Stevens Enterprises v. Stone, 39922

• Decision Date: 13 February 1956
• Docket Number: No. 39922,39922
• Citation: 226 Miss. 806,85 So.2d 461
• Parties: STEVENS ENTERPRISES, Inc., a Mississippi Corporation, v. A. H. STONE, Chairman, State Tax Commission, Revived, as Alex McKeigney, Chairman, State Tax Commission.
• Court: Mississippi Supreme Court

Page 461

85 So.2d 461

226 Miss. 806

STEVENS ENTERPRISES, Inc., a Mississippi Corporation, v. A. H. STONE, Chairman, State Tax Commission, Revived, as Alex McKeigney, Chairman, State Tax Commission.

No. 39922.

Supreme Court of Mississippi.

Feb. 13, 1956.

Wells, Thomas & Wells, Charles Clark, Jackson, for appellant.

John E. Stone, Howard B. Trimble, Jackson, for appellee.

GILLESPIE, Justice.

Stevens Enterprises, Inc., appellant, hereinafter called taxpayer, sued the Mississippi State Tax Commissioner, hereinafter called Commissioner, for a refund of sales taxes. The declaration was in four counts, each of which will be dealt with separately.

Counts one and two of the declaration were for the recovery of payments of sales taxes made for two different periods of time between January 11, 1949, and March 1, 1953, under what will herein be called a 'rental contract.' There were several of these rental contracts for the vending of candy, cup drinks, etc., all of which were substantially the same and controlled the business of the taxpayer for the period January 11, 1949, to March 1, 1953. The rental contract provided that taxpayer leased certain vending machines to the United States Air Force Post Exchange at Keesler Field, herein called Post Exchange. The contracts were prepared at Keesler Field and appeared to be forms used by the United States Air Force Exchange Service. The contract, among other things, provided that the Post Exchange could cause to be removed any machine they desired and cause it to be stricken from the lease; that the vending machines were to be placed as designated by the Post Exchange; that taxpayer keep the machines in repair and maintain them in a clean, attractive and sanitary condition to the satisfaction of the Post Exchange; that taxpayer would, at its expense, keep the machines stocked with merchandise; that taxpayer and its employees were subject to the control of the Post Exchange and military regulations, but such employees of taxpayer were not to be deemed employees of the Post Exchange; that taxpayer could not employ any person to which the Post Exchange objected; that taxpayer be required to furnish all or such parts of the merchandise for the vending machines as the Post Exchange might request, at or below prices specified by the Post Exchange; that whenever taxpayer supplied merchandise, duplicate invoices were to be furnished the Post Exchange and such merchandise was to belong to the Post Exchange from the time of delivery to them until vended in the machines; that the specific brands of merchandise to be sold was to be designated by the Post Exchange officials, together with the price at which it could be sold; that the Post Exchange had the right to buy the merchandise to be sold in the machines and deliver it to taxpayer, in which event taxpayer would be bailee of the merchandise, responsible therefor to the Post Exchange; that title to the vending machines was to remain in taxpayer and Post Exchange would provide reasonable protection against loss and pilferage; that taxpayer pay all necessary permits, license fees, taxes, and comply with all applicable laws and regulations; that taxpayer provide various forms for insurance therein specified; that taxpayer account to the Post Exchange for the retail sales value of all merchandise vended in the machines and maintain accountability records as prescribed; that taxpayer be paid a percentage of the retail sales value of the vended merchandise (80% to 87 1/2%) for all services and as rental under the contract; that settlement was to be made as agreed, but not less frequently than once a month; that either party could terminate the contract on thirty days' notice, or for cause by the Post Exchange; that the contract was the obligation of the Post Exchange and not that of the United States Government; that the Post Exchange had a right of supervision over entire operations conducted by taxpayer under the contract and to make inspections and audits.

About 200 machines were furnished by the taxpayer under the rental contract and placed at various places on Keesler Air Force Base as directed by the Post Exchange.

As to the retail sales made through these vending machines under the rental contract arrangement, the question is whether the sales were those of the taxpayer or the Post Exchange. The position maintained by the Commissioner is that if taxpayer had lived up to the contract there would have been no sales tax liability on its part; but that taxpayer's actual operations were such that it abandoned the contract and conducted the business in such manner, not within the terms of the contract, that the sales were actually those of the taxpayer and were taxable as such against taxpayer.

Substantially, the Commissioner's position as to abandonment of the contract is based on the following facts: (1) The Post Exchange never issued checks to taxpayer for merchandise put into the machines or into the warehouse except for one time when the Post Exchange issued taxpayer a check for the inventory in the machines and after which the taxpayer, some months later, returned a check for the same amount, which amounted to a mere swapping of checks, otherwise, the operations were the same, and during which period, no tax is claimed. (2) Taxpayer kept the merchandise in a warehouse on the base until that warehouse was no longer available, and after which the taxpayer provided at its expense a warehouse off the base. (3) Taxpayer's employees were bonded in favor of the taxpayer. (4) Taxpayer made good losses to soldiers who placed coins in the machines and got no merchandise in return. (5) Taxpayer absorbed the loss from spoilage of candy or other merchandise. (6) Taxpayer stood the loss when the machine would 'jackpot' because of mechanical failure and release all candy on insertion of one nickel. (7) Taxpayer stood the loss from pilferage from the machines. (8) During most of the time, taxpayer collected all the money and remitted to the Post Exchange with the cover letter designating the remittance as 'commissions' to the Post Exchange. (9) The profit and loss statements required by the Post Exchange to be furnished by taxpayer showed the amounts realized by the Post Exchange as 'rental to location owners.' (10) The invoices for the merchandise brought on the base read 'sold on' and 'delivered to' Keesler Air Force Base.

Additional uncontradicted proof showed that the entire operation was under the direction and control of Post Exchange officials, and that any changes made in the operation from the terms of the contract were because of the demands of Post Exchange officials, including the method of invoicing the merchandise, the making of reports and accountability records to the Post Exchange; that orders were made and countermanded at the will of whoever was in charge of the Post Exchange at the time; that perpetual inventories were required and kept by taxpayer and daily reports made to Post Exchange of every candy bar sold in every one of about 200 machines; that the reports and records required of taxpayer were such that the Post Exchange could tell at any time the exact status of the operation to the last detail of each machine; that Post Exchange kept keys along with taxpayer to the warehouse and at times to the money boxes in the individual machines, and inventoried the merchandise in the warehouse when it desired; that as the machines were serviced, Post Exchange men could and did go with employees of taxpayer; that the Post Exchange had varying rules as to the daily handling of receipts, sometimes taking the money themselves and remitting the amount due taxpayer, and at other times, directing the taxpayer to deposit the money in the latter's account and remit the net to the Post Exchange monthly; that the Post Exchange required machines to be put in and taken out on any place on the base that it desired; that no truck used by taxpayer could enter or leave the base except under leave of the Post Exchange; that no merchandise could be brought on the base except on authorized freight bill; that Post Exchange records showed the total retail sales as sales of the Post Exchange, with the amount paid taxpayer under the contract as the cost of sales; that the purpose of the entire operation was to be of service to the...