State v. Kershaw Mfg. Co.

Decision Date01 February 1962
Docket Number3 Div. 939
Citation273 Ala. 215,137 So.2d 740
CourtAlabama Supreme Court

MacDonald Gallion, Atty. Gen., Guy Sparks, Sp. Asst. Atty. Gen., and Jas. R. Payne, Asst. Atty, Gen., for appellant.

Ball & Ball, Fred S. Ball, Jr., and John R. Matthews, Jr., Montgomery, for appellee.

SIMPSON, Justice.

This is an appeal by the State from a final decree of the Circuit Court of Montgomery County, in Equity, vacating and setting aside a deficiency sales tax assessment made by the State Department of Revenue against The Kershaw Manufacturing Company, a corporation, the appellee here.

During the period of time covered by the assessment, June 1, 1953 through May 31, 1956, Kershaw was in the business of manufacturing various types of railroad maintenance equipment. Seventy-five percent of the equipment manufactured during this period was initially sold to some railroad. Twenty-five percent of the taxpayer's production was initially leased and later either sold to customers or junked.

The single issue involved on this appeal is whether a tax is due on the parts which went into production of the 65 pieces of machinery leased by the taxpayer. The State contends that tax is due on the theory that the leasing of the equipment involved was a 'withdrawal, use or consumption' of tangible personal property bought at wholesale within the meaning of Subsection (j), § 752, Title 51, Code of 1940, as amended. Taxpayer, appellee, on the other hand contends that as the machines were 'manufactured or compounded for sale' within the meaning of such section, the value of such parts was not subject to the sales tax.

It is clear that Subdivision (j), § 752, was enacted to reach transactions which could not be taxed because there was a withdrawal and use or consumption by the purchaser at wholesale but no sale by him to another.--Hamm v. Windham, 254 Ala. 356, 48 So.2d 310; Merriwether v. State, 252 Ala. 590, 42 So.2d 465, 11 A.L.R.2d 918; State Tax Commission v. Burns, 236 Ala. 307, 182 So. 1, all cited in State v. Helburn Co., 269 Ala. 164, 111 So.2d 912.

There is no dispute as to the facts. The sixty-five machines involved in the audit the subject of this litigation, were initially leased by Kershaw to railroads. Forty-four of these sixty-five machines were initially leased under agreements containing written purchase options. Thirty-five of these forty-four lesses exercised the purchase option. Of the remaining nine transactions, six machines were returned to Kershaw, which later sold to railroads other than the original lessee or optionee. Twenty-one machines were leased under agreements containing no written purchase option. Of these, nine were sold finally to the original lessee under an oral purchase option, nine were returned to Kershaw and later sold to another than the original lessee, and three were returned to taxpayer and not later sold. In summary then, forty-four machines were sold to the original lessee under either written or oral purchase options; 12 were leased, later returned, and finally sold to others; 6 machines were returned and scrapped, and 3 were returned to Kershaw and further used.

The appellee argues that the lease agreements which contained options to purchase are conditional sales within the meaning of the sales tax statute. One of the distinguishing features between a conditional sale and a lease is whether or not the lessee is obligated in all events to pay the total purchase price of the subject of the contract. If return of the property is required or permitted the instrument is a lease; but if on the other hand the so-called lessee is absolutely obligated to pay the purchase price, even though such a price is designated as rental or hire, the contract is one of sale. Where the written evidence of the transaction gave the one described as lessee the option of buying the property, in which event the lessee as purchaser was to receive a credit of 75% for all the monthly rentals that he had paid against the purchase price, it was held in Oberan v. Western Machinery Co., 65 Ariz. 103, 174 P.2d 745, not to make the contract one of conditional sale, as there was no obligation on the part of the lessee to pay beyond the rental period. We think that holding is sound and such is precisely the situation involved in the lease agreements we have here.--See cases collated at 175 A.L.R. 1366, et seq.

It appears clear that the agreements involved in this case were leases, which did not...

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21 cases
  • Town of Lovell v. Menhall
    • United States
    • Wyoming Supreme Court
    • October 29, 1963
    ...9 Cir., 257 F.2d 56, 17 Alaska 592; Oberan v. Western Machinery Co., 65 Ariz. 103, 174 P.2d 745, 748; State v. Kershaw Manufacturing Company, 273 Ala. 215, 137 So.2d 740, 742; Lee Const. Co. v. L. M. Ray Const. Corp., 219 La. 246, 52 So.2d 841; Hansen v. Kuhn, 226 Iowa 794, 285 N.W. 249, 25......
  • Ex parte Sizemore
    • United States
    • Alabama Supreme Court
    • September 18, 1992
    ...of its lumber from inventory to use in repairs, improvements and maintenance of its own facilities. In State v. Kershaw Manufacturing Co., 273 Ala. 215, 137 So.2d 740 (1962), the court held that the leasing of machines manufactured by Kershaw constituted a taxable withdrawal, noting that Ke......
  • Pinson v. Veach
    • United States
    • Alabama Supreme Court
    • October 3, 1980 the evidence, the presumption of correctness in favor of the trial court should not be applied in our review. State v. Kershaw Mfg. Co., 273 Ala. 215, 137 So.2d 740 (1962); Wright v. Price, 226 Ala. 591, 147 So. 886 We conclude that the appellants failed to meet their burden of proof to ......
  • State v. Morrison Cafeterias Consol., Inc. of Delaware
    • United States
    • Alabama Supreme Court
    • August 30, 1985
    ...there must, of necessity, be a personal and private use or consumption by the manufacturer. See, e.g., State v. Kershaw Mfg. Co., 273 Ala. 215, 137 So.2d 740 (1962). State v. Kershaw Manufacturing Company, Inc., 372 So.2d 1325 In the present case, the State argues that the food Morrison pro......
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