Swift & Co. v. State Tax Commission

• Decision Date: 15 December 1969
• Docket Number: No. 9749-PR,9749-PR
• Citation: 105 Ariz. 226,462 P.2d 775
• Parties: SWIFT & COMPANY, a corporation, Appellant, v. STATE TAX COMMISSION of Arizona et al., Appellees.
• Court: Arizona Supreme Court

Page 775

462 P.2d 775

105 Ariz. 226

SWIFT & COMPANY, a corporation, Appellant, v. STATE TAX COMMISSION of Arizona et al., Appellees.

No. 9749-PR.

Supreme Court of Arizona, In Banc.

Dec. 15, 1969.

Gust, Rosenfeld & Divelbess, by John C. Wesley, Phoenix, for appellant.

Gary K. Nelson, Atty. Gen., Darrell F. Smith, Former Atty. Gen., James D. Winter, Asst. Atty. Gen., for appellees.

McFARLAND, Justice:

These are Cross-Petitions for Review from a decision of the Court of Appeals, Division One, Swift & Co. v. State Tax Commission, 10 Ariz.App. 10, 455 P.2d 459. The petitioner-plaintiff, Swift & Company (Swift) brought suit in the Superior Court of Maricopa County to recover Transaction Privilege Taxes ¹ and Education Excise Taxes ² imposed by the petitioner-defendant, State Tax Commission (Commission). The taxes were levied on meat and dairy products sold to base exchanges, commissaries and commissioned officers' clubs located on several military bases throughout the State during the period from March 1, 1961, to December 31, 1964. Swift originally paid the sum of $16,524.43 without protest. However, as a result of an audit the Commission made an additional assessment of $19,191.36. Swift paid the latter sum under protest, and followed the procedures set forth in § 42--1339, A.R.S.

The facts not being disputed both plaintiff and defendant made cross-motions for summary judgment, and the Superior Court denied Swift's motion, granted that of the Commission, and entered judgment thereon. Swift appealed from the entire judgment, which by implication included its contention as to non-protested tax payments, although the Superior Court did not explicitly rule on that point because of its disposition of the basic question.

The Court of Appeals reversed the order and judgment of the trial court as to the claim for refund of the protested $19,191.36 payment, and then affirmed the lower court as to the disposition of the original, non-protested payment of $16,524.43, which actually was never determined by that court. Technically, this was error in that the Court of Appeals attempted to affirm a non-existent judgment. In view of this, and our subsequent opinion, the decision of the Court of Appeals will be vacated.

According to the uncontroverted facts and the underlying statutory law it is quite simple--Swift wholesales its products to the various military establishments (not for general troop requirements such as mess halls where, in such case, Swift would undeniably be a retailer) which establishments prepare and resell the food for consumption to qualified base personnel, their families and guests. That the sales involved here are not for direct troop consumption is apparent from the following portion of an uncontroverted affidavit:

'P. L. SAUNDERS, being first duly sworn, upon oath deposes and says:

'I am a Captain in the United States Air Force and am the Commissary Officer at Luke Air Force Base, Arizona. As Commissary Officer, I am in charge of all acquisitions and dispositions of foods and food stuffs handled by the Commissary.

'The Retail Store carries food and hard and soft goods for sale to active and retired military personnel and their families. The Commissary at Luke Air Force Base contracts directly for most of the items carried in the Retail Store. Swift & Company is one of the suppliers to the Retail Store with which the Commissary makes direct contracts. * * * all foods purchased by the Commissary from the local offices of Swift & Company are purchased for the purpose of reselling the same to the Commissary patrons in the Retail Store. None of the food purchased from Swift & Company locally is used for troop feeding requirements.'

That this same resale procedure obtains at the other facilities here involved is pointed out in the following excerpts from other uncontroverted affidavits:

'L. A. CLAUSEN, being first duly sworn, upon oath deposes and says:

'I am employed as Club Manager of the Luke Air Force Base commissioned officers' open mess (Officers' Club). As Club Manager, I am in direct supervision of all Club activities, including those pertaining to the purchase, preparation and sale of all food stuffs.

'The Officers' Club makes periodic purchases of meats, meat products and dairy products from Swift & Company. These items are prepared in our kitchen for sale to and consumption on the premises by the individual members of the Club and their guests in the dining room and snack bar.

