Singer Co. v. County of Kings

• Decision Date: 07 April 1975
• Docket Number: No. 1958,1958
• Citation: 121 Cal.Rptr. 398,46 Cal.App.3d 852
• Court: California Court of Appeals Court of Appeals
• Parties: The SINGER COMPANY, Plaintiff and Respondent, v. COUNTY OF KINGS, Defendant and Appellant.

Page 398

121 Cal.Rptr. 398

46 Cal.App.3d 852

The SINGER COMPANY, Plaintiff and Respondent, v. COUNTY OF KINGS, Defendant and Appellant.

No. 1958.

Court of Appeal, Fifth District, California.

April 7, 1975.

As Modified April 9, 1975.

[46 Cal.App.3d 855] Allen C. Wait, County Counsel, Hanford, for defendant-appellant.

Johnston, Klein, Horton & Solomon (V. Judson Klein), Oakland, for plaintiff-respondent.

OPINION

FRANSON, Associate Justice.

STATEMENT OF CASE

Respondent filed claims with appellant for refund of ad valorem unsecured personal property taxes of $32,190.57 for the tax years 1965, 1966, 1967, 1968 and 1970. The claims alleged that appellant had illegally assessed and collected taxes on goods imported into this country by respondent and stored at its regional warehouse at Armona, California.

Appellant denied the claims, and respondent filed suit to recover the taxes. Appellant answered, denying that the goods were immune from taxation as imports and alleged as an additional defense that respondent's claim for refund for the years 1965, 1966 and 1967 was barred by the statute of limitations.

The trial court entered findings of fact and conclusions of law and judgment in favor of respondent on all issues.

FACTS

Respondent operates a regional warehouse at Armona in Kings County, California. The warehouse services two smaller warehouses in California and about 170 of respondent's retail stores in California, Nevada, Hawaii and Arizona.

On the relevant tax dates, respondent's warehouse contained merchandise manufactured in the United States (the property taxes paid by respondent on that merchandise is not in dispute) and between 5,000 and 10,000 cartons of imported items, all of which were brought into the United States by respondent for the purpose of sale to consumers through respondent's retail outlets. The imported merchandise consisted of sewing machines manufactured in Scotland, Italy, France, Germany and Japan, home entertainment items, e.g., radios, phonographs, television sets and tape-recorders manufactured in Japan, and wooden storage cabinets manufactured in Norway.

All of the imported sewing machines were manufactured by foreign subsidiary companies of respondent. The Japanese home entertainment items and the Norwegian storage cabinets were manufactured by independent manufacturers in those countries. In the case of the sewing machines and the Norwegian storage cabinets, respondent was the importer of record for customs purposes; it controlled the products from the moment they left the factory until a retail sale was made in this country.

As to the Japanese home entertainment products, a Japanese trading company known as C. Itoh & Co., Ltd., served as an intermediary between respondent and the Japanese manufacturer; such a trading company was required by Japanese trade practices.

Itoh approached suppliers in Japan 'with requirements given to them by the Singer Company, trying to find the products for the Singer Company.' Itoh had no discretion to dispose of the cartons to anyone other than Singer and its function '(was) merely to perform an accommodation service as an expert in Japanese law and customs formalities.' The manufacturing specifications prescribed by respondent were 'very detailed' and all of the merchandise, from the time that it was shipped from the factory, was labeled with respondent's name. At all times respondent rather than Itoh controlled the disposition of the merchandise. The trial court found that respondent was 'the inducing and efficient cause of bringing into this country all of the foreign manufactured goods which pass through the Armona warehouse including the home entertainment items imported from Japan.'

The packaging and transportation of the goods from the factories overseas to respondent's warehouse can be described as follows: All of the items were placed, at the factory, in rectangular cartons of heavy duty cardboard; protective inner packing, such as styrofoam or plastic sheeting was placed inside the carton with the merchandise and the carton was sealed with glue, heavy sealing tape or staples. The packaging was in accordance with a long-standing commercial custom regarding this type of merchandise. The cartons, weighing about 50 pounds each, were hauled overland from the factory by truck-trailer to a shipping port or airport for transportation to the United States. The cartons were loaded aboard ship by various means, depending upon the shipping company involved. Sometimes the cartons were taken out of the trailer and lifted by crane aboard ship on pallets, in slings or in nets. When this happened the individual cartons were stored loose aboard ship for the journey to this country; this method was used for transporting the French and German sewing machines and, for a period of time, the Norwegian storage cabinets.

