Standard Oil Co. v. State

• Decision Date: 29 December 1937
• Docket Number: No. 91.,91.
• Citation: 283 Mich. 85,276 N.W. 908
• Parties: STANDARD OIL CO. v. STATE et al.
• Court: Michigan Supreme Court

283 Mich. 85

276 N.W. 908

STANDARD OIL CO.

v.STATE et al.

No. 91.

Supreme Court of Michigan.

Dec. 29, 1937.

Action by the Standard Oil Company, an Indiana corporation, against the State of Michigan and others. From a judgment for plaintiff, defendants appeal.

Affirmed.Appeal from Circuit Court, Wayne County; Sherman D. Callender, judge.

Argued before the Entire Bench.

Raymond W. Starr, Atty. Gen., and Edmund E. Shepherd, Asst. Atty. Gen., for appellants.

Arthur J. Abbott, of Detroit, for appellee.

SHARPE, Justice.

This is an action for the recovery of sales taxes paid by plaintiff to the State of Michigan. The facts are not in dispute. The State of Michigan through its State Board of Tax Administration assessed the plaintiff company $484.05 on what is known as cash discounts; $994.85 on what is known as quantity discounts; and $27,599.48 as sales tax on the amount of the federal excise tax on gasoline and lubricating oil sold in retail sales transactions by plaintiff as the manufacturer to consumers for use. Plaintiff paid the above taxes and brings suit for refund. This case involves the validity of sales taxes as to the items above enumerated assessed by appellants on plaintiff's retail sales transactions throughout the State of Michigan for the period of July 1, 1933, to and including August 31, 1934. This action does not challenge the general constitutionality of the Michigan sales tax statute, Act No. 167, Pub.Acts 1933, but the legality of its administration.

During the period above mentioned plaintiff was assessed the sum of $484.05 as sales tax on the amount of cash discounts allowed by it to its customers in the regular course of its business within the State of Michigan.

The assessment was made upon the theory that the excise exacted by the General Sales Tax Act is an annual ‘tax imposed upon the privilege of making retail sales, measured by the gross proceeds of such sales, less deductions allowed by statute’; that under the above act, section 1(b.1), the term ‘sale at retail’ means: ‘any transaction by which is transferred for consideration the ownership of tangible personal property’; that ‘gross proceeds' means: ‘the amount received in money, credits, property or other money's worth in consideration of sales at retail within this state, without any deduction on account of the cost of the property sold, the cost of materials used, the cost of labor or services purchased, amounts paid for interest or discounts, or any other expenses whatsoever, nor shall any deduction be allowed for losses. Credits or refunds for returned goods may be deducted,’ Act No. 167, Pub.Acts 1933, § 1(c); and that a ‘cash discount’ is purely an element of business expense and may not be deducted from gross proceeds. Plaintiff contends that a ‘cash discount’ is not a ‘proceed’ of a sale and cannot be considered as a basis for the imposition of the sales tax; and that such a tax is a tax on money never received as a part of gross proceeds.

The trial court held that, in the allowance of a cash discount, the seller gives the buyer an option to pay either one of two prices, the invoice price less discount if paid within 10 days or a specified time, or the invoice price without discount if not paid within such time; and that, if the customer elects to pay the discount price within the discount period, the amount so paid is the ‘gross proceeds' of the transaction.

In our discussion of this case and the construction of the statutes applicable thereto, we shall have in mind the general rule that tax laws are to be liberally construed in favor of the taxpayer.

‘In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen.’ Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211.

In the case of In re Dodge Brothers, 241 Mich. 665, 217 N.W. 777, 779, this court said: ‘Tax exactions, property or excise, must rest upon legislative enactment, and collecting officers can only act within express authority conferred by law. Tax collectors must be able to point to such express authority so that it may be read when it is questioned in court. The scope of tax laws may not be extended by implication or forced construction. Such laws may be made plain, and the language thereof, if dubious, is not resolved against the taxpayer.’ See, also, J. B. Simpson, Inc., v. O'Hara, 277 Mich. 55, 268 N.W. 809; and Montgomery Ward & Co. v. Fry, 277 Mich. 260, 269 N.W. 166.

