Piedmont Canteen Service, Inc. v. Johnson, 459

• Decision Date: 12 January 1962
• Docket Number: No. 459,459
• Citation: 91 A.L.R.2d 1127,256 N.C. 155,123 S.E.2d 582
• Court: North Carolina Supreme Court
• Parties: , 91 A.L.R.2d 1127 PIEDMONT CANTEEN SERVICE, INC. v. William JOHNSON, Commissioner of Revenue for North Carolina.

Page 582

123 S.E.2d 582

256 N.C. 155, 91 A.L.R.2d 1127

PIEDMONT CANTEEN SERVICE, INC. v. William JOHNSON, Commissioner of Revenue for North Carolina.

No. 459

Supreme Court of North Carolina.

Jan. 12, 1962

Henderson & Henderson and Lloyd F. Boucom, Charlotte, and Robert D. Stewart, Charlotte, for plaintiff, appellant.

Atty. Gen. T. W. Bruton and Asst. Attys. Gen. Lucius W. Pullen and Peyton B. Abbott, for defendant, appellee.

MOORE, Justice.

We first consider the use tax assessment.

By the terms of the lease agreement for use of the vending machines Piedmont was obligated to pay, and did pay, Automatic rental on three bases: (1) Initial rent, to cover Automatic's cost of placing machines in Piedmont's place of business; (2) period rent, for 65 company periods or five years to cover amortization of the cost of machines to Automatic; and (3) residual rent, a nominal rental charged by Automatic for use of machines more than five years old. These three rentals were paid with respect to all of the machines leased by Piedmont.

In addition, Piedmont paid to Automatic a separate fee designated in the lease contract as 'supplemental rent.' 'Supplemental rent' applied only to machines through which bottle drinks and coffee were sold. The bakery products, candy and like items, which were sold through the other machines, were packaged and supplied to Piedmont by Automatic, and with respect to these items Automatic made a profit from wholesaler's markup, and no 'supplemental rent' was charged for the use of the machines vending these items. A part of the products sold through the drink and coffee machines was purchased by Piedmont locally, and as to these Automatic realized no wholesaler's profit. Since Automatic received no wholesaler's profit from the products sold through the drink and coffee machines, the 'supplemental rent' was paid for the use of such machines to compensate for the absence of profit. The 'supplemental rent' was a percentage of the gross sales of products sold through the drink and coffee machines.

The lease agreement was not available at the trial. Piedmont's manager explained its terms, as above outlined, and his testimony was included in the stipulation. His testimony also contained the following facts and explanations: Supplemental rent 'was not designed as a fee or charge for the use of the equipment but was, instead a payment required by Automatic as part compensation for engineering services, public relation services and other benefits rendered by Automatic to plaintiff. * * * (S)upplemental rental was not * * * charged by Automatic upon any gross sales made through vending machines vending a product such as candy, bakery products and the like which had been purchased by plaintiff from Automatic and on which Automatic had made a profit. * * * ' Supplemental rental' was applicable to and payable only with respect to leased drink and coffee machines through which products were dispensed, part of which were not purchased at wholesale from Automatic. * * Piedmont * * * could not have used such leased drink and coffee machines * * * without payment of the 'supplemental rental.' The payments were made by plaintiff to Automatic * * * for the right to use its vending machines and its franchise in North Carolina. Automatic * * * furnished bookkeeping service, repair service and promotional help to Piedmont * * * in connection with the use of all of its vending machines located in North Carolina. Such service was furnished for machines on which no 'supplemental rental' was paid as well as on machines on which 'supplemental rental' was paid. If Piedmont failed to pay any of the fees designated in the contract as rental, Automatic * * * could have deprived Piedmont of the use of the machines on which fees required by the contract had not been paid and could have also deprived Piedmont of its franchise. * * * Piedmont could not have used bakery goods, cigarette and candy machines under the franchise agreement if plaintiff had not purchased such items directly from Automatic * * * or in such fashion as to enable Automatic * * * to make a profit comparable to wholesaler's profit or 'product override."

For the audit period Piedmont paid Automatic $32,260.22, 'supplemental rental' on drink and coffee machines. The Commissioner of Revenue contends that this payment was 'rent' for the use of vending machines in this State and that use tax on this amount, at the rate of 3%, was due and payable. G.S. § 105-164.6. On the other hand, plaintiff contends that the payment was a service charge or an 'operating profit accruing to the franchising company where an override or surcharge upon products sold was, for one reason or another, uncollected,' and was not, in fact, 'rent' for use of machines.