'All foods purchased by the Officers' Club from Swift & Company are purchased for the purpose of reselling the same, after any necessary preparation, to Club patrons. * * *'

The Base Exchange Supervisor, J. R. Trammell, averred:

'I am a retired member of the military service and am employed by the Base Exchange at Luke Air Force Base, Arizona. I am presently and for about five and one-half (5 1/2) years have been, the Food Supervisor for the Base Exchange.

'Within my personal knowledge, all such purchases by the Luke Air Force Base Exchange from Swift & Company are made for the purpose of reselling these products as described in the preceding paragraph. * * *'

Clearly then, under the Transaction Privilege Tax statutes, Swift is a wholesaler and thereby is within the tax exemption. Section 42-1301, A.R.S., defines the terms as follows:

'11. 'Retailer' includes every person engaged in the business of making sales at retail, and when in the opinion of the commission it is necessary for the efficient administration of this article, includes dealers, distributors, supervisors, employers and salesmen, representatives, peddlers or canvassers as the agents of the dealers, distributors, supervisors or employers under whom they operate or from whom they obtain the tangible personal property sold by them, whether in making sales on their own behalf or on behalf of the dealers, distributors, supervisors or employers.

'12. 'Sale' means any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatever, of tangible personal property, for a consideration, and includes:

'(a) Any transaction whereby the possession of property is transferred but the seller retains the title as security for the payment of the price.

'(b) The fabrication of tangible personal property for consumers who furnish either directly or indirectly the materials used in the fabrication work and the furnishing, preparing or serving for a consideration of any tangible personal property consumed on the premises of the person furnishing, preparing or serving such tangible personal property.

'13. 'Sale at retail' means a sale for any purpose other than for resale in the form of tangible personal property, but 'transfer of possession', 'lease' and 'rental' as used in the definition of 'sale' means only such transactions as are found upon investigation to be in lieu of sales as defined without the words 'lease or rental'.

'17. 'Wholesaler' or 'jobber' means any person who sells tangible personal property for resale and not for consumption by the purchaser. As amended Laws 1960, Ch. 21, § 1; Laws 1968, Ch. 89, § 84.'

Any doubt as to the tax status of Swift in its dealings with the military customers is resolved by Section 42-1312, subsec. D. A.R.S.:

'D. The sale to hotels, restaurants, dining cars, lunch rooms, boarding houses, or similar establishments of articles used by human beings for food, drink or condiment, whether simple, mixed or compounded, where such articles are customarily prepared and served to patrons for consumption on the premises or on such dining cars, shall be deemed wholesale sales as to such commodities, and the person who then resells such commodities in cooked or prepared form shall be deemed to be engaged in the business classified in § 42-1313. As amended Laws 1967, 3rd S.S., Ch. 8, § 1.'

Section 42-1313, A.R.S., referred to in § 1312, places the tax obligation on the resellers of the food commodities ³:

' § 42-1313. Sales by establishments preparing foods for consumption on premises; distribution

'The tax imposed by subsection A of § 42-1309 shall be levied and collected at an amount equal to two per cent of the gross proceeds of sales or gross income from the business upon every person engaging or continuing within this state in the business of conducting restaurants, dining cars, dining rooms, lunchrooms, lunchstands, soda fountains or similar establishments where articles of food or drink are sold for consumption on the premises or on such dining cars. As amended Laws 1965, 3rd S.S., Ch. 3, § 1. Effective June 29, 1965.'

Thus, the transactions between Swift and the military stores and restaurants were intended for resale to the authorized customers of such facilities for a consideration within the definition of 'sale' in § 42-1301, subsec. 12, supra.

It is manifest that Swift was engaged in the business of wholesaling under the plain terms of the Transfer Privilege Tax Statutes.

The Commission contends that certain regulations, promulgated by it in 1956, under the authority of § 42-1305, A.R.S., transform Swift's status from wholesaler to retailer in these particular dealings with the military facilities. The pertinent regulations follow:

'2.18 Sales to the United States

'All sales to the United States government, its departments, or agencies, are retail sales, being sales to a consumer, and vendors making such sales are required to report and pay the tax thereon as retail sales. * * *.

'2.18.3 Post Exchange or Canteens in Federal Areas

'A sale to a post exchange or canteen operated as a Federal instrumentality is deemed to be a sale to a consumer and is therefore subject to the Transaction Tax less the 50% Deduction. Even though the PX or canteen resells most of the products purchased, as a Federal instrumentality it is not required to be licensed or to report and pay a tax on such sales either pursuant to the Transaction or Use Taxes.

'2.18.4...