Under our present sales tax law, there is no specific provision for cash or trade discount. The word ‘discounts' as employed in section 1 of the act refers to ‘discounts' paid by the vendor to a bank or other discounting agency to have bills of exchange or promissory notes and other negotiable paper paid before maturity. Appellants contend that a cash discount is an expense of operation, and therefore should be included in the term ‘gross proceeds.’

In Arizona, California, Indiana, Mississippi, South Dakota, and West Virginia the statutes expressly provide that cash discounts allowed and taken are not to be included within the tax. Haig and Shoup, ‘Sales Tax in the American States,’ p. 629. In Haig and Shoup on page 629 the authors state that the New York regulations provide that trade and cash discounts taken are not to be taxed, although the statute makes no specific provision for either trade or cash discounts. The authors further say: ‘A similar ruling may be expected elsewhere, despite general language common to all the statutes except those of North Carolina and Utah, to the effect that no deduction is to be allowed for ‘any other expense whatever’ and the possibility of argument that the discount is the price paid or the expense incurred by the seller for procuring immediate payment.'

The Department of Taxation and Finance of the State of New York, in construing a New York statute which is similar to ours, says: ‘The ‘total amount of the sale price’ does not include trade and cash discounts. This is obviously true of trade discounts, and in the case of a cash discount, the seller gives the buyer an option to pay either one of two prices, viz.: The price less discount if paid within a specified time or the price without discount if not paid within such time. For instance, if A sells to B a bill of goods for $100, net thirty days, with two per cent off for cash in ten days, B may choose which option or price he will select. If he pays in ten days, A accepted $98 as the selling price of the goods and that is the sum which should be included by A in taxable receipts. If, on the other hand, B elects not to pay in ten days, the selling price if $100 and that is the sum which A must include in receipts.' Regulation No. 7.

The State of Washington has a sales tax law which provides: ‘The term ‘gross proceeds of sales' means the value proceeding or accruing from the sale of property without any decuction on account of the cost of property sold, expenses of any kind, or losses.’ Laws 1933, ch. 191, p. 869, § 1(8).

Under this law the following regulations were adopted:

‘Art. 450.03 Cash discounts-In computing tax there may be excluded or deducted, whichever is applicable, by the seller only, the amount of cash discount actually taken by the purchaser. ‘Cash discount’ means a deduction from the invoice price of goods or articles or charges for services allowed if the bill is paid on or before its due date (8-16-34).'

‘Art. 450.04 Trade discounts-In computing tax there may be excluded or deducted, whichever is applicable, by the seller only, amounts attributable to trade discount. The term ‘trade discount’ as here used, applies to the amount by which a seller reduces, in accordance with a contract of sale, either by discount or rebate, the list or invoice price of articles sold. It does not include discounts or rebates given to a purchaser in return for services rendered for the seller by the purchaser (8-16-34).'

In Miles v. Department of Treasury, 209 Ind. 172, 199 N.E. 372, 381, 101 A.L.R. 1359, the Supreme Court of Indiana held that discounts are not a part of gross income, the court saying:

‘Clause f of section 1 of the act defines the term ‘gross income’ as the gross receipts of the taxpayer from all sources, but exempts from the income covered by the definition, cash discounts on sales, freight prepaid and repaid by the purchaser, goods sold and returned when the sale price is refunded, and the sale price of an article accepted as part payment on any new article sold, when the full price of the new article is included in the gross income. * * * The first sentence is obviously intended to simplify accounting [referring to the sentence involving discounts], since it excludes things which are not, in fact, income. * * *

‘It is contended that the word ‘income,’ as used in the title of the act, is not broad...