Ramsay Travel, Inc. v. Kondo
| Decision Date | 10 April 1972 |
| Docket Number | No. 5122,5122 |
| Citation | 495 P.2d 1172,53 Haw. 419 |
| Parties | , 53 Haw. 671 RAMSAY TRAVEL, INCORPORATED, Plaintiff-Appellee, Cross Appellant, v. Ralph W. KONDO, Director of Taxation, Defendant-Appellant, Cross Appellee. |
| Court | Hawaii Supreme Court |
Syllabus by the Court
1. A state general excise tax does not offend the commerce clause of the United States Constitution if it can satisfy three conditions: 1) it does not discriminate against interstate commerce either on its face or in effect; 2) it is fairly apportioned in such a way as to include within its measure only income attributable to activity within the state; 3) it does not subject interstate commerce to the burden of cumulative or multiple taxation.
2. A taxpayer who claims immunity from a state tax on the ground that it discriminates against interstate commerce has the burden of establishing that the tax is disproportionate to his activity within the state and to his consequent enjoyment of the opportunities and protections which the state has afforded.
3. There is no risk of cumulative state tax burdens being imposed against taxpayers on account of their activities where the taxpayers are all local corporations and the activities subject to the tax are all performed within the taxing state.
4. Where the Director of Taxation has refrained from assessing some but not all persons taxable under the service business classification of the general excise tax law in violation of his official duty to assess all such persons, a taxpayer assessed under the service business classification may seek a writ of mandamus to compel the Director to act.
5. Failure to collect the general excise tax from some persons whose occupations fall within the provisions of the statute cannot excuse other taxpayers from paying what they owe.
Johnson H. Wong and Clyde Sumida, Deputy Attys. Gen., Honolulu, for defendant-appellant, cross appellee.
Gary L. Wixom, Honolulu (Bortz, Case, Stack, Kay, Cronin & Clause, Honolulu, of counsel), for plaintiffs-appellees, cross appellants.
Before RICHARDSON, C. J., MARUMOTO, ABE and LEVINSON, JJ., and M. DOI, Circuit Judge, for KOBAYASHI, J., disqualified.
This appeal concerns the susceptibility of certain gross commission income of Ramsay Travel, Inc., B. F. Dillingham Co., Ltd., and Inter-Island Travel Service, Ltd. (the taxpayers herein) to the provisions of the general excise tax law, HRS ch. 237. 1 The taxpayers are all Hawaii corporations engaged in the travel agency business. During the tax years in question, 1959 to 1965, they each maintained offices in the City and County of Honolulu. Their officers, directors, and employees were all Hawaii residents.
In 1965, the Director of Taxation sent to each of the taxpayers a notice of proposed assessment, indicating his intent to assess additional general excise taxes against the taxpayers for commissions received by them. The taxpayers had previously reported these commissions on their general excise tax returns as exempt income. Paying the additional assessments under protest, they subsequently brought actions for refunds in the circuit court. The actions were consolidated pursuant to a stipulation of the parties. By further stipulation, the parties submitted the matter for decision on an agreed and supplementary statement of facts.
The Commission income which was the subject of the Director's additional assessments derived from the following sources: 1) the sale of tickets for transportation by air and sea between Honolulu and points on the mainland United States or in foreign countries; 2) the sale of railroad tickets for transportation on the mainland United States; and 3) the arranging of hotel accommodations and sight-seeing tours in states other than Hawaii and in foreign countries.
Travel agents accounted for 60% of all sales of interstate and international travel during the years assessed, the carriers being responsible for the remainder. Nevertheless, the Director of Taxation did not assess or collect a general excise tax or any tax in lieu thereof on gross income from sales of tickets or package tours in Hawaii by interstate or international air and sea carriers. Nor did he assess or collect such a tax either on that portion of the carriers' gross income which would have been paid to the travel agents had the agents, rather than the carriers, sold the tickets, or on income from commissions paid by one carrier to another for sales of the other's tickets.
