McCaw v. Fase

• Citation: 216 F.2d 700
• Decision Date: 31 January 1955
• Docket Number: No. 13920.,13920.
• Parties: J. Elroy McCAW and John D. Keating, Appellants, v. Earl W. FASE, The Tax Commissioner of the Territory of Hawaii, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

216 F.2d 700 (1954)

J. Elroy McCAW and John D. Keating, Appellants, v. Earl W. FASE, The Tax Commissioner of the Territory of Hawaii, Appellee.

No. 13920.

United States Court of Appeals, Ninth Circuit.

October 30, 1954.

Writ of Certiorari Denied January 31, 1955.

Kenneth Davis, Seattle, Wash., David N. Ingman, Honolulu, Hawaii, Justin Miller, Gen. Counsel, Pacific Palisades, for appellants.

Vincent T. Wasilewski, Atty., Washington, D. C., Edward N. Sylva, Atty. Gen., Rhoda V. Lewis, Deputy Atty. Gen., for appellee.

Before DENMAN and ORR, Circuit Judges, and YANKWICH, District Judge.

Writ of Certiorari Denied January 31, 1955. See 75 S.Ct. 340.

YANKWICH, District Judge.

Appellant J. Elroy McCaw is a citizen and resident of Centralia, Washington, and appellant John D. Keating a citizen and resident of Portland, Oregon. In 1946, they obtained a license for a limited term from the Federal Communications Commission to operate a radio station known as KPOA in Honolulu, Territory of Hawaii, under the terms of the Communications Act of 1934, as amended, 47 U.S.C.A. §§ 151-609. The station, a 5000 kilowatt station, commenced broadcasting on October 15, 1946.

On May 3, 1951, the appellants filed in Law in the Circuit Court, First Judicial Circuit, Territory of Hawaii, an amended complaint in a suit brought under Section 1575 of the Revised Laws of Hawaii, 1945, to recover the sum of $7,637.33 paid under protest on March 21, 1951. It is conceded that the suit was begun within the period of thirty days after the protested payment, as required by Section 1575.

The amended complaint alleged that the taxes paid under protest were assessed under Chapter 101 of the Revised Law of Hawaii, 1945, upon the gross receipts from radio broadcasting by station KPOA, Honolulu, owned and operated by the appellants, which it challenged as unconstitutional and invalid.

The appellants are a co-partnership registered as such under the laws of the Territory of Hawaii and doing business under the name of "Island Broadcasting Company."

On June 11, 1946, the partnership obtained a license under Section 5451 of Chapter 101 of the Revised Laws of Hawaii, 1945, known as the "general excise tax" or "gross income" tax law, and for the period beginning October 1, 1946, and ending November 30, 1947, the partnership returned for taxation its broadcasting income, and paid the tax on it. For December, 1947, and thereafter, while continuing to report income from broadcasting, the partnership claimed exemption of all such income upon the ground that it was derived from interstate commerce.

It is the appellants' contention in this litigation that all broadcasting is interstate commerce, that the Congress has preempted the subject matter of radio broadcasting to the exclusion of state and territorial legislation of every kind, including taxation, and that the assessments made by the Tax Commissioner were unconstitutional and invalid. The Tax Commissioner, in his answer, asserted, in substance, that the gross receipts assessed for taxation were derived from the transmission of KPOA broadcasts to the radio audience in the Territory of Hawaii, that KPOA does not reach an audience outside the Territory of Hawaii with effective and satisfactory service that is of commercial value in the sale of radio time, that sponsors purchasing radio time on KPOA do not do so with a view of reaching an audience outside the Territory of Hawaii, that where sponsors have occasion to reach an audience outside the Territory, a short-wave relay is employed, and that the Tax Commissioner excluded from the tax assessments all the receipts from the programs transmitted by short-wave relay. In a counterclaim, the additional sum of $14,595.98, in accrued taxes with interest was sought.

The cause was tried without a jury. Findings were entered on January 28, 1952, the court making twelve specific findings, of which the following are the most important:

"1. Insofar as places outside the Territory of Hawaii are concerned, KPOA\'s broadcasts on its standard band do not afford effective or satisfactory service that measures up to the standards for commercial coverage.

"2. Time buyers do not buy time on KPOA as a medium of communication to an out-of-the-territory audience.

"3. Where a KPOA broadcast is directed to an out-of-the-territory audience a short wave relay is used, as in the case of the program `Hawaii Calls\'.

"4. The tax has not been assessed on any receipts from broadcasts carried out of the Territory by short wave relay or brought into the Territory by short wave relay.

