Southwestern Bell Tel. Co. v. Morris, 48537

• Decision Date: 13 March 1961
• Docket Number: No. 48537,48537
• Citation: 345 S.W.2d 62,85 A.L.R.2d 1033
• Parties: SOUTHWESTERN BELL TELEPHONE COMPANY, Respondent, v. M. E. MORRIS, Director of Revenue, Appellant. . Banc
• Court: Missouri Supreme Court

Page 62

345 S.W.2d 62

85 A.L.R.2d 1033

SOUTHWESTERN BELL TELEPHONE COMPANY, Respondent, v. M. E. MORRIS, Director of Revenue, Appellant.

No. 48537.

Supreme Court of Missouri, En. Banc.

March 13, 1961.

Rehearing Denied April 10, 1961.

Thomas F. Eagleton, Atty. Gen., James E. Conway, Asst. Atty. Gen., for appellant.

John Mohler, Wm. C. Sullivan, St. Louis, Hendren & Andrae, Jefferson City, for respondent.

LEEDY, Judge.

By this administrative review proceeding Southwestern Bell Telephone Company has challenged the validity of assessments made upon purchases of certain tangible personal property made outside of Missouri, and subsequently used by it in this state in the rendition of its public utility services. The statute involved is the 'Compensating Use Tax Law,' Secs. 144.600 to 144.745, RSMo 1959 and V.A.M.S., as added by Laws 1959, H.B. No. 35, Secs. 1-30, which went into effect August 29, 1959, and the assessments in question arose out of purchases made by the protesting taxpayer during the first four months of the operation of that law. The extent of such purchases (and, correspondingly, an idea of the efficacy of the new law as a revenue measure) is reflected by the fact that the disputed tax amounts to more than $150,000, which sum Southwestern Bell paid under protest. The proceeding went to the Cole Circuit Court on petition for review (Sec. 144.685), ¹ which court found the Act in question, the Compensating Use Tax Law, to be unconstitutional, and reversed the decision of the Director, decreed that no use tax was due or owing by plaintiff, and ordered that the taxes paid under protest be refunded to plaintiff, from which judgment the Director of Revenue has appealed.

Section 144.610 imposes the tax and reads, in pertinent part, as follows: '1. A tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property purchased on or after the effective date of sections 144.600 to 144.745 in an amount equivalent to two per cent of the sales price of the property. This tax does not apply with respect to the storage, use or consumption of any article of tangible personal property purchased, produced or manufactured outside this state until the transportation of the article has finally come to rest within this state or until the article has become commingled with the general mass of property of this state.'

The next section, 177.615, specifies the exemptions, as follows:

'(1) Property, the storage, use or consumption of which this state is prohibited from taxing under the constitution or laws of the United States or of this state;

'(2) Property, the gross receipts from the sale of which are required to be included in the measure of the tax imposed under the Missouri sales tax law;

'(3) Tangible personal property, the sale of which, if made in this state, would be exempt from or not subject to the Missouri sales tax under the provisions of subsection 2 of section 144.030 and section 144.040, RSMo;

'(4) Motor vehicle subject to the motor vehicle use tax;

'(5) Tangible personal property which has been subjected to a tax by any other state in respect to its sales or use; provided, if said tax is less than the tax imposed by sections 144.600 to 144.745, said property, if otherwise taxable, shall be subject to a tax equal to the difference between said tax and the tax imposed by sections 144.600 to 144.745;

'(6) Tangible personal property held by importers, manufacturers, wholesalers, or jobbers solely for resale in the regular course of business;

'(7) Materials, manufactured goods, machinery and parts, which, when used in manufacturing, processing, compounding, fabrication or germination, become an integral part of the new personal property or service resulting from such manufacturing, processing, compounding, fabrication or germination and which new personal property or service is intended to be sold ultimately at retail for final use or consumption;

'(8) Repair materials, replacement parts and equipment not readily obtainable in the state of Missouri purchased for use directly upon, and for the repair and maintenance of motor vehicles, railroad rolling stock or aircraft engaged in interstate or foreign commerce as common carriers of persons or property;

'(9) Machinery and equipment, other than replacements, not readily obtainable in Missouri which are purchased for and used directly in manufacturing, mining, processing or producing a product which is intended to be sold ultimately for final use or consumption;

'(10) Tangible personal property, not readily obtainable in the state of Missouri, which is used exclusively in the manufacturing, processing, modification or assembling of products sold to the United States government or to any agency of the United States government;

'(11) Rental of films, records, or any type of sound or picture transcribing to radio and television broadcasting stations, directly used for broadcasting purposes;

'(12) Personal and household effects and farm machinery used while an individual was a bona fide resident of another state and who thereafter became a resident of this state, or tangible personal property brought into the state by a nonresident for his own storage, use or consumption while temporarily within the state;

'(13) Animals or poultry used for breeding or feeding purposes.'

