Good Humor Co. of Cal. v. State Bd. of Equalization

• Decision Date: 29 July 1957
• Court: California Court of Appeals Court of Appeals
• Parties: GOOD HUMOR COMPANY OF CALIFORNIA, a corporation, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant. Civ. 22288.

Page 640

313 P.2d 640

152 Cal.App.2d 873

GOOD HUMOR COMPANY OF CALIFORNIA, a corporation, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

Civ. 22288.

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

July 29, 1957.

Rehearing Denied Aug. 22, 1957.

Hearing Denied Sept. 25, 1957.

Edmund G. Brown, Atty. Gen., James E. Sabine, Asst. Atty. Gen., Dan Kaufmann and James C. Maupin, Deputy Attys. Gen., for appellant.

Latham & Watkins and Charles E. Horning, Jr., Los Angeles, for respondent.

FOX, Justice.

This is an action for a refund of sales taxes allegedly overpaid. The trial court held that plaintiff was entitled to a refund, and the State Board of Equalization has appealed.

Plaintiff is a California corporation engaged in the manufacture and sale of ice cream and ice cream products at retail. In the course of its manufacture and sale, plaintiff purchases dry ice from suppliers. A part of the claim for refund relates to purchases of dry ice made by the plaintiff during the period from August, 1946, through March, 1949. In connection with these purchases, the plaintiff reimbursed its suppliers for sales tax. ¹ Plaintiff claimed a credit against its reported gross receipts for all the purchases of dry ice during this period as 'tax paid purchases resold.' The remainder of the claim for refund ² relates to plaintiff's purchases from April, 1949, through March, 1951; plaintiff purchased dry ice during this period under resale certificates and paid no sales tax reimbursement thereon.

The defendant refused to allow plaintiff to take the credit for tax paid purchases resold, and further assessed plaintiff additional sales taxes upon the purchases of dry ice for which resale certificates were given. Plaintiff paid the tax due and filed claim for a refund, which was denied by defendant. Thereafter, plaintiff brought this suit.

The dry ice in controversy is used in two ways by plaintiff. Part of the dry ice is received at plaintiff's manufacturing plant in block form and is there cut into slices. This dry ice is then delivered to the retail stores of plaintiff. When customers purchase ice cream or a stock ice cream item, the dry ice is used in the packing of the merchandise. This is done without request by, or extra charge to, the customer.

The remainder of the dry ice in question is received at plaintiff's catering plant where special orders are made up. This dry ice is likewise cut into slices, and is used in the packing of the special orders which are then transported to the retail stores in a refrigerated truck and later delivered to the customers.

The facts in this case are not in dispute. The question before this court is: May a sales tax properly be levied upon plaintiff's purchases of the dry ice here involved? The trial court held that the sales of dry ice to plaintiff were not subject to tax because dry ice is within the 'nonreturnable container' exemption to the sales tax law. We will consider that question later. First, we must determine whether or not the sales of dry ice were retail sales.

Section 6051 of the Revenue and Taxation Code imposes a tax upon retail sales. A retail sale is defined in section 6007 as 'a sale for any purpose other than resale in the regular course of business.' Plaintiff's main contention is that the sales to it of the dry ice in question were 'sales for resale' within the meaning of the Sales and Use Tax Law, rather than 'sales at retail.' Plaintiff argues that on any realistic appraisal, it is engaged in selling ice cream products, containers, dry ice, labels, and everything else which passes from it to the customer, since all of those things are reflected in the price which it charges the customer. Although there is no extra charge for dry ice, plaintiff asserts that the customer nevertheless pays for it indirectly, and that a resale thus results.

The Supreme Court has answered this argument in People v. Puritan Ice Co., 24 Cal.2d 645, 151 P.2d 1. In that case sales of 'wet ice' were made by the ice company in two ways. Part of the ice was sold to an express company, which rented refrigerator cars. The express company placed the ice in the bunkers of its cars and made an extra charge for the ice to the buyers of the vegetables, which were shipped in the refrigerator cars by shippers and packers. The remaining ice (about 75% of the ice company's sales) was sold directly to packers and shippers of vegetables. They would place the vegetables in crates lined with paper and packed in ice, and ship the crates in ordinary railroad cars (not refrigerator cars) with ice placed at the door and crushed ice blown over the tops of the crates. Those to whom the packers and shippers sold vegetables were separately billed for car ice, crate ice not being separately itemized. The court held that the ice sold by the ice company to the express company and to packers and shippers of vegetables had been sold at retail and not for resale in the regular course of business. The court met the argument here in question as follows:

'* * * The essence of the matter is that the purchasers of the ice are acquiring it for purposes other than resale. They are not engaged in the ice selling business. They are selling vegetables and the use of the ice or purported sale thereof to the purchasers of the vegetables is merely an incident of that activity. It is common knowledge that the dominant purpose for the use of ice in shipping perishable produce is to preserve the produce by means of refrigeration. Realistically, the purchasers of the vegetables are not concerned with acquiring ice as such. They are buying vegetables which are protected against deterioration and which will be in a marketable condition when offered for sale by them. Actually, the ice does not become a component part or ingredient of the vegetables, even though the sale is made of the so-called iceberg pack of vegetables. It is an aid in maintaining the condition of the merchandise, and rather than becoming a part of the merchandise, it merely maintains it at the status quo, eventually being completely exhausted in the process. Nor does the profit factor with respect to the ice alter the result. Like the charge for the ice, the purported profit on the ice truly should be considered as merely an incidental part of the sale of the vegetables--the sale of vegetables to be shipped in such a condition that they would not lose their value.' [24 Cal.2d at pages 651-652, 151 P.2d at page 4].

In People v. Monterey County Ice & Development Co., 29 Cal.App.2d 421, 84 P.2d 1069, quoted extensively in the Puritan case, it was also held that sales of ice were sales at retail rather than sales for resale. The facts were very similar to those in the Puritan case.

The applicability of the Puritan and Monterey cases to the case at bar is apparent. The 'wet ice' in those cases was used for the purpose of preserving vegetables; the dry ice in the present case was used for the purpose of preserving plaintiff's ice cream products from the moment they were delivered to the customers until the time when they were to be consumed. Here, as pointed out in the Puritan case, the customers were not concerned with acquiring dry ice as such. Indeed, they did not even have to request it, nor were they charged for it (as were the buyers in certain instances in the Puritan and Monterey cases). The dry ice does not become a component part of the ice cream product; it is merely an aid in maintaining the condition of the merchandise. It is therefore clear that the sales of dry ice to plaintiff were not sales for resale as that term is used in section 6007, since the dry ice is merely passed on to plaintiff's customers as an incident of its ice cream product sales activity.

Plaintiff's second contention is that, notwithstanding the Puritan and Monterey cases, the sales of dry ice to plaintiff are not subject to tax because dry ice comes within the 'nonreturnable container' exemption set forth in section 6364 and defendant's Rule 49 (18 Cal.Admin.Code, sec. 1989). Section 6364 provides for a sales tax exemption of gross receipts from the sale of and the storage, use, or other consumption of 'nonreturnable containers when sold without the contents to persons who place the contents in the container and sell the contents together with the container.' This section in effect makes the prescribed use of the container by the person buying it the equivalent of a resale of such container so that the original sale of such container is not a 'sale at retail.' The section itself does not indicate what items are included within the meaning of 'nonreturnable container,' but Rule 49, enacted pursuant to section 7051, interprets section 6364 and defines containers as 'articles in which tangible personal property is placed for shipment and delivery such as wrapping materials, bags, cans, twines, gummed...