McCarroll v. Ozarks Rural Electric Cooperative Corporation

• Decision Date: 11 November 1940
• Docket Number: 4-6223
• Citation: 146 S.W.2d 693,201 Ark. 329
• Parties: MCCARROLL, COMMISSIONER OF REVENUES v. OZARKS RURAL ELECTRIC COOPERATIVE CORPORATION
• Court: Arkansas Supreme Court

146 S.W.2d 693

201 Ark. 329

MCCARROLL, COMMISSIONER OF REVENUES v. OZARKS RURAL ELECTRIC COOPERATIVE CORPORATION

4-6223

Supreme Court of Arkansas

November 11, 1940

Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor reversed.

Decree reversed and cause remanded.

E. E McLees and Frank Pace, Jr., for appellant.

Maupin Cummings, John Sherrill and Howard Cockrill, for appellee.

OPINION

HOLT, J.

September 13, 1940, appellee, Ozarks Rural Electric Cooperative Corporation, filed petition for a restraining order in the Pulaski chancery court against appellant, Z. M. McCarroll Commissioner of Revenues for the state of Arkansas, in which it alleged that it is a corporation organized under the provisions of act 342 of 1937, for the purpose of acquiring electricity, and its distribution to its members only, in the rural sections of Washington, Benton and Madison counties.

It further alleged that appellant, by virtue of act 154 of 1937, had been collecting a two per cent. sales tax on appellee's total sales of electricity to its members; alleged the collection of such tax to be unlawful by virtue of § 30 of act 342, supra, which provides that corporations such as plaintiff should be exempt from the payment of any other excise tax upon the payment annually of $ 10 for each 100 members.

It is further alleged that appellee is a quasi-public corporation and, therefore, not liable for the sales tax in question, but that if the court should find the sales tax due upon the electricity sold by the corporation, such tax should be based upon the price of the electricity purchased by appellee (the cooperative) rather than upon the price of the electricity sold to its individual members.

There was a prayer that the Commissioner of Revenues be restrained from collecting the two per cent. sales tax on all electricity sold to its members and that appellant be ordered to refund the sum of $ 559.80, the amount of sales tax collected upon sales of electricity by the corporation to its members up to September 13, 1940.

A temporary restraining order was issued by the Pulaski chancery court on September 13, 1940. Thereafter on September 27, 1940, appellant (defendant below) demurred to appellee's petition on the grounds that the facts alleged therein were not sufficient to support the relief prayed. From the decree overruling appellant's demurrer and making the temporary restraining order permanent, comes this appeal.

We are confronted here with the application of act 154 of 1937, as amended [generally referred to as the Arkansas Retail Sales Tax Law], in respect of the sale of electricity by appellee to its individual members, and the right of the appellant to collect the two per cent. tax thereon.

There can be no question that the sale by retail of electricity to a consumer generally for his use is subject to this sales tax under § 4, of act 154 of 1937, which provides: "The tax imposed by this act shall apply to (d) All retail sales of electric power and light, natural and artificial gas, water, telephone use and messages and telegrams." (Section 14070, Pope's Digest.)

It is the contention of appellee here, however, that the sales which it makes to its individual members are exempt from this two per cent. sales tax by virtue of the provisions of § 30 of act 342 of 1937, which was the basic act creating rural electric cooperatives such as appellee. Section 30 provides: "Corporations formed hereunder shall pay annually, on or before July first, to the Secretary of State, a fee of $ 10 for each 100 members or fraction thereof, but shall be exempt from all other excise taxes of whatsoever kind or nature, except as provided in this act." (Section 2344, Pope's Digest.)

It seems clear that the purpose of this section is to exempt appellee (the cooperative) from paying excise taxes on all property and purchases made by it, but does it exempt its individual members, to whom it makes sales and who are subject to the provisions of the sales tax law, from the payment of the tax? Appellant's contention is that the sale of electricity by appellee to its individual members constitutes a retail sale within the meaning of the sales tax law, that these member-consumers are liable for the payment of the tax, and that appellee (cooperative) must collect these taxes from its members and remit the same to the Commissioner of Revenues.

Appellee contends that the distribution of electricity by it to its individual members constitutes no sale; that the title to the electric current does not change from the corporation to its individual members, that it simply amounts to an inter-corporation distribution of assets and does not amount to a sale within the meaning of the sales tax law, act 154 of 1937.

There is no claim made here that appellant has ever sought to collect any excise tax on any sale made to appellee of any material, or property, used by it in the procurement, transmission or distribution of electricity. The question for determination, then, is whether the disposition or distribution of electricity by appellee (cooperative) to its individual members constitutes a retail sale and subject to the two per cent. sales tax, whether such sale to its members is for profit or not.

It is a well established rule of law that a corporation is a separate and distinct entity, and must be considered as separate and distinct from its individual members, or share-holders. The textwriter in 14 Corpus Juris, 51, § 3,...