In some instances, the trailers in which the cartons were hauled from the factory were loaded, with their wheels removed, directly aboard ship by crane. This occurred if the shipping company happened to own the trailer. This method was used to ship the sewing machines from Italy, Scotland and Japan and also was used for the later shipment of storage cabinets from Norway.

Whenever the cartons were placed aboard ship in the trailers, the trailers, with wheels added in the United States, were used to haul the cartons to respondent's warehouse. After the trailer was unloaded it was returned to the shipping company that owned it.

If the cartons were not placed aboard ship in a trailer, but were lifted aboard on pallets, slings or nets, when they reached the United States they were lifted out of the ship on pallets, slings or nets and were loaded into an American truck-trailer to finish their journey to the warehouse.

On the relevant tax dates, the imported merchandise in the Armona warehouse was in the sealed factory cartons with the exception of about eight to ten 'master' cartons which at one time may have been While in the warehouse, the merchandise was stored on pallets or 'slip sheets' in stacks separated by aisles. A slip sheet is a number of boxes which are bound together by bands. The cartons for any given model were grouped together in stacks separate from other models to facilitate inventory control and the filling of shipment orders. The outside of each carton was marked to readily identify the model and country of origin. Although the cardboard cartons were not opened at the warehouse the bands on the slip sheets were broken when the warehouse received an order from New York. Based on this evidence, the trial court found that 'the imported merchandise is clearly segregated in separate stacks from the other contents of the warehouse' and there 'is no commingling of imported and domestically manufactured goods within the Armona warehouse.'

opened to extract inner reshippable cartons of home entertainment items. The contents of these broken master cartons never represented more than $1,000 in full cash value and the property taxes on them would be only $15 per year. The trial court recognized the taxability of these items and deducted $75 from respondent's refund claim.

No retail sales or retail deliveries were made from the warehouse. The retail stores placed their requests for merchandise with respondent's New York headquarters which in turn told the warehouse what shipments to make.

When goods were shipped from the warehouse to one of the smaller warehouses or to a retail store, they were carried by truck-trailer in the factory cartons in which they were imported; they remained in the sealed cartons until sold and the customer's credit had been verified. At that point, the carton was opened and the machine was 'stitched in' by the store personnel to make sure it was operating properly.

TAX IMMUNITY OF GOODS WHILE IN WAREHOUSE

The import-export clause of the federal constitution provides:

'No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its Inspections Laws; . . .' (United States Constitution, article I, § 10, cl. 2.)

The clause prohibits a local tax upon the 'occupation of an importer.' (Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 444, 6 L.Ed. 678, 687.)

'It is sufficient . . . to say, generally, that when the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the state; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the constitution.' (Brown v. Maryland, Supra, 25 U.S. at p. 441 (12 Wheat.) at pp. 441, 442, 6 L.Ed. at p. 686; see also Department of Rev. v. James B. Beam Distill. Co. (1964) 377 U.S. 341, 84 S.Ct. 1247, 1248, 12 L.Ed.2d 362; 71 Am.Jur.2d, State and Local Taxation, § 120.)

Goods lose their character as imports and become 'mixed up with the mass of property in the country' when the importer sells them, removes the goods from the 'original package,' or puts the goods to the use for which they were imported. (Hooven & Allison Co. v. Evatt, 324 U.S. 652, 657, 65 S.Ct. 870, 873, 89 L.Ed. 1252, 1259.)

Appellant concedes that except as to the home entertainment items from Japan, all of the goods retained their status as imports upon arrival at the Armona warehouse. As to the home entertainment items, however, appellant contends that respondent purchased the goods from C. Itoh & Co., Ltd. after they arrived in this country and that the sale terminated their import status, citing Brown v. Maryland, Supra, and Volkswagen Pacific, Inc. v. City 'For the purpose of determining whether petitioner was the importer in the constitutional sense, it is immaterial...