Pullman Co. v. State

• Decision Date: 11 March 1965
• Docket Number: No. 37308,37308
• Citation: 65 Wn.2d 860,400 P.2d 91
• Parties: The PULLMAN COMPANY, a corporation, Respondent, v. The STATE of Washington and the Tax Commission of the State of Washington, Appellants.
• Court: Washington Supreme Court

Page 860

65 Wn.2d 860

400 P.2d 91

The PULLMAN COMPANY, a corporation, Respondent, v. The STATE of Washington and the Tax Commission of the State of Washington, Appellants.

No. 37308.

Supreme Court of Washington, En Banc.

March 11, 1965.

Rehearing Denied May 13, 1965.

John J. O'Connell, Atty. Gen., Olympia, James A. Furber, Asst. Atty. Gen., Timothy R. Malone, Sp. Asst. Atty. Gen., Kennewick, for appellants.

Grosscup, Ambler, Miller & Lawrence, Ben C. Grosscup, Seattle, for respondent.

HALE, Judge.

When the railroads, according to a contractual formula, pay the Pullman Company sufficient funds to make good its operating losses, are such payments taxable under the public utility tax as a part of the Pullman's gross operating revenue? And if, by virtue of a contract between the railroads and the Pullman Company, the latter performs maintenance and repair work on electrical and air-conditioning apparatus and is reimbursed by the railroads for the actual costs of such work, are these reimbursements taxable as revenue received for retailing services under the business and occupation tax? The Tax Commission says 'yes,' the Pullman Company answers 'no,' and the trial court, concurring with Pullman, granted a judgment for refund of taxes so paid under protest--a judgment from which the Tax Commission now appeals.

According to the terms of an agreement referred to by the railroads and the Pullman Company as the uniform service contract, the Pullman Company supplies the rail carriers on their own lines with the services, furnishings and personnel by which to provide the railroads' first-class-fare passengers with sleeper car accommodations. With few--and irrelevant--exceptions, Pullman owns none of the sleeper cars; they are on lease from the railroads to Pullman which staffs, mans and supplies the cars for occupancy by the railroads' passengers. A finding of fact describing the relationship is set forth in the margin. ¹

The uniform service contract sets up a pooling arrangement for Pullman's sleeping cars and for its profits and losses as well. The agreement concerning sleeping cars requires Pullman to maintain a pool of sleeping cars and personnel essential to meet the needs of passenger traffic on the participating railroads. As to Pullman's profits and losses, after allowing Pullman a 3 per cent return on its depreciated investment, revenues in excess of costs of operation are allocated by Pullman to the participating railroads; losses experienced by Pullman are paid by the participating railroads to Pullman. These latter payments, from the railroads to Pullman, to make up for deficiencies in operating revenues, create the first problem. Are they taxable as gross operating revenues to Pullman under the public utility tax statutes? RCW 82.16.010 et seq.

At issue now is the taxable period from January 1, 1956, through December 31, 1959, covering the deficiency payments allocated by the railroads to Pullman arising Only out of revenues from intrastate fares. We are not concerned here with an effort by the state to apportion between the intrastate part of a fare and the interstate portion, for the state in this appeal makes no claim to tax the deficiency payments made on fares sold to passengers traveling interstate. We are concerned only with deficiency payments made on fares sold to passengers traveling intrastate. The Tax Commission claims a tax of $10,847.29, and asked judgment to retain the tax paid under protest. Pullman asks for judgment in this amount to recover the tax so paid plus interest thereon.

Appellant Tax Commission asserts the tax under RCW 82.16.020, which reads, in part:

'There is levied and there shall be collected from every person a tax for the act or privilege of engaging within this state in any one or more of the businesses herein mentioned. The tax shall be equal to the gross income ('gross operating revenue' until amended April 1, 1959) of the business, multiplied by the rate set out after the business, as follows:

'(1) * * * railroad car * * * businesses: Three percent * * *.'

Does Pullman engage in the railroad car business? RCW 82.16.010(3) appears to make it so.

"Railroad car business' means The business of operating * * * sleeping cars, parlor cars * * * or any other kinds of cars used for transportation of property or persons upon the line of any railroad operated in this state when such railroad is not owned or leased by the person engaging in such business.' (Italics ours.)

And, what is meant by Gross operating revenue, or Gross income, as it is called after April 1, 1959?

RCW 82.16.010(12) supplies the definition:

"Gross income' ('Gross operating revenue' until amended April 1, 1959) means the value proceeding or accruing From the performance of the particular public service or transportation business involved, including operations incidental thereto, but without any deduction on account of the cost of the commodity furnished or sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense whatsoever paid or accrued and without any deduction on account of losses;' (Italics ours.)

Respondent Pullman Company relies upon the trial court's finding that:

'Pullman is not engaged in the transportation of passengers or property for hire or otherwise; it neither owns, leases nor operates any railroad trains, lines, tracks, engines or other means of locomotion. The cars in which Pullman provides its accommodations and services as aforesaid are attached to trains operated by rail carriers. Said trains are moved, operated and controlled solely by said rail carriers over their own lines with their own motive power and by their own personnel; and Pullman neither controls nor participates in any manner in such operation or movement. * * * Pullman contracts to furnish, and furnishes, its accommodations and services, in its cars attached to passenger trains as aforesaid, only to those patrons who by their purchase of first class passenger tickets have previously contracted with the rail carriers for their transportation from points of origin to points of destination; * * *' Finding of fact No. 3.

We recognize, of course, that findings supported by substantial evidence represent the facts of the case (Calbom v. Knudtzon, 65 Wash.Dec.2d 137, 396 P.2d 148; Willis v. Building Service Employees Internat. Union, 65 Wash.Dec.2d 284, 396 P.2d 884; Hennessey Funeral Home, Inc. v. Dean, 64 Wash.Dec.2d 1000, 395 P.2d 493), but must observe that the assertion, 'Pullman is not engaged in the transportation of passengers or property for hire' proclaims a mere conclusion unsupported by either the evidence, the agreement or the other findings of fact. That the participating railroads supply the engines, track, fuel and energy by which Pullman's leased sleeping cars are hauled along the right of way, does not take Pullman out of the transportation business; nor does the purchase of a first-class railroad ticket, as both a separate transaction and condition precedent to the purchase of a pullman ticket, make Pullman's activities any less the transporting of passengers. We think it self-evident that, when the company carries sleeping passengers in its leased cars for a consideration, it comes squarely within the statute (RCW 82.16.010(3)) defining railroad car business as the business of operating sleeping cars, parlor cars or other cars upon the lines of any railroad in this state if the railroad is neither leased nor owned by the company operating the sleeping cars.

Respondent points to King...