he is required to hold a seller's permit, provided such sale is not one of a series of sales sufficient in number, scope and character to constitute an activity requiring the holding of a seller's permit.' (Rev. & Tax.Code, § 6006.5, subd. (a).) The essence of this intricate statute is that if there have been Sales in a Series, the precise number and quality of which are not defined, a particular sale may be taxable. It may be taxable even though the final sale is one of the entire business and all of its property. (Market St. Ry. Co. v. California State Board of Equal., 137 Cal.App.2d 87, 290 P.2d 20; Sutter Packing Co. v. State Board of Equal., 139 Cal.App.2d 889, 294 P.2d 1083; Pacific Pipeline Const. Co. v. State Board of Equal., 49 Cal.2d 729, 321 P.2d 729; United States Industries, Inc. v. State Board of Equal., 198 Cal.App.2d 775, 18 Cal.Rptr. 171.)

But in all of these cases, there had been other sales than the principal one. In the Market Street Railway case, there had been some 900 separate retail sales of obsolete equipment, accommodation sales to employees and sales from the company's quarry. In Sutter Packing Co., there had been several retail sales of used equipment during the three and one-half years preceding the sale of all of its equipment in May 1949, and these included ten retail sales in the last quarter of 1948 and one in the first quarter of 1949. In Pacific Pipeline, the machinery which was finally sold was the same sort of property in which the company dealt as a seller and there had been 19 separate sales in addition to the sale in question. In United States Industries, three separate corporations had sold their businesses to the taxpayer. One of them, Noslexa, a manufacturer of machine tools, had made hundreds of sales which were not for resale but were strictly retail, upon which sales taxes were paid; the same is true of the second company, Mostum, which manufactured and sold steel pipe; the third, Doncliff, which made and sold aircraft components and electronic devices, had made nine retail sales on which taxes were paid.

Here, there was no retail sale except the one described above. The sale, therefore, may be considered an occasional one provided there be satisfied the condition contained in ...