National Geographic Society v. State Bd. of Equalization

• Decision Date: 01 April 1976
• Docket Number: S.F. 23295
• Citation: 128 Cal.Rptr. 682,547 P.2d 458,16 Cal.3d 637
• Court: California Supreme Court
• Parties: , 547 P.2d 458 NATIONAL GEOGRAPHIC SOCIETY, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

Page 682

128 Cal.Rptr. 682

16 Cal.3d 637, 547 P.2d 458

NATIONAL GEOGRAPHIC SOCIETY, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

S.F. 23295.

Supreme Court of California In Bank.

April 1, 1976.

Evelle J. Younger, Atty. Gen., Ernest P. Goodman, Asst. Atty. Gen., and Philip M. Plant, Deputy Atty. Gen., for defendant and appellant.

Hanson, O'Brien, Birney, Stickle & Butler, Arthur B. Hanson, Washington, D.C. Broad, Khourie & Schulz and Michael N. Khourie, San Francisco, for plaintiff and respondent.

SULLIVAN, Justice.

Defendant Board of Equalization of the State of California (Board) appeals from a judgment entered in favor of plaintiff National Geographic Society (Society) ordering that defendant refund certain use taxes to plaintiff. Essentially our task is to decide whether the activities of the Society in California constitute a sufficient nexus between this state and the Society so as to justify against constitutional attack the imposition of a use tax collection liability in respect to certain merchandise purchased by California residents by mail orders to the Society's out-of-state offices.

The case was tried by the court, sitting without a jury, and upon a written stipulation of facts. In words and substance the pertinent facts are as follows. The Society is a nonprofit scientific and educational organization incorporated in 1888 under the laws of the District of Columbia with its administrative offices located in Washington, D.C. It is exempted from the payment of federal income taxes. ¹ The stated objective of the Society is 'the increase and diffusion of geographic knowledge.' It supports exploration and research projects dedicated to increasing man's knowledge of the earth, sea, sky and universe. The scientific and educational information obtained is made available to the members and subscribers through the National Geographic Magazine (hereinafter the 'Magazine') and offerings of maps, atlases, globes, books, school bulletins, television programs and research reports.

The Magazine, the official journal of the Society, is furnished only to members of the Society except for subscribing schools, libaries, book dealers and corporations. ² Membership is open to all persons; the majority of members join in order to obtain the Magazine. They pay $7.50 a year for membership for which they receive one year's subscription to the Magazine. ³ As of June 1972 there were approximately 872,000 member subscriptions and 21,000 nonmember subscriptions California. The Magazine is exempted from California sales and use taxes as a 'periodical' under Revenue and Taxation Code section 6362. ⁴

The Society advertised offerings of maps, atlases, globes and books in the Magazine and by announcements mailed to members and subscribers during all periods relevant hereto. To take advantage of these offerings, an order form enclosed with the mail announcements or an order coupon in the Magazine is removed, completed and mailed to the administrative offices of the Society in Washington, D.C. Deliveries of such publications are made through the mail either directly from the Society's Washington and/or Maryland offices. Payment for the merchandise ordered is either cash with order or by a mailed billing following the purchaser's receipt of the merchandise. Finally, a small volume of merchandise is sold directly over the counter in the Washington, D.C. offices. Although these offerings of maps, atlases, globes and books are made only in the Magazine and in mail announcements, anyone who removes an order coupon from the Magazine may order and receive such merchandise.

Since 1956, the Society has maintained two offices in California--one in San Francisco and one in Los Angeles. During the tax periods in controversy, there were two employees in each office; later, there were four in each office. During the period from August 1, 1963, through May 6, 1964, these two offices sold maps, atlases, globes and books, of the type described above as mail order merchandise over the counter to any individual requesting them. ⁵ At all other times, these offices made no sales and confined their activities to the solicitation of advertising for the Magazine.

