Hansen Baking Co. v. City of Seattle, 33419

• Decision Date: 26 April 1956
• Docket Number: No. 33419,33419
• Citation: 296 P.2d 670,48 Wn.2d 737
• Parties: HANSEN BAKING CO., Inc., a corporation, Respondent, v. CITY OF SEATTLE and W. C. Thomas, Comptroller of the City of Seattle, Appellants.
• Court: Washington Supreme Court

Page 737

48 Wn.2d 737

296 P.2d 670

HANSEN BAKING CO., Inc., a corporation, Respondent, v. CITY OF SEATTLE and W. C. Thomas, Comptroller of the City of Seattle, Appellants.

No. 33419.

Supreme Court of Washington, Department 2.

April 26, 1956.

A. C. Van Soelen, C. V. Hoard, Seattle, for appellants.

F. A. LeSourd, Griffith Way, Brockman Adams, Little, LeSourd, Palmer, Scott & Slemmons, Seattle, for respondent.

HAMLEY, Chief Justice.

In this action, Hansen Baking Co., Inc., seeks a refund of excise taxes, penalties, and interest paid to the city of Seattle as a result of a delinquency assessment. Judgment was entered for plaintiff. Defendants appeal.

The pertinent facts are not in dispute. Respondent is engaged in the business of manufacturing bread within the city of Seattle, and selling this product both within and without the city. The manufacturing operation ends when the bread is placed on the loading dock of respondent's plant in Seattle. Some of the bread is then sold, at the loading dock, to independent commission men, who, in turn, sell at wholesale to their own customers. Commission men who distribute such products outside the city purchase the bread at seventy-two and one half per cent of the wholesale price.

Some of the bread, however, is transported from the plant in respondent's trucks, or by common carrier, and sold at wholesale by respondent within or without the city. The question before us pertains to the computation of the city's business and occupation tax on that part of respondent's activity which consists of the manufacture of bread which is thereafter transported out of the city, by or for respondent, without prior sale.

The taxing ordinance (Seattle Ordinance No. 72630), which was enacted in 1943, contains these provisions:

'Section 3. On and after the first day of July, 1943, * * * there is hereby levied upon, and shall be collected from * * * every person on account and for the privilege of engaging in business activities, a license fee or occupation tax, sometimes herein referred to as the 'tax,' in amounts to be determined by application of rates given against value of products, gross proceeds of sale, or gross income of business, as the case may be. * * *

'(b) Upon every person engaging within this city in business as a manufacturer; as to such persons the amount of tax with respect to such business shall be equal to the value of the products manufactured, multiplied by the rate of one-tenth of one percent;

'The measure of the tax is the value of the products so manufactured, regardless of the place of sale, or the fact that the deliveries may be made to points outside the city.

'Section 5. Determination of Values: The value of products extracted or manufactured shall be determined by the gross proceeds derived from the sale thereof, whether such sale is at wholesale or at retail, except:

'(a) Where such products are extracted or manufactured for commercial use;

'(b) Where such products are shipped, transported or transferred out of the city, or to another person, without prior sale or are sold under circumstances such that the gross proceeds from the sale are not indicative of the true value of the subject-matter of the sale.

'In the above cases the value shall correspond as nearly as possible to the gross proceeds from sales in this city of similar products of like quality and character, and in similar quantities by other taxpayers. The Comptroller shall prescribe uniform and equitable rules for the purpose of ascertaining such values.'

On September 24, 1943, the comptroller of the city of Seattle sent a letter to the Seattle Bakers' Bureau, reading in part as follows:

'Referring to conference in the City Comptroller's office with representatives of the baking industry, on September 10, 1943, regarding value of products manufactured in Seattle but shipped out to surrounding cities for sale:

'It will be acceptable to this office to use the same method of arriving at the value of such products as has been set up by the state in arriving at value of products shipped out of the state, which we understand to be either cost, or not less than 70% of the usual selling price.'

Respondent considered this letter, which has never been rescinded, as an administrative ruling. In computing the tax due on its activity of manufacturing bread which thereafter sold at wholesale outside the city, respondent accordingly measured the value of such products by the cost of manufacture. This course was followed by respondent during the tax years in question, 1948 through 1952. The cost of manufacture, or 'cost to door,' as it is referred to in the record, approximates sixty-five to sixty-seven per cent of the wholesale price in Seattle.

In 1953, a city tax accountant commenced an audit of respondent's business tax returns. This was the first time that the books of any firm engaged in this kind of a baking and wholesaling operation had been audited since the tax became effective ten years before.

As a result of this audit, the city, on March 3, 1953, assessed a deficiency for the years 1948 through 1952. The basis of this assessment was that the value of the products so manufactured and sold should have been measured not by the cost of manufacture, but by the gross proceeds realized from selling the bread at wholesale outside the city. The city used this measure of value, rather than the gross proceeds 'from sales in this city,' as specified in the ordinance, because it found the wholesale price of bread within and without the city to be identical.

Respondent paid the deficiency tax with penalties and interest in the sum of $935.36, and then brought this action for a refund. As before indicated, the trial court entered judgment for respondent baking company.

The judgment for respondent is predicated upon a finding of fact that the city comptroller's letter of September 24, 1943, constituted a ruling that, with respect to the activity in question, it would be acceptable to use either cost or not less than seventy per cent of the usual selling price.

Appellants question this finding of fact. They call attention to the fact that the second paragraph of that letter states that it would be acceptable to use the same method of arriving at the value of such products 'as has been set up by the state' in arriving at value of products shipped out of the state. It is argued that the value used by the state was 'the gross proceeds from sales in the state of similar products of like quality and character.' Hence, it is contended that the city comptroller's letter authorized only that method of measuring value.

Had the paragraph in question closed with the reference to the 'same method' as had been set up by the state, the purport of the ruling would depend upon ascertainment of the state method. And if it was then established, as appellants assert, that the state method did not permit measurement of value by cost, the finding of fact that the ruling permitted cost measurement would be clearly wrong.

This paragraph of the September 24, 1943, letter, however, did not close with a general reference to the state method. It continued: '* * * which we understand to be either cost, or not less than 70% of the usual selling price.'

In our view, the words last quoted relieved affected taxpayers of the necessity of ascertaining the actual state method. They were told, in effect, that the city had ascertained the state method, and that it permitted cost valuation. Taxpayers would reasonably understand from this statement, and respondent did so understand, that it was permissible to use the cost method.

We therefore sustain the finding...