Pidgeon-Thomas Iron Co. v. Garner, PIDGEON-THOMAS

• Decision Date: 21 May 1973
• Docket Number: PIDGEON-THOMAS
• Citation: 495 S.W.2d 826
• Parties: IRON COMPANY, Appellant, v. Riley C. GARNER, Trustee of Shelby County, Tennessee, et al., Appellees.
• Court: Tennessee Supreme Court

Page 826

495 S.W.2d 826

PIDGEON-THOMAS IRON COMPANY, Appellant, v. Riley C. GARNER, Trustee of Shelby County, Tennessee, et al., Appellees.

Supreme Court of Tennessee.

May 21, 1973.

James W. McDonnell, Jr., Canada, Russell & Turner, Memphis, for appellant.

Ernest G. Kelly, Jr., Evans, Petree, Cobb & Edwards, Memphis, Cleveland Drennon, County Atty., Memphis, for appellees.

MEMORANDUM

PER CURIAM.

Because of the importance of this case, it was brought before the Court by certiorari so that we might hear arguments and consider it. This has been done, and we are content to adopt the opinion of the Court of Appeals as the opinion of this Court. This opinion is as follows:

'The complainant taxpayer, Pidgeon-Thomas Iron Company, appeals from a decree of the Chancellor which dismissed complainant's lawsuit brought to obtain a refund of certain taxes paid under protest. The complainant claims it was wrongfully taxed under the provisions of the 1963 Local Option Revenue Act (LORA), T.C.A. §§ 67--3049 through 67--3056, as applied to Shelby County, Tennessee, by resolution of the County Court of Shelby County and approved by a vote of the people of Shelby County.

'The resolution of the County Court of Shelby County, adopted October 7, 1963, provided the local tax would be collected by the State Department of Revenue in the same manner as the state retail sales tax was collected, provided that the Department has determined that such collection of the tax is feasible and has promulgated rules and regulations governing such collection. The Department of Revenue did on November 5, 1963, file with the Secretary of State 'Rules and Regulations' governing the collection by it of taxes due under LORA. The result is that Shelby County did adopt the Rules of the Commissioner for the collection of the tax due under LORA.

'By its original bill, and by five assignments of error in this Court, the complainant insists: (1) Rule 5, Liability for the Locally Imposed Tax, ¹ as promulgated by the Commissioner is invalid wherein it imposes the local tax on any sale of tangible personal property made by a business located within the physical limits of any local government imposing a local sales tax, even though the goods are delivered to a user or consumer located within the State of Tennessee but outside the territorial limits of the taxing locality; (2) T.C.A. § 67--3050 provides that the tax levied shall not exceed $5.00 on the sale or use of any single article of personal property, and the Commissioner's Rule 6(b) ² as applied to certain sales of fabricated articles by the complainant is violative of that statute and is illegal and void; and (3) The complainant is entitled to a refund of taxes paid under protest.

'The statute in question, LORA, became effective March 25, 1963. The Resolution of the Shelby County Quarterly Court called for a referendum in November, 1963, the result of which was 'FOR' the tax, effective date January 1, 1964. The present lawsuit was filed on March 27, 1964. Another lawsuit, Cause No. 66621--3 R.D., was filed by the present complainant and others wherein the legality of the resolution and the referendum held thereunder was challenged, which cause was heard and appealed to the Supreme Court of Tennessee. The Supreme Court in that cause held the local tax was legally enacted in Shelby County, see: Pidgeon-Thomas Iron Co., et al v. Shelby County, et al (1965) 217 Tenn. 288, 397 S.W.2d 375. The present lawsuit was apparently held in abeyance pending the decision in the other lawsuit. Thereafter, the present lawsuit was heard by the Chancellor, on oral testimony, on March 30, 1966, and the matter was taken under advisement by the Chancellor. The Chancellor filed his Memorandum Opinion on May 13, 1971; the final decree was dated and filed on July 13, 1971.

