Jewel Tea Co. v. State Tax Comm'r

CourtUnited States State Supreme Court of North Dakota
Citation293 N.W. 386,70 N.D. 229
Docket NumberNo. 6666.,6666.
Decision Date30 July 1940


Syllabus by the Court.

1. Taxation is neither a penalty imposed on the taxpayer, nor a liability which he assumes by contract. It is an apportionment of the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens.

2. Chapter 249 of the Session Laws of 1937, known as the “Sales Tax Act, imposes the tax upon the consumer in this state, and not upon the retailer, even though the retailer is required to add the tax, or its average equivalent, to the sales price or charge, and to collect the same and remit the tax to the tax commissioner.

3. Such law is applicable to sales made by a foreign retailer doing business in this state. It does not impose an unconstitutional burden on interstate commerce, nor is the tax levied a tax upon interstate commerce.

4. Where such retailer, for a period of two and one-half years, filed with the tax commissioner the quarterly reports required by the Sales Tax Act, showing the gross sales of the retailer in this state during such quarter, and at the same time, in good faith, claimed the statutory exemption permitted on “gross receipts from sales of tangible personal property which this State is prohibited from taxing under the Constitution or laws of the United States”, and for that reason failed to collect and remit any sales tax, the fact that the tax commissioner took no issue with the retailer on his claim of exemption and without objection permitted the filing of the subsequent quarterly statements under the same circumstances, justified the retailer in believing the tax commissioner had acquiesced in the claim of exemption; and when, at the end of that period, the tax commissioner disallowed the claim of exemption and so notified the retailer, the statutory penalty for non-payment of the tax prior to the time of disallowance of the claim should not be inflicted.

Appeal from District Court, Burleigh County; Fred Jansonius, Judge.

Proceeding by the Jewel Tea Company, Incorporated, before the State Tax Commissioner of the State of North Dakota to determine the plaintiff's claim of exemption from taxation under the Sales Tax Act. The commissioner decided that the plaintiff was liable for the tax with penalty, and the plaintiff appealed to the district court. From a judgment of the district court against it, the plaintiff appeals.

Judgment modified, and, as modified, affirmed.

O'Hare, Cox & Cox, of Bismarck, for appellant.

Alvin C. Strutz, Atty. Gen., and C. E. Brace, Asst. Atty. Gen., for respondent.

BURR, Judge.

This controversy involves construction of Chapter 249, Session Laws of 1937, known as the “Sales Tax Act.”

Sec. 2 of the Act imposes a tax of two per cent upon the gross receipts from all sales of tangible personal property, except as exempted, sold at retail in this state to consumers or users. Sec. 6 requires the retailer to add the tax, or its average equivalent, to the sales price or charge, and when added, such tax constitutes a part of the price or charge. Sec. 10, Subdiv. (2), provides that “Every retailer, at the time of making the return required hereunder, shall compute and pay to the Commissioner the tax due for the preceding period.”

Such act imposes a tax upon a “Retail Sale”, or a “Sale at Retail”; and these terms are defined by Sec. 1, Subdiv. (c) of the act as being sales “to a consumer * * * for any purpose, other than for processing or for resale * * *.”

No merchandise involved here was sold for “processing” or resale.

Subdivision (e) of the same section defines a “Retailer” as a “person engaged in the business of selling tangible goods, wares, or merchandise at retail”. The provisions of Chapter 249 do not apply to “The gross receipts from sales of tangible personal property which this State is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this State.” Subdiv. (a), Sec. 3.

Under the provisions of Subdiv. (1) of Sec. 11 of the Act, “It shall be unlawful for any person to engage in * * * business as a retailer * * * unless a permit * * * shall have been issued to him * * *. Every person desiring to engage in * * * business as a retailer * * * shall file with the Commissioner an application for a permit * * *.”

The plaintiff applied to the Commissioner for such a permit, and it was issued as prescribed by Subdiv. (3) of this section.

It is the duty of the retailer to “make out a return for the preceding quarterly period in such form and manner as may be prescribed by the Commissioner, showing the gross receipts of the retailer, the amount of the tax for the period covered by such return, and such further information as the Commissioner may require to enable him correctly to compute and collect the tax herein levied; * * *.” Subdiv. (1), Sec. 9 of the Act.

