H.O. Anderson, Inc. v. Rose

Decision Date12 December 1986
Docket NumberNo. 16809,16809
PartiesH.O. ANDERSON, INC. v. Herschel H. ROSE III, as Tax Commissioner, etc.
CourtWest Virginia Supreme Court

Syllabus by the Court

1. The actual rights and duties established by the terms of the taxpayers' transactions are controlling for purposes of the business and occupation tax. West Virginia Tractor & Equipment Co. v. Hardesty, --- W.Va. ---, 280 S.E.2d 270, 274 (1981).

2. "A transfer of property which by its own terms does not call for the vesting of ownership or title to the property in the transferee is not a sale for the purposes of the Business and Occupation Tax, W.Va.Code, 11-13-2c [1971]." Syl. Pt. 1, West Virginia Tractor & Equipment Co. v. Hardesty, --- W.Va. ---, 280 S.E.2d 270 (1981).

3. Actual delivery is not indispensable to the passing of title to personal property. Syl. Pt. 1, J.E. Poling v. Huffman & Frost, 84 W.Va. 199, 99 S.E. 445 (1919).

4. "A constructive delivery of goods sold may be substituted for an actual delivery thereof only when such constructive delivery is in pursuance of agreement by the parties or an established custom." Syl. Pt. 1, Back & Greiwe v. Smith, 66 W.Va. 47, 66 S.E. 1 (1909).

5. Constructive delivery is a general term comprehending all those acts which, although not truly conferring a real possession on the vendee, have been held by construction of law equivalent to acts of real delivery.

Charlie Brown, Atty. Gen., Charleston, Gregory A. Morgan, Asst. Atty. Gen., Clarksburg, for appellants.

David Layva, Avey & Steptoe, Charles Town, for appellee.

McGRAW, Justice:

This is an appeal by the Tax Commissioner of West Virginia from a final order entered by the Circuit Court of Berkeley County on June 11, 1984, which reversed and set aside the Commissioner's administrative decision rendered on December 2, 1982, affirming the business and occupation tax assessment issued against the appellee, H.O. Anderson, Inc., on December 23, 1980, for the period January 1, 1975, through December 31, 1979. For the reasons set forth below, we find that the assessment of business and occupation tax under the facts and circumstances of this case was proper, and we reverse the decision of the circuit court.

I.

Anderson is a corporation with offices and storage facilities in Martinsburg, West Virginia. Its principal business is the distribution and sale of petroleum and petroleum related products. During the period in question, Anderson was the exclusive distributor of such products throughout a three county territory in the eastern panhandle of West Virginia for Union Oil of California. Pursuant to a jobber sales agreement with Union, Anderson purchased specified quantities of petroleum products and other merchandise from Union for resale to Anderson's retail customers under Union's brands, trade names, and trademarks.

In the normal transaction, Anderson's transport trucks picked up petroleum products at a terminal facility operated by BP Oil Inc. in Baltimore, Maryland. 1 The products were usually returned to Anderson's storage facility in Martinsburg before resale, but occasionally some products were delivered directly to Anderson's retail customers on the return trip from Baltimore. Pursuant to the jobber sales agreement, title to the products passed to Anderson upon delivery into Anderson's transport equipment at the Baltimore terminal. At that time, Anderson's truck driver received a manifest as evidence of the type and amount of product received, and a copy of the manifest was sent to Union. Union debited Anderson's account after receiving the manifest, and payment to Union for the products was required from Anderson within ten days. Because the trips to Baltimore were made on a daily basis, Anderson usually had an account payable balance owing to Union.

During this same time period, Union contracted with the State of West Virginia to sell petroleum products to various state agencies and institutions. Union, however, did not use its own transport trucks to make deliveries to the state agencies. Instead, Union contracted with Anderson to make the deliveries in the eastern panhandle of West Virginia, because Anderson's smaller transport trucks were capable of reaching locations that could not be serviced by Union's larger trucks.

When a state agency or institution needed petroleum products, a procedure closely paralleling sales under the jobber sales agreement was followed. Either Union or the state agency or institution requesting delivery contacted Anderson, which sent a transport truck to the BP Oil Inc. terminal in Baltimore and took delivery. At that time, BP Oil Inc. prepared a manifest showing the nature and quantity of the products delivered to Anderson. One copy of this manifest was given to Anderson's truck driver, and one copy was sent by BP Oil Inc. to Union. The billing procedure used by Union under the jobber sales agreement was also used in these instances. Union acknowledged Anderson's receipt of the products by debiting Anderson's account and sending an invoice to Anderson.

