O'Neil v. Martin

• Citation: 182 P.2d 939,66 Ariz. 78
• Decision Date: 23 June 1947
• Docket Number: 4887
• Parties: O'NEIL et al. v. MARTIN
• Court: Arizona Supreme Court

182 P.2d 939

66 Ariz. 78

O'NEIL et al. v. MARTIN

No. 4887

Supreme Court of Arizona

June 23, 1947

Appeal from Superior Court, Maricopa County; Dudley W. Windes Judge.

Reversed with directions to dismiss the complaint.

John L Sullivan, Atty. Gen., and John W. Rood and Burr Sutter, Asst Attys. Gen., for appellants.

Stephen W. Langmade, of Phoenix, for appellee and cross-appellant.

Charles L. Strouss, of Phoenix, for cross-appellees.

Udall, Justice. Stanford, C. J., and La Prade, J., concur.

OPINION

Udall, Justice.

On July 23, 1945, C. M. Martin, the appellee, brought the instant suit in the Superior Court of Maricopa County against D. C. O'Neil, Warren Peterson, and Joe Hunt as members of the State Tax Commission and individually, in which he was successful in recovering judgment against the Commission for $ 3,011.17, being the amount of an additional sales tax levy he had paid to the Commission under protest.

Inasmuch as two previous court decisions in suits involving Martin and the Commission are inextricably linked with the instant suit it becomes necessary to delineate the history of this prior litigation. In these matters, present as well as past, the difficulties have arisen from the definition and the implications therein of the realtionship existing between Martin and the United Producers & Consumers Co-operative.

The modus operandi of dealings between Martin and the Co-op is detailed in State Tax Comm. of Arizona v. Martin (May 20, 1941), 57 Ariz. 283, 113 P.2d 640, 139 A.L.R. 408. That suit involved Martin's unsuccessful effort to recover from the Commission $ 18,392.60 in retailer's sales tax paid under protest for the period May 1, 1935 to January 31, 1939. The Court there held that Martin and the Co-op were principal and agent; that the agent Co-op merely held merchandise on consignment, title to which remained in Martin until sold by the Co-op; that there was only one sale and, therefore, only one taxable transaction, namely, that by the Co-op to the final consumer; and, following therefrom, that Martin was liable on goods he furnished to the Co-op for the sales tax based upon the Co-op's gross proceeds of sale.

Subsequent to this Court's decision in State Tax Comm. v. Martin, supra, and based upon an audit covering a subsequent taxing period (February 1, 1939 to August 31, 1941) the Commission again levied an additional sales tax of $ 3,011.17 on Martin, which is as before described the amount here in question. All statutory requirements as to notice, hearing, etc., were strictly followed and, by appropriate order, the Commission sustained the levy causing Martin to pay the additional tax under protest on April 8, 1942 and to request a further hearing which was not held until some three years later on May 25, 1945.

However, less than two months after he had paid this tax under protest, Martin filed, as he had a right to do, an action in the Superior Court of Maricopa County under Art. 7, sec. 27-701 et seq., A.C.A.1939, in which, under an agreed statement of facts, he prayed for a declaratory judgment to establish his rights in this matter. It was specifically stipulated by both Martin and the Commission that the method of conducting business as between Martin and the Co-op was identical with that existing at the time of the decision in State Tax Comm. v. Martin. And yet by its judgment of January 18, 1943 the trial court declared Martin's rights to the effect that he would not be liable for the additional levy. For a reason unknown to us the Commission took no appeal from this part of the declaratory judgment. An appeal was taken upon another phase. See Martin v. Moore, 61 Ariz. 92, 143 P.2d 334.

Because the Commission refused to abide by the portion of the declaratory judgment previously detailed (though not appealing from it), and by reason of its refusal, therefore, to refund the $ 3,011.17, Martin requested and received a belated rehearing before the Commission on May 25, 1945. The Commission, at this time, made the order for the additional levy final whereupon Martin successfully filed a complaint in the Superior Court asking for and receiving a refund of the amount in question. And the appeals from this judgment (by the Commission as to the refund ordered, and by Martin as to the dismissal of that part of his action brought against the members of the Tax Commission as individuals) constitute the case now before us for review.