'The complainant's place of business is in Shelby County, Tennessee. The complainant is engaged in business as a distributor of mill supplies, construction supplies and related items of hardware, as a steel warehouse distributor, as a fabricator of steel and other metal products, and as an erector of steel structures. Since LORA was made applicable to Shelby County, the complainant has made sales to Tennessee customers both within and without the territorial boundaries of Shelby County, Tennessee. The complainant has set out in its proof three categories of sales made, which it contends were made in the State of Tennessee but outside the territorial boundaries of Shelby County, and are therefore not subject to the local tax: (1) Sales made by its salesmen at the place of business of the customer located outside Shelby County, the order was mailed to complainant in Shelby County, the order filled by complainant and shipped by U.S. Mail or by common carrier to the customer outside of Shelby County, the salesmen did not live in Shelby County and they made no sales in Shelby County; (2) Sales made by telephone where the customer calls from his place of business outside Shelby County, the order is filled and shipped to the customer by U.S. Mail or by common carrier; and (3) 'Drop orders' where the manufacturer of an item sold by complainant to a Tennessee customer outside Shelby County, shipped the item directly to the customer and the item never physically entered Shelby County, Tennessee. In the foregoing situations the customer usually paid the freight charge, but occasionally the complainant did pay that charge; the customers were encouraged to make telephone orders from complainant by collect calls to complainant; and, if items were lost in transit the complainant would refill and ship another identical order to the customer, and the complainant made the claim against the carrier.

'The complainant's insistence is that the sales in each of the above categories took place outside the territorial boundaries of Shelby County, Tennessee, and the local tax is not due on those sales. The complainant argues a sale occurs where title and possession pass, and cites T.C.A. § 47--2--401(2), a portion of the Uniform Commercial Code, as authority that in each of the above situations title passed and the sale was made outside Shelby County. We do not deem it necessary to pass upon that point, unless the tax as contemplated by LORA is indeed a tax on the sale. The basic issue is whether the incidence of the tax is upon the sale, or whether it is upon the privilege of engaging in retail sales. The complainant quotes from the resolution of the County Court of Shelby County, Tennessee and from the ballot submitted to the people of Shelby County, to the effect that the governing body and the people of that county intended that the sales in the three categories noted would not be taxed locally. That argument is not persuasive because as heretofore noted the local tax was legally enacted, Pidgeon-Thomas Iron Co. v. Shelby County, supra, and we must conclude the tax will be applied as the legislature intended by its enactment of LORA; all statements in the county resolution and ballot must yield to the statute.

'By T.C.A. § 67--3050 any county or any municipality is authorized to levy a tax on those same privileges subject to the Retailers' Sales Tax Act, which privileges are exercised within such county or municipality. The statute further sets out the rate of tax allowed; the priorities of counties over municipalities; the method of collection; the procedure for a referendum; and how the proceeds shall be distributed. T.C.A. §§ 67--3050 through 67--3056. Looking therefore to the Retailers' Sales Tax Act we find the privileges subject to taxation stated at T.C.A. § 67--3003 as follows:

'It is declared to be the legislative intent that every person Is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, or who uses or consumes in this state any item or article of tangible personal property as defined in this chapter, irrespective of the ownership thereof or any tax immunity which may be enjoyed by the owner thereof, or who is the recipient of any of the things or services taxable under this chapter, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in the state any item or article of tangible personal property as defined in this chapter, or who leases or rents such property, either as lessor or lessee, within the state of Tennessee. For the exercise of said privilege a tax is levied as follows . . .' (Emphasis added)

'Our Supreme Court has held the Retailers' Sales Tax Act imposes a tax upon the privilege of making retail sales. Hooten v. Carson (1948) 186 Tenn. 282, 209 S.W.2d 273; Smoky Mountain Canteen Co. v. Kizer (1952) 193 Tenn. 598, 247 S.W.2d 69; Alford v. Butler (1963) 211 Tenn. 663, 367 S.W.2d 281.

'There is no argument in the present lawsuit but that retail sales as defined by T.C.A. § 67--3002 were made to Tennessee customers located outside Shelby County. Those sales were admittedly made by the complainant from its place of business in Shelby County, Tennessee in the exercise of its privilege in that county of selling tangible personal property at retail. That privilege is taxable under LORA, and it matters not whether the sales were technically made inside or outside of Shelby County. Had the tax been on the sale there might have been some argument on this issue. The tax, however, is clearly established by the language of the statute and by court decisions as being on the privilege of engaging in retail sales. The actual sale is of importance in determining the amount of tax due on the privilege taxed.

'The complainant's insistence that the 'drop orders' are not subject to the privileges taxed under LORA has merit for those 'drop orders' made between June 1, 1968 and May 6, 1971. LORA as enacted in 1963 was amended by Chapter 488, Public Acts 1968, effective June 1, 1968 which added the following:

'Section 1...