During the period from April 1, 1964, to September 30, 1964, the Society made sales of maps, atlases, globes and books to California residents in the sum of $85,596.48 through mail orders. The Board notified the Society that it was obligated, under section 6203, to collect the use taxes on this merchandise and that since it had not done so, it was liable for an equivalent amount under section 6204. The Society paid the assessment for the above two quarters of 1964 under protest and brought this action for a refund. The total state and local use tax collection liability with interest and penalties was the sum of $3,838.76. ⁶

The use tax is a natural companion to the sales tax since it is complementary to the latter. (Miller Bros. Co. v. Maryland (1954) 347 U.S. 340, 343, 74 S.Ct. 535, 98 L.Ed. 744; Nelson v. Sears, Roebuck & Co. (1940) 312 U.S. 359, 361, 61 S.Ct. 586, 85 L.Ed. 888; Chicago Bridge & Iron Co. v. Johnson (1941) 19 Cal.2d 162, 165--166, 119 P.2d 945, quoting from Southern Pacific Company v. Gallagher (1938) 306 U.S. 167, 171, 59 S.Ct. 389, 83 L.ed. 586.) 'The use tax . . . usually appears as a support to the sales tax in two respects. One is protection of the state's revenues by taking away from inhabitants the advantages of resort to untaxed out-of-state purchases. The other is protection of local merchants against out-of-state competition from those who may be enabled by lower tax burdens to offer lower prices.' (Miller Bros. Co. v. Maryland, supra, 347 U.S. at p. 343, 74 S.Ct. at p. 538.) It is well settled that a state may constitutionally impose directly upon resident purchasers a tax for the privilege of using goods within the state. 'The validity of such a tax, so far as the purchaser is concerned, 'has been withdrawn from the arena of debate.' . . .' (Nelson v. Sears, Roebuck & Co., supra, 312 U.S. 359, 363, 61 S.Ct. 586, 588, 85 L.Ed. 888.) The constitutionality of California's exaction of the tax has been clearly upheld. (Union Oil Co. v. State Bd. of Equal. (1963) 60 Cal.2d 441, 457--459, 34 Cal.Rptr. 872, 386 P.2d 496, appeal dismissed 377 U.S. 404, 84 S.Ct. 1629, 12 L.Ed.2d 495.)

However, the collection of the use tax directly from each resident purchaser has presented a difficult, if not insuperable, administrative problem for the taxing state. As a consequence, many states have sought to impose upon an out-of-state seller liability to collect a local use tax (see Nat. Bellas Hess v. Dept. of Revenue (1966) 386 U.S. 753, 757, 87 S.Ct. 1389, 18 L.Ed.2d 505). California has met the problem in the same way. The use tax in this state is an excise tax 'on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer . . . for storage, use, or other consumption in this state . . ..' (§ 6201.) 'Every person storing, using, or otherwise consuming in this State tangible personal property purchased from a retailer is liable for the tax. His liability is not extinguished until the tax has been paid to this State . . ..' (§ 6202.) Section 6203 requires 'every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state' to collect the tax from the purchaser. A 'retailer engaged in business in this state' is defined in section 6203 and includes '(a) ny retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business.' Section 6204 provides that the tax required to be collected by the retailer constitutes a debt owed by the retailer to the state.

It is the position of the Board that since the Society maintains an 'office' or 'other place of business' within California--namely its two offices from which it solicits advertising for the Magazine--it falls within section 6203 and has the duty of collecting use taxes on goods sold through mail orders to California residents. It is the position of the Society, on the other hand, that the imposition of a use tax collection liability under such circumstances is in violation of the due process clause of the Fourteenth Amendment to, and of the commerce clause (art. I, § 8, cl. 3) of, the United States Constitution.

The criteria for determining the validity of such liability in the light of the above two-pronged constitutional attack were set forth in Nat. Bellas Hess v. Dept. of Revenue, supra, 386 U.S. 753, 756--757, 87 S.Ct. 1389, 1391, 18 L.Ed.2d 505: 'These two claims are closely related. For the test whether a particular state exaction is such as to invade the exclusive authority of Congress to regulate trade between the States, and the test for a State's compliance with the requirements of due process in this area are similar. See Central R. Co. v. Pennsylvania, 370 U.S. 607, 621--622, 82 S.Ct. 1297, 1306--1307, 8 L.Ed.2d 720 (concurring opinion of MR. JUSTICE BLACK). As to the former, the Court has held that 'State taxation falling on interstate commerce . . . can only be justified as designed to make such commerce bear a fair share of the cost of the local government whose protection it enjoys.' Freeman v. Hewit, 329 U.S. 249, 253, 67 S.Ct. 274, 277, 91 L.Ed. 265. See also Central Greyhound Lines v. Mealey, 334 U.S. 653, 663, 68 S.Ct. 1260, 1266, 92 L.Ed. 1633; Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 462, 79 S.Ct. 357, 364, 3 L.Ed.2d 421. And in determining whether a state tax falls within the confines of the Due Process Clause, the Court has said that the 'simple but controlling question is whether the State...