The trial court found as a fact that the 'supplemental rental' was based on the amount of the gross sales made through the drink and coffee machines and was not related to services rendered in connection with such machines, that Automatic rendered the same services to all its machines (whether subject to supplemental rental or not), and that Piedmont paid the supplemental rental for the right to use the drink and coffee machines in North Carolina. The court concluded that the 3% use tax on the supplemental rental paid by plaintiff was 'lawfully assessed and collected' by the Commissioner of Revenue.

Where jury trial has been waived and evidentiary facts stipulated, if more than one inference can be drawn from these facts, it is permissible for the court to find the ultimate determinative facts from the evidence stipulated. Ahoskie Production Credit Association v. Whedbee, 251 N.C. 24, 29, 110 S.E.2d 795. Where different inferences can be drawn from the evidence the ultimate issue is for the trial judge when jury trial is waived. Turnage Co. v. Morton, 240 N.C. 94, 99, 81 S.E.2d 135.

In the findings and judgment of the court with respect to the use tax assessed and collected we find no error. The evidentiary facts stipulated permit, if not compel, the inference that the 'supplemental rental' was payment for the use of the machines and the exercise of the franchise therefor in North Carolina. Moreover, the contracting parties designated it as 'rental' in their lease agreement. American Trust Co. v. Catawba Sales & Processing Co., 242 N.C. 370, 88 S.E.2d 233.

We now consider the challenged sales tax assessment.

The total amount of Piedmont's retail sales through vending machines for the audit period was $1,758,491.83. Of this amount $399,766.43 was realized from sales of items priced at less than ten cents per unit. It is plaintiff's contention that it is not liable for payment of 3% sales tax on the $399,766.43 received by it from sales of items priced at less than ten cents each. The Commissioner of Revenue contends to the contrary.

G.S. § 105-164.10 provides in part that 'every retailer * * * shall add to the sale price and collect from the purchaser on all taxable retail sales an amount equal to the following: (1) No amount on sales of less than 10cents; (2) 1cents on sales of 10cents and over but not in excess of 35cents; (3) 2cents on sales of 36cents and over but not in excess of 70cents; (4) * * *.' (semi-colons added.)

Plaintiff's argument rests upon the premise that the North Carolina sales tax is, as a matter of law and by intent of the legislature, a purchasers' or consumers' tax. It insists that, since the tax is a purchasers' tax and the retailer cannot charge and collect the tax on sales of less than ten cents, the sales of items through vending machines priced at less than ten cents each are nontaxable, and that its receipts of $399,766.43 from the sale of such items are exempt from assessment for sales tax.

We do not agree that the North Carolina sales tax is a purchasers' or consumers' tax in the sense contended by plaintiff. It is true that the act makes provision for retailers to pass the tax on to and collect it from the purchasers, but the tax is primarily and essentially a privilege or license tax imposed on retailers. A part of a statute may not be interpreted out of context so as to render it inharmonious to the intent of the act, but must be construed as a part of the whole. Watson Industries v. Shaw, 235 N.C. 203, 69 S.E.2d 505; State v. Barksdale, 181 N.C. 621, 107 S.E. 505; White v. State, 49 Wash.2d 716, 306 P.2d 230 (1957).

Sales tax provisions are contained in Article 5, Chapter 105 of the General Statutes of North Carolina. Division I states the title and purpose of the act. 'This article shall be known as the 'North Carolina Sales and Use Tax Act.' ' G.S. § 105-164.1. 'Purpose.--The taxes herein imposed shall be in addition to all other license, privilege or excise taxes * * *.' G.S. § 105-164.2. Division II, part 1, imposes and levies the retail sales tax. 'Imposition of tax; retailer.--There is hereby levied and imposed * * * a privilege or license tax upon every person who engages in the business of selling tangible personal property at retail * * * in this State, the same to be collected and the amount to be determined by the application of the following rates against gross sales * * *, to wit: (1) at the rate of three per cent (3%) of the sales price of each item or article of tangible personal property when sold at retail in this State, the tax to be computed on total net taxable sales for the purpose of remitting the amount of the tax due the State and to include each and every taxable retail sale or amount of taxes collected whichever be the greater.' G.S. § 105-164.4. 'The said tax shall be collected from the retailer * * * and paid by him at the time and in the manner as hereinafter provided.' G.S. § 105-164.4(4). 'Any person who shall engage or continue in any business for which a privilege tax is imposed by this article shall * * * apply for and obtain from the Commissioner upon payment of the sum of one dollar ($1.00) a license to engage in and conduct such...