Martin here contends that the decision of the Superior Court in the declaratory judgment suit is res adjudicata as to his rights and should now control this Court as it evidently did the Superior Court in this present suit; that as that portion of the declaratory judgment was not appealed from it became final and is not now subject to collateral attack. As opposed to this the Commission alleges the declaratory judgment itself to be null and void as it is directly contra to the previous Supreme Court decision in State Tax Comm. v. Martin which case was between the same parties, on an identical relationship, over an identical question on the same tax, involving the same tax statute unamended as to the portions applicable, and differing only in the taxing period concerned. Therefore, the matter at issue in the declaratory judgment suit, it argues, was itself res adjudicata causing that judgment to be a nullity and subject, therefore, to collateral attack.

In its present appeal from the Superior Court judgment the Commission relies upon two assignments of error: (1) The trial court erred in denying the appellant's motion to dismiss the complaint; (2) the trial court erred in granting appellee's motion for summary judgment. Both assignments raise the problem as to whether the declaratory judgment or State Tax Comm. v. Martin is controlling in the dispute now before us.

Specifically, Martin argues that although the Co-op is his agent (admitting this to have been determined by State Tax Comm. v. Martin, and by stipulation in the declaratory judgment action), still, he ought to be liable for the retailer's sales tax only upon what he terms to be his own "gross proceeds of sale" and not upon the "gross receipts and profits" received by his agent, the Co-op. He contends that had the Commission levied the tax against the Co-op to begin with, then and only then would such levy lie against the gross receipts and profits of the Co-op.

By way of explanation as to why a levy against the gross receipts of the agent Co-op, would according to Martin, amount to a larger tax liability than a levy against what he contends to be his own gross income, the manner by which this principal and agent do business becomes important. As detailed in State Tax Comm. v. Martin [57 Ariz. 283, 113 P.2d 641]:

"* * * merchandise is the property of appellee (Martin) and is taken from the warehouse and placed on the shelves and counters by his employees who keep stock records of it, so as to know for insurance purposes how much he has there and how much in the warehouse. These goods are sold by the Co-op to its members in this way: When a member enters the Co-op's place of business and purchases an article of merchandise the clerk serving him makes out a sales ticket showing whether the purchaser is a member, his name, his Co-op number, the date, amount paid and the description of the merchandise, marks it 'paid,' all sales being for cash, and turns it into the Co-op's cashier. At the close of the day the Co-op's bookkeeping department segregates the sales tickets into different classes of commodities for which the Co-op has a classification, there being nine in all, for instance, all tickets on gasoline sales being placed in one class, those for hardware in another, those for kerosene in still another, etc., totals them, and the next morning issues a purchase order for them and turns it over to C. M. Martin, * * *. Upon receipt of the purchase order, appellee makes out a bill for the goods included therein and delivers it to the Co-op, both the purchase order and the bill being for the goods the Co-op sold the previous day. Upon receipt of the bill from appellee the Co-op posts the purchases in its purchase journal as a permanent record of accounts payable and about every other day pays appellee on account, there being at all times a balance due him."

The additional levy against Martin here in question represents the spread or difference between the gross income as shown on Martin's books and the larger figure (larger to cover handling costs, etc., and all the added charges that go into the conduct of a retail business) as shown upon the books of his agent, the Co-op. Aside from the question as to who is legally obligated to pay it, undoubtedly the tax in question ($ 3,011.17) is due the state.

There is no question but that the Commission is authorized to make an additional levy in the event of a taxpayer's error in computing the amount due. Sec. 73-1315(a), A.C.A.1939:

"If the taxpayer shall make any error in computing the tax assessable against him, the commission shall correct such error or re-assess the proper amount of taxes and notify the taxpayer of this action by mailing to him promptly a copy of the corrected assessment, and any additional tax for which such taxpayer may be liable shall be paid within ten (10) days after the receipt of such statement."

In order to set out in bold relief the legal collision between the holdings in the original State Tax Comm. v. Martin and the subsequent declaratory judgment suit in which the parties stipulated that "* * * The method of conducting the business between C. M. Martin and said co-operative is the same as it existed...