Paramount Pictures Distributing Co., Inc. v. Henneford, 25508.

• Decision Date: 12 November 1935
• Docket Number: 25508.
• Citation: 51 P.2d 385,184 Wash. 376
• Parties: PARAMOUNT PICTURES DISTRIBUTING CO., Inc., et al. v. HENNEFORD et al.
• Court: Washington Supreme Court

51 P.2d 385

184 Wash. 376

PARAMOUNT PICTURES DISTRIBUTING CO., Inc., et al. v. HENNEFORD et al.

No. 25508.

Supreme Court of Washington, En Banc.

November 12, 1935

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Action by the Paramount Pictures Distributing Company, Incorporated and others against Harold H. Henneford and others, tax commissioners composing the Tax Commission of the State of Washington, and another. Judgment for plaintiffs, and defendants appeal.

Affirmed.

TOLMAN BEALS, and BLAKE, JJ., dissenting.

G. W Hamilton and R. G. Sharpe, both of Olympia for appellants.

Bausman, Oldham, Cohen & Jarvis and Simon Wampold, Jr., all of Seattle, for respondents.

MAIN Justice.

This action was brought to recover a tax which the plaintiffs had paid under chapter 191 of the Laws of 1933 (page 869), the occupation tax law, as amended by chapters 10 and 57 of the Extraordinary Session of the Legislature in 1933 (pages 22, 157), and for an order restraining the defendants from collecting future taxes. To the complaint, a demurrer was interposed and overruled. The case was tried to the court without a jury, and resulted in findings of fact from which it was concluded that the plaintiffs were entitled to recover the taxes paid, and also the injunctive relief sought. From this judgment, the defendants appeal.

There is no dispute in the facts, and they may be stated as follows: The appellants are members of the tax commission of this state. The respondents are all foreign corporations, and engaged in the business of manufacturing motion picture films and distributing them throughout the United States. The principal place of business of each of the respondents is outside of the state of Washington, but each of them had a branch office in the city of Seattle, called a film exchange, which is in charge of a local manager. The local exchange solicits from proprietors of motion picture theaters, called exhibitors, applications for leases of motion picture films produced by respondent corporations outside of this state. In some instances, the applications are made for films already produced, and in some the applications are for films to be produced. The printed applications, when signed by the exhibitors, are forwarded by the respective local managers to the principal place of business of the appellants outside of this state and in the state of New York, for acceptance or rejection.

The applications, which are signed first by the exhibitors and forwarded, contain the stipulation that the instrument shall be deemed an application for a lease to exhibit the photoplay, and shall not become binding until accepted in writing by an officer or representative of the corporation to which it is sent, and until notice of the acceptance is sent to the exhibitor. When an application is rejected, the exhibitor who made the application is so notified. When the application is accepted by the home office, the film in due time is forwarded, in compliance with the order or contract, to the local exchange in Seattle, where it is delivered to the exhibitor in accordance with the order. The films that are leased to exhibitors outside of Seattle are sent to them by the exchange with instructions to return them to the exchange, or forward them to another exhibitor, at the end of the term of the particular lease. The leases with the subsequent exhibitors are consummated in the same manner as with the original lessee. In every instance, the film is returned to the Seattle exchange by the last exhibitor. It is then sent outside the state, either to the corporation that sent it or to one that such corporation designates.

Whether the contract referred to in the statement here made is unenforceable because unilateral, we do not decide. The fact is that the exhibitor orders the film from the New York office. It is there accepted, and, in accordance with the terms of the order, duly sent to the local branch in Seattle, where it is delivered to the exhibitors, and the rental or compensation therefor is paid to the local exchange.

The two questions which are controlling upon this appeal are (a) whether the local exchange is a link in interstate commerce; and (b) if it is, whether the tax collected, and for which recovery is sought, is a direct burden upon that commerce.

