St. Regis Paper Co. v. State, 36466
| Decision Date | 16 January 1964 |
| Docket Number | No. 36466,36466 |
| Parties | ST. REGIS PAPER COMPANY, a corporation, Appellant, v. The STATE of Washington and the Tax Commission of the State of Washington, Respondents. |
| Court | Washington Supreme Court |
Grosscup, Ambler, Miller & Lawrence, Ben C. Grosscup, Wilbur J. Lawrence, Seattle, for appellant.
John J. O'Connell, Atty. Gen., Olympia, John W. Riley, Spec. Asst., Atty. Gen., James A. Furber, Asst. Atty. Gen., for respondent.
Is money received by a manufacturer in overpayment of freight, on lumber and plywood sold and shipped to buyers outside the state, a part of the gross proceeds of such sales?
The state imposes a business and occupation tax on manufacturing. On manufactured articles sold and delivered within the state, the tax applies to either wholesaling (RCW 82.04.270) or retailing (RCW 82.04.250). If the articles are sold and delivered outside the state, the tax is upon manufacturing (RCW 82.04.240).
St. Regis Paper Company manufactures plywood, lumber and other forest products in Washington, which it sells within and outside the state. It issues to separate price lists for its products, one covering sales for delivery within the state, which are f. o. b. the mill, and other for products to be delivered outside the state. The price list for delivery outside the state, unlike that for delivery intrastate, is f. o. b. at point of delivery and includes, as a separate item, the estimated freight costs from point of manufacture to point of delivery.
Lumber, plywood and similar forest products are sold by board foot measure; freight charges are made by weight. Nearly everyone in the railroad and lumbering industries knows that accurate weights cannot be predicted, even for products of the same grades and quantities, because of minute differences in each shipment. Different shipments of the same product will differ in weight because of variances in density, age, moisture content and other factors. Thus, the true or actual freight charges cannot be ascertained until the products are loaded and delivered to the railroad for actual weighing upon the scales. In nearly every instance, the estimated freight charges on out-of-state shipments, to be paid by the consignee, exceed the actual freight charges. The purchaser pays to St. Regis the list price of the products according to its out-of-state price lists, plus the estimated freight charges as computed by St. Regis--this in accordance with the universally accepted custom of the lumbering business. St. Regis retains--in pursuance of this custom--the difference between the estimated freight costs and the actual freight charges. These differentials are known in the business as underweights.
The following table, offered as an example only, illustrates the revenue (based on one carload) derived from underweights in four sample shipments to different destinations from Tacoma:
RATE PER ACTUAL ESTIMATED ACTUAL UNDERWEIGHT
TO 100 LBS WEIGHT FREIGHT FREIGHT REVENUE
New York $1.48 63,960 $1,143.22 $946.61 $196.61
Montana .76 63,960 589.20 486.10 103.10
Indiana 1.48 51,280 897.13 758.94 138.19
Montana .76 51,280 462.63 389.73 72.90
In computing the tax on the privilege of manufacturing, the Tax Commission included the underweight revenues as a part of the gross proceeds derived from the sale of manufactured products under the following sections of the revenue act:
'* * * the amount of the tax with respect to such business shall be equal to the value of the products, including byproducts, manufactured, multiplied by the rate of one-quarter of one percent.
'The measure of the tax is the value of the products, including byproducts, so manufactured regardless of the place of sale or the fact that deliveries may be made to points outside the state.' RCW 82.04.240.
'The value of products, including byproducts, extracted or manufactured shall be determined by the gross proceeds derived from the sale thereof whether such sale is at wholesale or at retail, to which shall be added all subsidies and bonuses received from the purchaser or from any other person with respect to the extraction, manufacture, or sale of such products or byproducts by the seller, except:
'(1) Where such products, including byproducts, are extracted or manufactured for commercial or industrial use;
'(2) Where such products, including byproducts, are shipped, transported or transferred out of the state, or to another person, without prior sale or are sold under circumstances such that the gross proceeds from the sale are not indicative of the true value of the subject matter of the sale. (Italics ours.)
