Sales and Use Tax Determination by State Tax Com'r, In re

• Decision Date: 31 December 1974
• Docket Number: Nos. 9027 and 9028,s. 9027 and 9028
• Citation: 225 N.W.2d 571
• Parties: In the Matter of the SALES AND USE TAX DETERMINATION made By the STATE TAX COMMISSIONER against Ace Mud Service, Inc. ACE MUD SERVICE, INC., Protestant and Appellee, v. STATE TAX COMMISSIONER, Respondent and Appellant. In the Matter of the SALES AND USE TAX DETERMINATION made By the STATE TAX COMMISSIONER against Baroid Division, National Lead Company. BAROID DIVISION, NATIONAL LEAD CO., Protestant and Appellee, v. STATE TAX COMMISSIONER, Respondent and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 571

225 N.W.2d 571

In the Matter of the SALES AND USE TAX DETERMINATION made By

the STATE TAX COMMISSIONER against Ace Mud Service, Inc.

ACE MUD SERVICE, INC., Protestant and Appellee, v. STATE TAX COMMISSIONER, Respondent and Appellant.

In the Matter of the SALES AND USE TAX DETERMINATION made By

the STATE TAX COMMISSIONER against Baroid

Division, National Lead Company.

BAROID DIVISION, NATIONAL LEAD CO., Protestant and Appellee, v. STATE TAX COMMISSIONER, Respondent and Appellant.

Civ. Nos. 9027 and 9028.

Supreme Court of North Dakota.

Dec. 31, 1974.

Rehearings Denied Jan. 30, 1975.

Syllabus by the Court

1. Authority of the State Tax Commissioner to make rules and regulations derives generally from Section 28--32--02, N.D.C.C., and, more particularly in regard to sales tax, from Section 57--39.2--19, N.D.C.C.

2. Scope of judicial review of an administrative agency's findings of fact is limited to determining whether such findings are based upon substantial evidence in light of the entire record.

3. Term 'cost of goods sold,' as used in Tax Commissioner's sales and use tax Rule 36, does not include the cost of freight out from the retail seller.

4. If a retailer subject to the North Dakota sales or use tax quotes only a delivered price of goods to a buyer, the entire delivered price becomes the retail sales price, and sales or use tax is to be computed upon the entire delivered price (including costs of delivery).

5. The statutory exemption from sales or use taxation of transportation services is available to retailers of goods who incidentally and separately provide or arrange for transportation of goods sold from the retailer's place of business to the place designated by the buyer.

6. Supreme Court will uphold finding of fact of district court unless it is 'clearly erroneous.' Rule 52(a), N.D.R.Civ.P.

7. Question of whether delivery charges are subject to sales or use taxation when delivery is made by or engaged by retailer hinges, in cases in which title does not pass at the retailer's place of business before delivery, upon whether retailer subject to tax and buyer separately negotiated for delivery charges for goods sold. The fact of such separate negotiation, if proved by the taxpayer, entitles the taxpayer to an exemption from sales or use tax for the delivery charge separately negotiated.

8. If all parties to an appeal from an administrative agency's decision stipulate to the admission of further evidence at the district court level, the district court may accept such further evidence as a part of the record without remanding the case to the administrative agency for further action pursuant to Section 28--32--18, N.D.C.C.

9. Where all parties to an appeal from an administrative agency's decision stipulate to the admission of further evidence at the district court level, function of district court changes from review of the administrative agency's decision to review of all evidence and the making of its own findings of fact and conclusions of law and the entry of judgment.

10. Where decision of an administrative agency is appealed to district court, and additional evidence is received by stipulation in district court, and further appeal is taken to the Supreme Court, the Supreme Court's review of findings of fact is limited to determining whether findings are clearly erroneous.

Rolfstad, Winkjer, Suess, McKennett & Kaiser, Williston, for protestants and appellees.

Robert W. Wirtz, Sp. Asst. Atty. Gen., State Tax Department, Bismarck, for respondent and appellant.

VOGEL, Judge.