Chapter 57 of the Laws of 1933, Extraordinary Session (page 157, § 1), amends chapter 191 of the Laws of 1933 (page 869) by adding thereto a new section to be known as section 2-a, which provides that from and after the first day of January, 1934, and until the thirty-first day of July, 1935, 'There is hereby levied and there shall be collected from every person engaging or continuing within this state * * * in any business not specifically taxable under section 2 of this act, an annual tax or excise for the privilege of engaging in such business; as to such persons the amount of the tax or excise shall be equal to the gross income of the business multiplied by the rate of five-tenths of one per cent.'

It was under this act that the taxes in question were paid and for which recovery is sought. The amount of the tax is computed in accordance with the statute and based on the gross income which passes through the local exchange. The tax provided for in the statute is an excise tax, and not a property tax. It is based upon a percentage of the gross income of a particular business. State ex rel. Stiner v. Yelle, 174 Wash. 402, 25 P.2d 91; Supply Laundry Co. v. Jenner, 178 Wash. 72, 34 P.2d 363. It being an excise tax for the purpose of raising revenue, the act of the Legislature imposing it was not passed in the exercise of the police power. Whether a law is enacted in the exercise of that power depends upon whether the primary purpose is to raise revenue or to regulate industry. If the primary purpose is regulation, it is enacted under the police power, even though it may be called a license or tax. Fox Film Corporation v. Trumbull (D. C.) 7 F. (2d) 715; Cooley on Taxation (3d Ed.) vol. 2, p. 1127. As already indicated, chapter 191 of the Laws of 1933 and the amendatory acts thereto were plainly enacted for the primary purpose of collecting revenue, and not for the purpose of regulating industry. Cases cited, which hold that the state Legislature, in the exercise of the police power, may regulate to some extent a business which is interstate in character, have no application to this case.

Inquiry will now be directed as to whether the business done by the local exchange, in the manner above indicated, is a part of interstate commerce. This presents a federal question, and is controlled by the case of Binderup v. Pathé Exchange, 263 U.S. 291, 44 S.Ct. 96, 99, 68 L.Ed. 308. In that case, New York manufacturers and distributors of motion picture films, in the regular course of their business, shipped the films from the state of New York to the state of Nebraska and delivered them to a Nebraska resident, through a local agent of the manufacturers in that state, and it was there held that the business of the manufacturers and producers of the films and their transactions with the exhibitors were interstate commerce, notwithstanding that in accordance with the contracts the films were delivered through a local exchange in Nebraska through which they were first consigned and transported. It was there said:

'The film contracts were between residents of different states, and contemplated the leasing by one to the other of a commodity manufactured in one state and transported and to be transported to and used in another. The business of the distributors of which the arrangement with the exhibitor here was an instance, was clearly interstate. It consisted of manufacturing the commodity in one state, finding customers for it in other states, making contracts of lease with them, and transporting the commodity leased from the state of manufacture into the states of the lessees. If the commodity were consigned directly to the lessees, the interstate character of the commerce throughout would not be disputed. Does the circumstance that in the course of the process the commodity is consigned to a local agency of the distributors, to be by that agency held until delivery to the lessee in the same state, put an end to the interstate character of the transaction and transform it into one purely intrastate? We think not. The intermediate delivery to the agency did not end and was not intended to end the movement of the commodity. It was merely halted as a convenient step in the process of getting it to its final destination. The general rule is that where transportation has acquired an interstate character 'it continues at least until the load reaches the point where the parties originally intended that the movement should finally end.' Illinois Central R. R. Co. v. Fuentes, 236 U.S. 157, 163, 35 S.Ct. 275, 276, 59 L.Ed. 517. And see, Western Union Tel. Co. v. Foster, 247 U.S. 105, 113, 38 S.Ct. 438, 62 L.Ed. 1006, 1 A. L. R. 1278; Western Oil Refining Co. v. Lipscomb, 244 U.S. 346, 349, 37 S.Ct. 623, 61 L.Ed. 1181.

' In Swift & Co. v. United States, 196 U.S. 375, 398, 25 S.Ct. 276, 49 L.Ed. 518, it was held that where cattle were sent for sale from a place in one state, with the expectation that the transit would end after purchase in another state, the only interruption being that necessary to find a purchaser at the stockyards, and this was a typical, constantly recurring course, the whole transaction was one in interstate commerce and

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