"8. A large number of KPOA time buyers have no desire or occasion to reach any audience outside the Territory, even if effective and satisfactory service were offered.

"9. The radio audience outside the Territory of Hawaii is not a factor in the selling or buying of radio time on station KPOA, where no short wave relay is employed.

"11. The territorial tax law has been and is properly interpreted and applied by the Tax Commissioner and the tax law and assessments made thereunder are valid."

On the basis of these findings, the Court concluded that the plaintiff was not entitled to recover the taxes paid and gave judgment to the Tax Commissioner on his counter-claim.

Torkel Westley, who was the Tax Commissioner before the case arose, has been replaced in office by Earl W. Fase. On writ of error to the Supreme Court of the Territory of Hawaii, the judgment was affirmed in McCaw v. Fase, 40 Haw. 121, the Court holding that the findings are sustained by the evidence and that the tax did not have any of the constitutional infirmities urged by the appellants. The Supreme Court held that the trial court had found

"from the evidence — as we do likewise — that assessment of the Territory\'s gross income tax involved was restricted to receipts of KPOA from the latter\'s local business, to wit, that which had commercial value only within and not without the Territory of Hawaii." McCaw v. Fase, supra, 40 Haw. at page 172.

The Supreme Court also concurred in the finding of the trial court that the radio broadcasting, by KPOA on its standard wave, was

"for other than control and regulation, such as had commercial significance and value only within the Territory of Hawaii, or `intrastate\'." 40 Haw. at page 172.

This is a direct appeal from the decision. 28 U.S.C. § 1293.

While the appellants have challenged the findings in many respects, they have not brought up any of the evidence. In the circumstances, the presumption of correctness of the findings under Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C., applies with great strictness. Rickard v. Thompson, 9 Cir., 1934, 72 F.2d 807, 809; United States v. Van Dusen, 8 Cir., 1935, 78 F.2d 121, 122; Gallagher's Steakhouse v. Bowles, 2 Cir., 1944, 142 F.2d 530, 531. However, in reality, the appellants are contending that it appears from the pleadings themselves that the tax to which they are subject is a burden on interstate commerce and not within the power of the Territory of Hawaii to exact. The statute involved is one imposing a tax upon sales, services and, in general, all types of business in the Territory measured by gross receipts. The portion material to this cause reads:

"Sec. 5455. Imposition of tax. There is hereby levied and shall be assessed and collected annually privilege taxes against the persons on account of their business and other activities in this Territory measured by the application of rates against values, gross proceeds of sales or gross income, as the case may be, as follows:

* * * * * *

"D. Tax upon theaters, amusements, radio broadcasting stations, etc. Upon every person engaging or continuing within this Territory in the business of operating a theater, opera house, moving picture show, vaudeville, amusement park, dance hall, skating rink, radio broadcasting station or any other place at which amusements are offered to the public, the tax shall be equal to two and one-half per cent of the gross income of the business." Revised Laws of Hawaii, 1945, Chapter 101, § 5455, as amended by Laws Hawaii 1947, c. 111, § 9.

It cannot be disputed that the legislature of Hawaii may levy an excise tax. Brodhead v. Brothwick, 9 Cir., 1949, 174 F.2d 21. The question to determine is whether the tax burdens interstate commerce. The control of the Congress over interstate commerce is absolute. U. S. Constitution, Art. I, § 8, Cl. 3. So any direct interference with it by any State must give way. The Supreme Court has summed up the primacy of this power in the sentence:

"This power over commerce when it exists is complete and perfect." United States v. Rock Royal Co-op., Inc., 1939, 307 U.S. 533, 569, 59 S.Ct. 993, 1011, 83 L.Ed. 1446.

But the same court has stated that

"* * * it was not the purpose of the commerce clause to relieve those engaged in interstate commerce of their just share of state tax burdens, merely because an incidental or consequential effect of the tax is an increase in the cost of doing the business, Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S.Ct. 546, 548, 82 L.Ed. 823. Not all state taxation is to be condemned because, in some manner, it has an effect upon commerce between the states and there are many forms of tax whose burdens, when distributed through the play of economic forces, affect interstate commerce, which nevertheless fall short of the regulation of the commerce which the Constitution leaves to Congress. A tax may be levied on net income wholly derived from interstate commerce. Nondiscriminatory taxation of the instrumentalities of interstate commerce is not prohibited. The like taxation of property, shipped interstate, before its movement begins, or after it ends, is not a forbidden regulation. An excise for the warehousing of merchandise preparatory to its interstate shipment or upon its use, or withdrawal for use, by the consignee after the interstate journey has ended is not

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