'In the above cases the value shall correspond as nearly as possible to the gross proceeds from sales in this state of similar products of like quality and character * * * plus the amount of subsidies or bonuses ordinarily payable by the purchaser * * *.' RCW 82.04.450.
In this fashion, the state seeks to tax the revenues, as shown in the above table in the right-hand column, as a part of the gross proceeds of sales received from the manufacturing process. St. Regis contends that the revenue act does not include such revenues as a part of the gross proceeds from sales of manufactured products, and if it did it would constitute an unconstitutional burden on interstate commerce. Accordingly, it brings this action against the State Tax Commission for a refund of such amounts of the manufacturing taxes as were based upon the underweights. Issues were framed by stipulation. 1
St. Regis points to its contracts of sale with its customers as taking the underweights out of the revenue act because title to the products shipped does remain in St. Regis until delivery to and acceptance by the buyer; and payment of the freight charges is a part of the act of acceptance. It reads the statute as meaning that no sale takes place until there has been a transfer of either ownership, title or possession, and argues that, under the statutory definition of sale, the incident upon which the tax has been computed does not occur until after acceptance and, thus, is not a part of the revenue derived from manufacturing. Accordingly, it is said, since the transfer of ownership, or title, or possession, does not take place until after acceptance, the products are in fact shipped to the customer without a prior sale of the goods to the customer.
Appellant's argument omits what seems to us to be an integral clause in the above exception, which is that the exception applies if the product is shipped or transported out of the state without prior sale. Then and then only will the gross proceeds from it be computed at the same rate of other similar products sold in the state, to which shall be added, of course, any bonuses subsidies paid by the purchaser.
This exception, we think, is designed to cover the many transactions that do not yield readily to classification as a sale of products, such as exchanges of products, or shipment of products by a company to its subsidiary out of the state for further manufacture or fabrication, or exchanges of products for services where the value of the products to the manufacturer cannot be readily measured. In transactions of this character, the exception (2) would necessarily apply because there would then be no prior sale within the statute. In the instant case, the shipment is made pursuant to a prior sale. The moment when title or possession or ownership transfers is immaterial, for the transaction comes within the revenue act's definition of a sale when the out-of-state order is filled and shipped
St. Regis's understanding of what constitutes a sale is derived from only a part of the revenue act's definition. The term 'sale,' as used in the revenue act, is broad enough to and does, we think, include the out-of-state shipments before delivery and acceptance.
"Sale' means any transfer of the ownership of, title to, or possession of property for a valuable consideration and includes any activity classified as a 'sale at retail' or 'retail sale' under RCW 82.04.050. It includes renting or leasing, conditional sale contracts, leases with option to purchase and any contract under which possession of the property is given to the purchaser but title is retained by the vendor as security for the payment of the purchase price. * * *' RCW 82.04.040.
Accordingly, when St. Regis, in response to a purchase order, loads a boxcar with its products and sends it on its way to the purchaser, it has made a sale to the purchaser within the revenue acts of the state without regard to the point at which title, or ownership, or possession would be said to pass in other fields of law.
The term 'sale' also must be considered in connection with gross proceeds. RCW 82.04.220 applies the business and occupation tax upon the value of the products, gross proceeds of sales, or gross income, as the case may be. We are concerned with the gross proceeds of sales and, in aider, we look to RCW 82.04.450, which declares that the value of the products shall be determined by the gross proceeds derived from their sale, whether at wholesale or retail, including all subsidies and bonuses received from the purchaser, and RCW 82.04.240, which states the measure of the tax is the value of the products os manufactured 'regardless of the place of sale or the fact that deliveries may be made to points outside the state.' (Italics ours.)
Once we reach the point where we need only to ascertain the meaning of gross proceeds of sales, our task becomes simpler because, by statute, it is declared to mean the value proceeding or accruing from the sale with no deduction allowed for the cost of the property to the seller, expressed in terms of money. RCW 82.04.070; RCW 82.04.090. The expression 'gross proceeds'...
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