Sugarman v. State Bd. of Equalization

• Court: California Court of Appeals
• Writing for the Court: KAUFMAN
• Citation: 327 P.2d 564
• Parties: E. SUGARMAN, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant. * Civ. 17816.
• Decision Date: 21 July 1958

Page 564

327 P.2d 564 E. SUGARMAN, Plaintiff and Respondent,
v.
STATE BOARD OF EQUALIZATION, Defendant and Appellant. ^* Civ. 17816. District Court of Appeal, First District, Division 2, California. July 21, 1958.
Hearing Granted Sept. 17, 1958.

Edmund G. Brown, Atty. Gen., James E. Sabine, Asst. Atty. Gen., Ernest P. Goodman, Eugene B. Jacobs, Deputies Atty. Gen., for appellant.

Walter E. Drobisch, San Francisco, for respondent.

KAUFMAN, Presiding Justice.

The plaintiff brought this action to secure a refund of $3,206.83 in use tax, penalties and interest, paid by him on a yacht imported from Holland. The case was tried without a jury. The court held that the tax was prohibited under Article I, section 8, clause 3, and Article I, section 10, clause 2 of the Constitution of the United States, and entered judgment in favor of the plaintiff. Defendant appeals. The sole issue on appeal is whether the yacht lost its constitutional exemption as an import after its arrival and use in this state.

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The facts are not in dispute. The plaintiff E. Sugarman is a resident of the City and County of San Francisco, State of California. On January 25, 1953, the plaintiff entered into a written agreement with a shipbuilding firm in Amsterdam, Holland, for the construction of a yacht for $65,000. The plaintiff purchased from retailers in California, certain additional machinery which was to be installed in the yacht by the shipbuilder. This additional machinery which was manufactured in Michigan, was exported by manufacturer from Detroit directly to the shipbuilding firm in Amsterdam, without first being delivered to the plaintiff in California. The cost of the additional machinery was $16,340.23. The total cost of the yacht to the plaintiff was $81,340.22. The plaintiff purchased the yacht and all equipment with the intent of using them in California.

Between January 10, 1953 and October 25, 1953, the yacht was constructed and the additional machinery installed. On October 25, 1953, the shipbuilding firm delivered the yacht to the plaintiff in Amsterdam, Holland, where the plaintiff had gone for that purpose. The plaintiff was accompanied by a resident of California who was employed by the plaintiff to become skipper of the yacht immediately on delivery. On that day, the Dutch flag was replaced by the flag of the United States. For several days, the plaintiff, accompanied by his skipper and representatives of the shipbuilding firm, who were aboard to check the operations of the yacht, made daily cruises for pleasure and as shakedown runs, in the vicinity of Amsterdam. On November 5, 1953, the yacht was personally delivered by the plaintiff to a freighter at Rotterdam, Holland and consigned to the plaintiff in San Francisco. The plaintiff and representatives of the shipbuilding firm assisted and supervised the loading of the yacht on the upper deck of the freighter. To protect the yacht from damage, it was enclosed in protective coverings and cratings. The plaintiff's skipper accompanied the yacht on the freighter in order to see that these protective coverings remained secure and to take care of the yacht during the voyage.

On December 7, 1953, the plaintiff paid all duties to the United States Collector of Customs in San Francisco, a sum of $9,413.40. On December 9, 1953, the freighter carrying the yacht arrived in San Francisco. Twenty-four hours later, the yacht was removed from its protective coverings and crates and lifted into San Francisco Bay. The plaintiff immediately piloted the yacht under its own power to a berth in Sausalito, California. Because of the illness of the plaintiff's wife and certain changes in the yacht necessitated by law and subsequently made by a Sausalito shipbuilding firm, the yacht was not used for about six months after its arrival in Sausalito. During this period the skipper lived aboard the yacht. It is an admitted fact that since that time the yacht has been used by the plaintiff solely for pleasure cruises in California. No sale, use or excise tax has been assessed by or paid to any state or nation with respect to the yacht and its equipment except the tax which is the subject of this action. Within the proper time and in accordance with the procedure prescribed by law, the defendant made two determinations of use tax against the plaintiff; one for the use of the yacht in California and one for the use of the additional machinery in California. After notice of these determinations, the plaintiff petitioned for redetermination. His petition was denied. Thereafter, the plaintiff filed a timely claim for a refund, and on refusal of the claim, the plaintiff filed this action.

The basic contention of the defendant is that the challenged tax does not violate the export-import clause of the United States Constitution, or the commerce clause of the United States Constitution, as found by the court below. Plaintiff relies on Rev. and Taxation Code, section 6352, which expressly exempts from the operation of the use tax any taxes prohibited by the Constitution of the United States. The use tax provides that 'Every person storing, using, or otherwise consuming in

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this State tangible personal property purchased from a retailer is liable for the tax.' (Rev. & Tax.Code, section 6202.) The general purpose, nature and constitutionality of the California use tax have long been determined and need not be discussed in detail. Douglas Aircraft Co., Inc. v. Johnson, 13 Cal.2d 545, 90 P.2d 572; Southern Pac. Co. v. Gallagher, 306 U.S. 167, 59 S.Ct. 389, 82 L.Ed. 586; Chicago Bridge & Iron Co. v. Johnson, 19 Cal.2d 162, 119 P.2d 945; Johnson v. Los Angeles County, 31 Cal.App.2d 579, 88 P.2d 725; Brandtjen & Kluge, Inc. v. Fincher, 44 Cal.App.2d Supp. 939, 111 P.2d 979. These authorities, however, deal chiefly with the application of the use tax in situations where it was erroneously contended that the tax violated the commerce clause of the United States Constitution. It is not necessary, therefore, to discuss the commerce clause aspect of the judgment appealed from. The question of the applicability of the California use tax in a situation such as this one, where it is contended that the tax violates Article I, section 10, clause 2, has never been presented.

Article I, section 10 of the Constitution of the United States contains an enumeration of those powers that are prohibited to the states. Clause 2 of that section reads as follows: 'No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.' In interpreting this provision in Brown v. Maryland, 1827, 12 Wheat. 419, at pages 439 and 440, 6 L.Ed. 678, Chief Justice Marshall said:

'It may be conceded, that the words of the prohibition ought not to be pressed to their utmost extent; that in our complex system, the object of the powers conferred on the government of the Union, and the nature of the often conflicting powers which remain in the states, must always be taken into view, and may aid in expounding the words of any particular clause. But while we admit that sound principles of construction...