The question before us is whether the district court was correct in reversing a decision of the State Tax Commissioner which assessed additional sales tax against the appellees on moneys received by them for transportation of goods sold by them. The appellees are in the business of selling oil well drilling muds and supplies to the oil well drilling industry in the State of North Dakota. They made sales within the State of North Dakota of various items of tangible personal property to customers located within the State. The period of time involved is April 1, 1962, to March 31, 1968, as to appellee Baroid Division, National Lead Company, and April 1, 1965, to June 30, 1968, as to appellee Ace Mud Service, Inc. The appellees' sales invoices for items sold to their customers during these periods of time included a price charged for the items sold, and on these prices North Dakota sales or use tax was computed and paid to the State. Many of the sales invoices included a separate amount stated for transporting the items from the North Dakota warehouses of the appellees to the location in the oil fields designated by the customer. Upon these amounts the appellees did not compute or pay a sales or use tax. The Tax Commissioner assessed additional taxes on the latter sums, the appellees protested the assessments, hearings were held, and rulings were made against the appellees in administrative proceedings. Subsequently, they appealed to the district court (the appeals being consolidated for trial pursuant to stipulation), which reversed the administrative determination and held that the sums collected for transportation were not subject to sales or use tax. ¹

The statute upon which the district court relied, and upon which the appellees rely here, is Section 57--39.2--04, N.D.C.C., the pertinent portions of which follow:

'There are specifically exempted from the provisions of this chapter and from computation of the amount of tax imposed by it the following:

'2. Gross receipts from the sales, furnishing or service of transportation service.'

Based on a general authority to make regulations (Sec. 28--32--02, N.D.C.C.) and an explicit authority pursuant to Section 57--39.2--19, N.D.C.C., the Tax Commissioner promulgated Rule 36, which was in effect the entire period of time here in question and which remains in effect (with subsequent additions not pertinent here), and also promulgated former Rule 82, which was in effect until June 1, 1968, and Rule 81, in effect on June 1, 1968, and still in effect. Pertinent portions of those rules follow:

Rule No. 36

'The receipts from the sales, furnishing of service or transportation are exempt from the sales tax. This exemption applies to the receipts derived from the business of transporting passengers, goods and merchandise only and does not mean that freight and delivery charges are not to be included in the cost of goods sold. (See Rule No. 82.)' (Emphasis supplied.)

Rule No. 81

'1. Freight, delivery, or other transportation charges are subject to the sales and use tax as part of the retail price charged for the property sold if title to the property being transported passes to the buyer at the Destination point. Where the title to the property being sold and transported passes to the buyer at the Point of origin, the freight or other transportation charges are not a part of the retail price and are not subject to the sales or use tax. It is immaterial whether it is the retail seller or the buyer who actually pays for any charges made for transportation, whether the charges were actually paid by one for the other, or whether a credit or allowance is made or given for any such charges. (Underlining in original.)

'2. Charges for transportation to the place where title is to pass from the retail seller to the buyer are to be included in the base upon which sales tax is charged but charges for transportation after title passes are not included.

'4. If the retail sale is made F.O.B. destination, the title to the merchandise would not pass from the retail seller to the buyer until the merchandise has reached the point of destination. The retail seller, in such a situation, would be required to include the freight charges in the base upon which the sales tax is charged. (Underlining in original.)

'6. When a retailer, by means of delivery facilities operated by him, delivers tangible personal property to a place specified by the buyer or if the property is sold at a delivered price, title will not be considered as passing to the buyer until the goods reach the place specified unless there is clear and convincing evidence that both retailer and buyer intended the title should pass at some other place.

'7. In determining when title passes, the cardinal rule is that the time and place at which title passes depend on the intent of the parties, to be determined by the terms of the contract, the conduct of the parties, usages of the trade, and the individual circumstances of each case.

'9. If a contract to sell requires the retail seller to deliver the merchandise to the buyer or deliver it to a particular place, the title does not pass and the retail sale does not occur until the merchandise has been delivered to the buyer or has reached the place agreed upon.

'10. Whenever it is customary for the retail seller to deliver merchandise to the buyer, it is presumed that the title passes at the time of delivery.

'11. Unless a contrary intent appears, delivery to the buyer will be considered prima facie evidence of an intention to pass title at the time delivery is made and the sale will be regarded as having occurred then.

Rule No.82

(In effect until June 1, 1968)

'Where the tangible personal property sold is quoted by the seller at a delivered price, no charges for transportation shall be deducted from the gross receipts upon which retail sales tax is computed regardless of the manner in which the transportation or delivery is made and notwithstanding the fact that the purchaser pays the cost of transportation and receives credit therefor.

'Where tangible personal property is sold f.o.b. the source of supply, charges for transportation or delivery to the purchaser do not become a part of the selling price, providing such service is not rendered by the seller, and the charges are paid by the consumer or user, or are paid by the seller and are billed separately from the charge for...