The first six of the foregoing exemptions are not in controversy. It will be seen that they are more or less conventional in form and substance. Those numbered (7) through (11), and particularly (7) and (9), are the ones directly giving rise to some of the questions sought to be raised on this particular appeal.

The bulk of respondent's out-of-state purchases of property whereon the state seeks to impose the use tax consisted of central office equipment, telephone instruments and other station apparatus, and outside plant, including poles, cable, wire and conduit, all of which were admittedly used in the operation of the telephone company's business, in the conduct of which it rendered among other communications services the following: Voice communication, transmission of teletype wire and telegraph messages, and the transmission of radio and television broadcasts.

Southwestern Bell claimed below, and reasserts here (in answer to appellant's assignment that the court erred in finding the Act unconstitutional), that by reason of exemptions (7) and (9) it is exempt from the imposition of the tax as to the property in question; and, alternatively, it claims that if exemptions (7) and (9) be not so construed, then the whole Act is rendered unconstitutional because of those very exemptions, as well as others.

In this situation, we examine first the question of the constitutionality of the Act as affected by the provisions of exemptions (7) and (9), irrespective of whether respondent's purchases are or are not to be deemed within either the spirit or letter of those exemptions, this because, if such exemptions or either of them render the Act unconstitutional, it would avail respondent nothing to find that the questioned purchases were within the literal meaning of an invalid exemption. The state's brief was confined to the constitutional issue, but respondent took the position in its brief that the issue of construction of the two exemption sections was properly before the court, since the construction urged by it would sustain the circuit court's judgment should this court hold the Act to be constitutional. There is nothing to indicate that the court construed the exemption provisions except as undoubtedly bearing on the constitutional issue. The matter of construction is dealt with by appellant only in its reply brief. The judgment below does not indicate the grounds or reasons on which its finding of unconstitutionality was based. This case and Missouri Pacific Railroad Co. et al. v. Morris et al., Mo., 345 S.W.2d 52, concurrently decided herewith, are companion cases and were submitted on the same day. They are test cases and in challenging the constitutionality of the Act both invoke precisely the same constitutional provisions, so to this extent they are as closely related as twins. In these circumstances, and because the questions presented are of public interest and concern, we shall consider the briefs in both cases in determining the constitutional issue.

It is contended that the Act is void (among other reasons) because contrary to the Constitution of Missouri, V.A.M.S., and particularly Sec. 3 of Art. X and Secs. 2 and 10 of Art. I, and contrary to the Constitution of the United States, and particularly Amendment XIV thereof, in that such law denies respondent equal protection of the law by imposing a tax upon the use of property by respondent while exempting from such tax the use of equivalent and corresponding property by other members of the same class. This is another way of saying, as does the brief in the companion case, that the exemptions are not based on differences reasonably related to the purpose of the law, and thereby establish unreasonable, arbitrary and discriminatory classifications, in violation of the constitutional provisions last above mentioned. The case of State ex rel. Transport Mfg. & Equip. Co. v. Bates, 359 Mo. 1002, 224 S.W.2d 996, and City of Cape Girardeau v. Fred A. Groves Motor Co., 346 Mo. 762, 142 S.W.2d 1040, exemplify the required constitutional principle of uniformity thus invoked. In the former our original use tax act (Laws 1947, Vol. II, p. 431 et seq., which was selective in nature, being limited to motor vehicles required to be registered in Missouri) was declared unconstitutional because exempting motor vehicles having a seating capacity of ten passengers or more, thus arbitrarily excising out of the class created for the purposes of the act a sizeable segment naturally falling within such classification. In the Groves Motor Company case an ordinance imposing a...