Matson Nav. Co. v. State Bd. of Equalization

• Decision Date: 27 October 1955
• Citation: 289 P.2d 73,136 Cal.App.2d 577
• Court: California Court of Appeals Court of Appeals
• Parties: MATSON NAVIGATION COMPANY, a corporation, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant. Civ. 8556.

Page 73

289 P.2d 73

136 Cal.App.2d 577

MATSON NAVIGATION COMPANY, a corporation, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant.

Civ. 8556.

District Court of Appeal, Third District, California.

Oct. 27, 1955.

Hearing Denied Dec. 21, 1955.

Edmund G. Brown, Atty. Gen., James E. Sabine and Irving H. Perluss, Asst. Atty. Gen., Charles J. Miller, Deputy Atty. Gen., for appellant.

Brobeck, Phleger & Harrison, San Francisco, for respondent.

FINLEY, Justice pro tem.

This appeal is from a portion of a judgment of the Superior Court in favor of plaintiff and respondent Matson Navigation Company, a corporation, and against the State Board of Equalization of the State of California, defendant and appellant. The action was brought to recover taxes alleged to have been improperly assessed under the Sales and Use Tax Law. Section 6001 et seq., Revenue and Taxation Code.

The principal question for decision is whether the sale by plaintiff, a California corporation, of the S.S. Matsonia, an ocean-going passenger vessel docked in a California port, to a foreign purchaser was a transaction exempt from sales tax by virtue of the import-export clause contained in Article I, Section 10, Clause 2, of the Constitution of the United States. Plaintiff also contends that the sale of the S.S. Matsonia was an 'occasional sale' exempt under the provisions of sections 6006.5 and 6367 of the Revenue and Taxation Code.

Plaintiff has been for many years a carrier of freight and passengers, principally between California and Hawaii, and in 1948 owned a large fleet of freighters and two passenger liners, the Lurline and Matsonia. The sale in 1948 of the Matsonia is the source of this dispute. At that time the vessel was about 21 years old, had been used by the government for five years during the war, and, when returned, was badly deteriorated and in need of extensive repair. Plaintiff decided to restore the Lurline and determined that the economically useful life to the Matsonia had ended because of inroads of air transportation upon surface travel and the large amount of restoration and repair needed.

The Matsonia was offered for sale to domestic operators, but there were none interested. It was then offered to foreign buyers. In January, 1948, negotiations were entered into with Panamanian Lines, Inc., a corporation organized under Republic of Panama laws, which was wholly owned by non-resident aliens and which has never done business in California. Both parties intended at and prior to the sale of the Matsonia that it should be registered as a foreign vessel upon such sale and taken from the United States to Italy. These dealings resulted in a contract of sale between plaintiff and Panamanian on July 13, 1948, following which, on July 15th, plaintiff applied to the United States Maritime Commission for approval of such sale. Approval was granted on September 24, 1948. Title 46, U.S.Code, § 808, 46 U.S.C.A. § 808, made mandatory the approval by the Maritime Commission of any such sale to foreign owners or a transfer to foreign registry.

Delay by the Commission in approving the flag transfer, and the 1948 San Francisco waterfront strike resulted in extension of the time for delivery. On December 15, 1948, title was transferred by a bill of sale delivered in New Jersey, and at the same time and place the consideration passed. On the same day, physical possession of the vessel was given to Panamanian in San Francisco, and the vessel was registered as a Panamanian vessel with the San Francisco Panamanian Consul. On December 16, 1948, plaintiff filed with the Collector of Customs a declaration of the Matsonia as an export, as required by federal law and regulations, i. e., Title 15, U.S.Code, § 173, 15 U.S.C.A. § 173, and Title 15, Chapter 1, Part 30, Sec. 30.30(d)(2) Code of Federal Regulations. On the same day her American Certificate of Enrollment was surrendered to the Collector of Customs. Federal law required prompt surrender of American registration, Title 46, U.S.Code, § 23, 46 U.S.C.A. § 23, under penalty of forfeiture of the vessel, Title 46, U.S.Code, § 41, 46 U.S.C.A. § 41. Upon sale to foreign owners, the Matsonia was legally disabled from ever thereafter engaging in domestic trade. Title 46, U.S.Code, § 883, 46 U.S.C.A. § 883.