The plaintiff made and filed eleven quarterly statements, covering the period from June 30, 1935, to December 31, 1937; but remitted no tax, claiming the property sold was exempt on the ground stated in Sec. 3, Subdiv. (a).

On April 8, 1938, for the first time, the sales tax division sent to the plaintiff notices of assessment for quarters, beginning with the quarter ending June 30, 1935, and down to and including the quarter ending December 31, 1937, the total assessment being $5,105.42; and required the plaintiff to remit “plus penalty prescribed by law.”

The plaintiff immediately applied for a hearing before the Commissioner to determine the claim of exemption because of interstate commerce. On May 26, 1938, the Commissioner decided the plaintiff was liable for this tax with penalty. The plaintiff appealed to the district court, and on September 21, 1939, judgment was entered against the plaintiff in the sum of $5,105.42, together with statutory penalties amounting to $1,702.36. From this judgment, and the whole thereof, the plaintiff has appealed.

Plaintiff urges two main propositions: First, that the business transacted in this state was interstate commerce, the imposition of the sales tax is a tax on interstate commerce, contravening Article I, Sec. 8, Subdiv. 3 of the Constitution of the United States, and therefore the exemption cited is applicable. Second, as a subsidiary proposition, plaintiff urges that even if it be held liable for the sales tax, it is not liable for the penalty imposed under the facts in this case.

There is no dispute as to the facts. The Jewel Tea Company, a foreign corporation, is engaged in selling various food products direct to the consumer. The company has a branch office at Moorhead, Minnesota, having North Dakota and a strip in Minnesota as its district. This branch is under the supervision of a manager living in Moorhead. There are eight employees living in North Dakota, known as “route managers”. It is the duty of each to solicit orders from consumers in North Dakota, in the particular portion of the state allotted to him. “After he has assembled the summary of merchandise he needs he sends an order to the Moorhead branch”. The order is filled there, and the merchandise is shipped in one case to the route manager at his place of business.

The branch house does not know who the customers are, how many there are, or where they are. It sends its route manager the number of pound packages, or five-pound packages, or ten-pound packages he has ordered, and these reach him at his home in one consignment.

As one of the route managers describes the method employed: the merchandise from Moorhead was addressed to the Jewel Tea Company, it arrived at the depot, the drayman signed the receipt and hauled the case to the home of the route manager, the route manager opened the case, put all the packages of merchandise on the shelf, took enough packages to fill each order he had received, delivered these as one package to the consumer in accordance with the consumer's order, and the consumer paid for the goods on delivery.

No merchandise is delivered unless previously ordered. In case a delivery is not made, the goods are held over at times until the next delivery, and in that case, the route manager takes these goods and delivers them to another customer who has ordered a similar quantity. Generally they are returned to Moorhead. This route manager testifying, stated his storeroom is in the basement of his house, and it is there he opens the original packages that come to him from the company.

The extent of the business transacted by the company is admitted. The accuracy of the calculations is not disputed.

It is significant that the plaintiff applied to the Tax Commissioner for a permit to do a retail business in this state. Of course, this fact alone is not controlling, but it may show how the plaintiff regarded its business, even if it be argued that it was done in excess of caution.

Much of the plaintiff's brief is devoted to a consideration of the propositions: that the statute contemplates a sales tax, not a use tax; that the business originates as interstate commerce; that this state may not tax interstate commerce; that the decisions of the United States Supreme Court are final as to what constitutes interstate commerce; and several subdivisions of these propositions. There is no real controversy over these; but their application to commercial transactions may vary.

[1][2] Merchandise may have an interstate commerce flavor, and yet a sales tax on the goods be valid. Plaintiff's claim for exemption is based on the theory that the tax is imposed on the plaintiff. What the plaintiff is required to do is to collect the tax and remit. It has employees in the state whose duty it is to collect the price of the goods delivered. The state requires them to assist in collecting revenue. It will be noted that our statute imposes the tax upon the goods sold, to be collected with the payment of the purchase price, and this...

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