Randolph Foods v. State Tax Commission, 51754

• Decision Date: 21 September 1965
• Docket Number: No. 51754,51754
• Citation: 137 N.W.2d 307,258 Iowa 13
• Parties: RANDOLPH FOODS, an Iowa Corporation, Appellant. v. The STATE TAX COMMISSION, Appellee.
• Court: Iowa Supreme Court

Page 307

137 N.W.2d 307

258 Iowa 13

RANDOLPH FOODS, an Iowa Corporation, Appellant. v. The STATE TAX COMMISSION, Appellee.

No. 51754.

Supreme Court of Iowa.

Sept. 21, 1965.

Dickinson, Parker, Mannheimer & Raife, Des Moines, and Batschelet & Thompson, Guthrie Center, for appellant.

Lawrence Scalise, Atty. Gen., Thomas W. McKay, Sp. Asst. Atty. Gen., Harold W. Bracewell, Asst. Atty. Gen., Des Moines, Iowa, for appellee.

STUART, Justice.

Plaintiff has appealed from a judgment confirming and sustaining sales tax assessments levied on the cost of egg cases, mapes and fillers, hereinafter referred to as cases, used and consumed in its egg breaking plant. Plaintiff is a manufacturer of butter, a wholesaler and breaker of eggs and a retailer to farm trade in Guthrie Center. It buys cases by the carload for use in its egg business. A few are sold at retail on which sales tax is collected and reported. Most of the cases are used to ship eggs in interstate commerce and are not involved here.

It was determined by audit that about 10% of the cases purchased were used and consumed by plaintiff in its egg breaking plant. These were distributed by plaintiff to produce dealers who paid a charge of fifty cents for each case. This was not a sale but was made to insure the return of the case and eggs to plaintiff. The auditor determined the average life of the cases was about 10 round trips. The tax liability was determined by dividing the total number of pounds of eggs broken each year by 40 (the number of pounds in each case) to find the number of cases of eggs broken each year. As each case was used 10 times, this figure was divided by 10. The result was multiplied by 50 cents to arrive at the value of the cases consumed and the 2% sales tax was assessed upon this figure. Parties agree the transactions between plaintiff and the produce dealers were not sales and that plaintiff was the ultimate consumer of the cases in its egg breaking operation.

Plaintiff claims it cannot be taxed here because there was no sale at retail within the statutory definitions. The applicable code sections are:

'422.43 Tax imposed. There is hereby imposed * * * a tax of two percent upon the gross receipts from all sales of tangible personal property, consisting of goods, wares, or merchandise * * * sold at retail in the state to consumers or users; * * *.'

'422.42(2) 'Sales' means any transfer, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, for a consideration.'

'422.42(3) 'Retail sale' or 'sale at retail' means the sale to a consumer or to any person for any purpose, other than for processing or for resale * * *.'

If we restrict our attention to these statutes and the concession that plaintiff was a consumer and not a seller of the egg cases, there would appear to be no basis for the assessment. However, defendant claims the consumption of the cases here constitutes a sale at retail under rules promulgated by it under rule making authority conferred by Section 421.14 and the provisions of Section 422.61(1) which states:

'The commission shall have the power and authority to prescribe all rules and regulations not inconsistent with the provisions of this chapter, necessary and advisable for its detailed administration and to effectuate its purposes.'

In City of Ames v. State Tax Commission, 246 Iowa 1016, 1022, 71 N.W.2d 15, 19, we say: 'It will be noted that the rule making power of the commission may not be 'inconsistent with the provisions of this chapter.' The function of the commission is an administrative one, and it may enact reasonable rules and regulations necessary in carrying out the legislative enactments. But it may not make law, or by rule change the legal meaning of the common law or the statutes.'

The questions to be decided are whether the tax commission has promulgated a rule which make transactions of this kind a 'sale at retail' and, if so, whether such rule is within its rule making power. We do not go beyond the first question as we conclude the tax commission has not, by rule, made this type of transaction a sale at retail. The rules hereinafter referred to by number are found in the 1962 edition of Iowa Departmental Rules. They appear in Division IV of the rules of the Tax Commission relating to Retail Sales Tax.

The trial court, in sustaining the assessment, relied on Rule 52 which deals with sales tax on containers of personal property. He compared this transaction with that portion of the rule dealing with returnable containers like milk bottles. The analogy seems sound, but the difficulty, is that under such rule, the tax is assessed against the seller upon the sale to the ultimate consumer, who...