After receiving the product in Baltimore, Anderson's truck driver normally delivered the product directly to the state agency along with a merchandise transfer invoice stating the type and quantity of product delivered. This invoice was signed by the employee accepting delivery on behalf of the state agency. The state agency retained a copy of this invoice, and one copy was sent to Union. 2 No payments were made by the State to Anderson. Instead, Union issued a credit memorandum to Anderson after receiving the merchandise transfer invoice. The credit memorandum included a credit to Anderson's account equal to the debit previously charged, a freight commission for picking the product up in Baltimore and transporting it to West Virginia, and a delivery commission for transporting the product to the state agency. 3 Thus, Anderson realized profit to the extent that Union credited Anderson's account for the freight and delivery commissions earned in transporting the products to the state agency. 4

The question presented is whether the credit by Union of Anderson's account following Anderson's delivery of products to the State resulted in gross receipts to Anderson under West Virginia Code § 11-13-1 (1983 Replacement Vol.). 5 The appellant contends that three separate sales occurred during the transactions involving BP Oil Inc., Union, Anderson, and the State. According to the Commissioner, a sale was made from Union to Anderson when Anderson took possession of the products at the Baltimore terminal and Union debited Anderson's account; a second sale was made from Anderson back to Union when the petroleum products were designated for delivery to the State; and a third sale was made from Union to the State when the State purchased the products from Union. The Commissioner ruled that the credits to Anderson's account in amounts equal to prior debits constituted taxable gross receipts to Anderson under our business and occupation tax statute.

In reversing and setting aside the appellant's administrative decision, the circuit court rejected the Commissioner's characterization of the facts. The crucial factor in the circuit court's analysis was its conclusion that the transactions in question should be construed so as to prevent the State from taxing one delivery twice. Although the circuit court found that Anderson became the owner of the petroleum products upon taking delivery at the BP Oil Inc. terminal, 6 it nevertheless concluded that there were not three separate sales as the Commissioner ruled. The circuit court instead found that Union sold the products to the State and that Anderson only delivered the products on Union's behalf.

II.

With regard to the substantive issues presented, 7 Anderson disputes the circuit court's finding that it had title to the products delivered to the State. While acknowledging that it took title to products transferred to it under the jobber sales agreement, the appellee argues that the circuit court erred when it found that the appellee took title to the products under its contract with Union to make deliveries to the State.

Anderson, therefore, disputes the Commissioner's portrayal of the transactions as involving sales from Union to Anderson and "sales back" from Anderson to Union prior to the sales from Union to the State. Instead, Anderson contends that it was not a party to the transactions involving the State in any manner other than as a bailee under Union's control. According to Anderson, the transactions involving the State began with consignment sales from BP Oil Inc. to Union, at which time title became vested in Union, and concluded with sales from Union to the State, at which time title became vested in the State. Anderson argues that it was only paid a service fee for making deliveries to the State, and that it should be subject to business and occupation tax only on those service related fees. Anderson urges this Court to treat the debits and corresponding credits made to Anderson's account not as evidence of sales to Anderson and "sales back" to Union, but as bookkeeping entries made only for record keeping purposes. Alternatively, Anderson argues even if sales were made from Union to Anderson, we should find that Anderson returned the products to Union and that the corresponding credits to Anderson's account constituted refunds to Anderson under West Virginia Code § 11-13-1. 8 Under this theory, Anderson argues that no gross receipts were realized and that the assessment of business and occupation tax was therefore improper.

It is well settled in this jurisdiction that the actual rights and duties established by the terms of taxpayers' transactions are controlling for purposes of the business and occupation tax statute. See, e.g., West Virginia Tractor & Equipment Co. v. Hardesty, --- W.Va. ---, 280 S.E.2d 270,...

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    ...as here, delivery becomes a question of law.”). This standard is consistent with our standard of review discussed in Part II of this opinion. 59.H.O. Anderson, Inc. v. Rose, 177 W.Va. 419, 352 S.E.2d 541, 548 (1986). See also Lakeview Gardens, Inc. v. Kansas, 221 Kan. 211, 557 P.2d 1286, 12......
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    ...and occupation tax is a tax on the privilege of doing business in West Virginia; it is not an income tax." H.O. Anderson, Inc. v. Rose, 177 W.Va. 419, 425, 352 S.E.2d 541, 547 (1986) (citing Syl. pt. 3, Bethlehem Mines Corp. v. Haden, 153 W.Va. 721, 172 S.E.2d 126 (1969)). Banks became subj......
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