Northwestern Nat. Bank of Sioux Falls v. Gillis

• Decision Date: 02 February 1967
• Docket Number: No. 10362,10362
• Citation: 82 S.D. 457,148 N.W.2d 293
• Parties: NORTHWESTERN NATIONAL BANK OF SIOUX FALLS, a corporation, Plaintiff and Appellant, v. Bruce D. GILLIS, as Director of Taxation and Commissioner of Revenue of the State of South Dakota, Defendant and Respondent.
• Court: South Dakota Supreme Court

Page 293

148 N.W.2d 293

82 S.D. 457

NORTHWESTERN NATIONAL BANK OF SIOUX FALLS, a corporation Plaintiff and Appellant, v. Bruce D. GILLIS, as Director of Taxation and Commissioner of Revenue of the State of South Dakota, Defendant and Respondent.

No. 10362.

Supreme Court of South Dakota.

Feb. 2, 1967.

M. T. Woods, Woods, Fuller, Shultz & Smith, Sioux Falls, for plaintiff and appellant.

Frank L. Farrar, Atty. Gen., John Dewell, Asst. Atty. Gen., Scott Moses, Special Asst. Atty. Gen., Pierre, for defendant and respondent.

BIEGELMEIER, Judge.

For clarity this opinion will divide the issues presented in three divisions.

I. The Sales Tax law as to food sold.

The first question raised in this appeal is whether plaintiff, a duly chartered national bank, is liable for sales tax claimed by the state to be due it on food and refreshments served and sold by the bank to its employees and guests in a cafeteria maintained by it for the convenience of those so served. In this division the citations of applicable sales tax statutes will be to sections of the South Dakota Code of 1939 (SDC). While there were some amendments, they were not such as to change the result.

SDC 57.3201 provides:

'There is hereby imposed as a tax upon the privilege of engaging in business as a retailer, a tax of three per cent upon the gross receipts from all sales of tangible personal property * * * sold at retail in the state of South Dakota to consumers or users.'

SDC 51.3202(1) exempts sales which the state is prohibited from taxing under the Constitution and laws of the United States.

12 U.S.C.A. § 548, U.S.R.S. § 5219, as last amended by 44 Stat. 223 permits state taxation as follows:

'The legislature of each State may determine and direct, subject to the provisions of this section, the manner and place of taxing all the shares of national banking associations located within its limits. The several States may (1) tax said shares, or (2) include dividends derived therefrom in the taxable income of an owner or holder thereof, or (3) tax such associations of their net income, or (4) according to or measured by their net income, privided the following conditions are complied with:

'1. (a) The imposition by any State of any one of the above four forms of taxation shall be in lieu of the others, except as hereinafter provided in subdivision (c) of this clause.'

Subdivision (c) places certain limits on income taxes and requires they shall not be higher on banks than other financial, mercantile or manufacturing corporations in the state. A state may not tax a national bank except as Congress consents and then only in conformity with the restrictions of that consent, Michigan National Bank v. State of Michigan, 365 U.S. 467, 81 S.Ct. 659, 5 L.Ed.2d 710, reh. den. 365 U.S. 874, 81 S.Ct. 900, 5 L.Ed.2d 864; First National Bank of Guthrie Center v. Anderson, 269 U.S. 341, 46 S.Ct. 135, 70 L.Ed. 295; Des Moines National Bank v. Fairweather, 263 U.S. 103, 44 S.Ct. 23, 68 L.Ed. 191, the limits of which are set out in § 5219, supra. Decisions of the United States Supreme Court interpreting the United States Constitution are binding on this court. Mitchell Publishing Co. v. Wilder, 74 S.D. 343, 52 N.W.2d 732. Its decisions construing congressional acts are of like effect.

SDC 57.3201 clearly imposes the sales tax on the retailer. The court so determined in State ex rel. Sioux Falls Motor Co. v. Welsh, 65 S.D. 68, 270 N.W. 852, when it wrote:

'The fact must be kept in mind that the tax with which we are dealing is an excise or privilege tax imposed upon the privilege of engaging in an occupation. It is not a tax upon gross receipts as such, but gross receipts * * * is used as a measure to determine the amount of tax to be paid for the privilege of engaging in an occupation or business.'

This was repeated in Vinz v. Nord, 70 S.D. 304, 17 N.W.2d 299, where the court then said:

'By an authorized procedure of adding the average equivalent (of the tax) thereof to the purchase price of goods the incidence of the tax is shifted to the consumer, but nevertheless the Burden of liability therefor Rests upon the retailer, SDC 57.3304.' (Emphasis supplied)

SDC 57.3304 does not Require the tax to be added to the sale price or charge, it merely Permits or authorizes that procedure. Plainly written, a retailer who sells tangible personal property to a consumer or user thereof is liable for the tax due (SDC 57.3201) in the amount shown in his return (SDC 57.3302) and for failure to file the return or pay the tax is subject to severe penalties, ex parte proceedings, etc. to collect the tax (SDC 57.3307, 57.3308 and 57.3309), even though the 'retailer', as here appears, has not added or collected it.