The taxpayers contended in the circuit court that the application of the Hawaii general excise tax to the aforementioned commission income placed an unconstitutional burden on interstate and foreign commerce in contravention of article I, section 8 of the United States Constitution. 2 They further argued that the tax on commissions derived from foreign travel was prohibited by article, I, section 10 of the United States Constitution, which proscribes the states from imposing a tax on imports or exports. 3 The taxpayers finally maintained that, insofar as the Director of Taxation failed to assess the interstate and international carriers doing business in Hawaii, particularly with regard to that income attributable to the sales activities of their own sales personnel, he had pursued a taxing policy which unreasonably discriminated against the taxpayers as a class in violation of their right to equal protection. 4
The circuit court rejected that portion of the taxpayers' argument which was based upon the commerce and import-export clauses, but sustained their position with regard to equal protection. Citing Hasegawa v. Maui Pineapple Co., Ltd., 52 Haw. 327, 475 P.2d 679 (1970), the circuit court held that because there existed no rational relationship between the purposes of the Hawaii general excise tax law and the Director's decision to assess the travel agents but not the carriers,
the assessments against the taxpayers on their commissions derived from sales of interstate and foreign transportation and from package tours were discriminatory and thus illegal and the payments made by them pursuant to such assessments . . . shall be refunded . . .. 5
On appeal, the Director of Taxation urges that the circuit court erred both in its finding that the taxpayers and the carriers were similarly situated as to their taxability under the commerce clause and the Hawaii general excise tax law and in its holding that the Director's failure to assess the carriers subjected the taxpayers to an unconstitutional discrimination. The Director argues additionally that even assuming improperly dissimilar treatment of the taxpayers and the carriers, the taxpayers' proper course would be to seek a writ of mandamus to compel the Director to assess the carriers, rather than a refund of some portion of the tax. On cross-appeal, the taxpayers contend that the circuit court erred in holding that the commerce clause does not bar assessment of the Hawaii general excise tax upon income derived from the sales activities discussed above. They do not seek to disturb the circuit court's holding as it relates to the equal protection and import-export clauses.
We agree with the circuit court that 'application of the general excise tax to the commissions received by the taxpayers from the solicitation and sale of interstate and foreign transportation, hotel accommodations and sight-seeing tours does not contravene the Commerce Clause of the United States Constitution.' We cannot agree, however, that the taxing authority's failure to assess the general excise tax upon any portion of the income of the interstate and international carriers warrants a refund of the assessments against the taxpayers. If the taxpayers deem that the Director of Taxation has been derelict in performing the legal requirements of his office, they should seek a writ of mandamus in the circuit court to compel the Director to do his duty.
This court, in HC & D Moving & Storage Company, Inc. v. Yamane,48 Haw. 486, 405 P.2d 382 (1965), appeal dismissed, 383 U.S. 104, 86 S.Ct. 717, 15 L.Ed.2d 617 (1966), sought to reconcile the accumulation of past United States Supreme Court decisions regarding the limitations placed by the commerce clause upon the taxing power of the states. From this accretion, which has been described variously as a 'quagmire' and a 'tangled underbrush' leaving 'much room for controversy and confusion and little in the way of precise guides to the States in the exercise of their indispensable power of taxation,' Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 457-458, 79 S.Ct. 357, 362, 3 L.Ed.2d 421 (1959), a number of principles have emerged. 6 'It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business.' Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S.Ct. 546, 548, 82 L.Ed. 823 (1938). 'Even interstate business must pay its way . . ..' Postal Telegraph-Cable Co. v. City of Richmond, 249 U.S. 252, 259, 39 S.Ct. 265, 266, 63 L.Ed. 590 (1919). Thus, the determination of whether interstate commerce is involved does not resolve the constitutional problem presented. McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 46-47, 60 S.Ct. 388, 84 L.Ed. 565 (1940). Nor does the fact that a taxpayer's activity is in aid, inducement or furtherance of interstate commerce per se invalidate the tax involved. Western Live Stock v. Bureau of Revenue, supra, 303 U.S. at 253, 58 S.Ct. 546; In re Texes, Armstrong Perry, 46 Haw. 269, 275, 379 P.2d 336, 340-341 (1963).
The current view of the United States Supreme Court appears to be that a state tax passes...
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