On December 22, 1948, Panamanian signed on a foreign crew and the Matsonia sailed for Italy with neither cargo nor passengers. Since being repaired and outfitted in Genoa, Italy, the Matsonia has not returned to California, but has been used in trans-Atlantic trade.

Plaintiff is engaged in the transportation business and is not a ship merchant. The Matsonia was acquired for the transportation business and was sold when her useful life and ended. From 1942 through 1945, plaintiff sold no vessels. From 1946 to the time of trial in 1953 plaintiff sold 14 freighters and one barge in addition to the Matsonia, for a total price of $3,721,325. These sales were made within the period from April, 1946, to May, 1949. Each of the ships sold was about 20 years of age and some were substantially older. All had been used in the war and suffered considerable depreciation incident thereto, and therefore were disposed of as soon after war service as they could be replaced by newer equipment. Plaintiff generally considered the normal useful life of such ships to be twenty years, and at the time of their acquisition contemplated they would be resold at the end of such useful life unless sooner scrapped or lost at sea. Of vessels other than the above referred to acquired during the 1920's, three were sold for scrap and three were lost at sea for reasons other than war service. All of these ships were acquired for use in plaintiff's operations and not for resale.

Although it was not so specifically found, the record supports an inference that the reason for this apparently large number of sales in a three-year period was that the normal process of replacement of obsolete and worn-out equipment was interrupted by the extraordinary demands of wartime service resulting in an abnormal accumulation.

During the entire period under consideration, the Matsonia was berthed at Pier 34, San Francisco, and plaintiff held no State Sales Tax permit for that location, although it did hold several other such permits for other locations for purposes of retail sales of such things as tobacco, candy, liquor and vessels' stores, and for scrap sales at Wilmington, California.

The issues before us may be summarized as follows: (1) Is a large cammercial transocean passenger steamship of American registry such an object as can in legal contemplation be considered or treated as an article of export; (2) If it can be, is it to be so considered and treated where it is sold to a foreign purchaser for use in international trade; (3) If it can be and is sold as an export to a foreign purchaser for such use at what point does the transaction come under the protective mantle of the export clause of the United States Constitution; and, (4) If under the factual situation of this case the sale is not one to be considered as a sale into export trade and therefore not exempt from the provisions of the California Sales Tax Act is it nevertheless to be considered as an occasional sale and exempt from levy of the sales tax for that reason.

It is quite apparent that if question No. 1 above is to be answered in the negative, questions (2) and (3) become moot. Appellants contend that it must be so answered, but neither their authorities nor their logic seem convincing. The United States Constitution is silent on the subject and the legal authorities cited do not support appellant's position. No cogent reason has been advanced why an article of conveyance once having been used as a common carrier is thereby or thereafter to be quarantined as an article of commerce of foreign export. Appellant makes this observation: 'It is the difference between an article of commerce and an instrumentality of commerce.' This comment directs attention to a distinction rather than a difference, a distinction which has not, so far as we can see, the slightest legal significance. It must be remembered that, generally speaking, each and every piece of equipment in the world's transporation system was an article of commerce between the time the manufacturer relinquished title and the operator acquired it. We cannot see how or why the legal character of such an article could or should be changed by the mere circumstances of its use for a time as an 'instrumentality of commerce.' Appellant seeks to inject here the question of consumability, arguing that the ordinary articles of commerce exported to foreign countries are consumed there and that the possibility is at least remote that they would ever again be returned in the course of commerce to the country of origin. This argument seems without merit for certainly there is no legal prohibition against the export of impershable articles of utility which might conceivably find their way back into domestic use. It is customarily presumed, it is true, that in the ordinary course of events they will not and it is further true perhaps that they do not. Appellant refers to A. G. Spalding & Brothers v. Edwards, 262 U.S. 66, 43 S.Ct. 485, 67 L.Ed. 865; and to Richfield Oil Corporation v. State Board of Equalization, 329 U.S. 69, 67 S.Ct. 156, 91 L.Ed. 80, and cites baseball bats and oil as examples of consumable goods. Certainly the possibility that oil once sold as an export will ever again reenter the field of domestic commerce is much more remote than in the case of the baseball bats referred to in the Spalding case. But it seems to us that in either case, remote though the possibility...