Michigan statutes, Comp.Laws 1948, §§ 205.52, 205.73 (Pub.Acts 1949, No. 272), similar to ours, levy a tax on all persons engaged in the business of making sales at retail 'for the privilege of engaging in such business', and prohibit advertising or holding out that the tax imposed is assumed by the retailer or 'not considered as an element in the price to the consumer'. Both recognize the power or authority for the retailer to recoup the tax levied:--South Dakota by stating the retailer 'may add the tax' SDC 57.3304 and Michigan by declaring nothing in their act 'shall be deemed to prohibit any taxpayer from reimbursing himself by adding' the tax to the sale price. Each state therefore does not require the tax to be added to the sale price; each permits the adding, but prohibits publication that the seller assumes or absorbs the tax.

The Michigan court under these similar provisions, after pointing out the Michigan statute did not Require the retailer to collect the tax from the purchaser, stated it had said in National Bank of Detroit v. Department of Revenue, 334 Mich. 132, 54 N.W.2d 278, 'the direct legal incidence of the tax, and to some extent its economic burden, falls upon the retailer, imposed upon him (as does the South Dakota tax) for the privilege of engaging in the retail business' and concluded, as did this court, 'That State sales tax statute operates on retailers in Michigan'. Federal Reserve Bank of Chicago v. Department of Revenue, 339 Mich. 587, 64 N.W.2d 639. The tax being on the retailer, the court held the proceeds of sales made to the Federal Reserve Bank were subject to the sales tax and not exempt under a similar restrictive Act of Congress, 12 U.S.C.A. § 531. It distinguished Colorado National Bank of Denver v. Bedford, 310 U.S. 41, 60 S.Ct. 800, 84 L.Ed. 1067, relied on by defendant on this appeal, and other cases cited, as the state acts involved therein 'required, as distinguished from the Michigan act, that the retailer * * * collect the same from the consumer; hence, in those cases the legal incidence of the tax, as well as its economic burden, fell, in each instance, upon a consumer who enjoyed an express exemption from State taxation by Act of Congress'. We believe the distinction mentioned in a sound answer to defendant's citation of the Bedford decision. In that opinion Mr. Justice Reed speaking for the court carefully points out that as the Colorado service tax 'requires the tax paid to be added * * * and makes it a debt from the user of the services until paid, the tax is upon the user of the safe deposit boxes, not upon the bank'; also that the Colorado Supreme Court holds 'the user is the taxpayer', that 'the tax is upon him and not upon the bank' and thus a permissible tax.

Soon thereafter the Michigan court was presented with the question whether a national bank was liable for the sales tax on Purchases made by it from Michigan retailers or exempt therefrom under U.S.R.S. § 5219, supra, and concluded that as the legal incidence of the sales tax rested on the retailer-seller who is made liable for the payment thereof, the tax was sustained. National Bank of Detroit v. Department of Revenue, 340 Mich. 573, 66 N.W.2d 237, app. dism., 349 U.S. 934, 75 S.Ct. 781, 99 L.Ed. 1264.

A second question was involved in the same appeal as it appeared the bank operated a cafeteria for the benefit of its employees to whom it Sold food and from time to time sold repossessed merchandise to other parties on which sales the Department claimed sales tax due. This presented the converse side of a sale and as the incident of sales tax under its prior decision fell on the seller, the bank, the Michigan court concluded that,

'Under the doctrine of implied constitutional immunity extended to an instrumentality of the Federal government, as well as under the specific provisions of the National Banking Act, particularly the section thereof thereof above cited, the State (U.S.R.S. § 5219, supra,) may not impose such tax and the statute may not properly be construed as contemplating it.'

The logic of the Michigan opinions cited seems irrefutable and the South Dakota sales tax being an attempt to tax a national bank in a manner not permitted by the cited U.S.R.S. § 5219, it cannot be sustained as to the sales made by it. This result is in accord with the conclusion of New York courts. The Court of Appeals had earlier decided that where the state sales tax by its terms Must be passed on to the purchaser, separately stated--the legal incidence of the tax was on the purchaser. Fifth Avenue Building Co. v. Joseph, 297 N.Y. 278, 79 N.E.2d 22; Kesbec, Inc. v. McGoldrick, 278 N.Y. 293, 16 N.E.2d 288, 119 A.L.R. 536. So construed, a national bank was held not liable for similar local sales tax on Purchases made by it. Liberty National Bank & Trust Co. v. Buscaglia, 26 A.D.2d 97, 270 N.Y.S.2d 871.

II. The Use Tax law as to supplies purchased.

Though the briefs have only discussed the sales tax, the state claims the bank is liable for and collected use tax based on purchases of material and supplies made by it outside the state and shipped into the state for use in its banking business. Pertinent sections of South Dakota 'use' tax statutes are set out...