Thys v. State

Decision Date04 November 1948
Docket Number30281.
Citation199 P.2d 68,81 U.S.P.Q. 222,31 Wn.2d 739
PartiesTHYS et al. v. STATE.
CourtWashington Supreme Court

Rehearing Denied Dec. 13, 1948.

Appeals by Ed Thys and another, copartners, doing business as Thys &amp Miller, from assessments of business and occupation taxes and retail sales taxes and certain orders and decisions of the State Tax Commission. From a judgment awarding appellants the amounts of alleged illegal taxes paid by them under protest vacating the Commission's orders, enjoining the Commission from enforcing or collecting taxes on alleged patent royalties due plaintiffs, and declaring that appellants are not liable for any such taxes and are not doing business in the state, the state appeals.

Reversed and remanded with instructions.


Appeal from Superior Court, Thurston County; D. F. Wright, Judge.

Smith Troy, Philip W. Richardson and Lucile Lomen, all of Olympia, for appellant.

Cheney & Hutcheson, of Yakima, for respondents.

BEALS Justice.

The plaintiffs, Ed. Thys and Albert K. Miller, copartners doing business as Thys & Miller, appealed to the superior court from two tax assessments and from certain orders and decisions of the tax commission of the state of Washington, alleging in their notices of appeal and complaints that the commission had imposed an assessment against plaintiffs for alleged business and occupation taxes and retail sales taxes, purported to have been levied pursuant to Titles II and III of the Revenue Act of 1935, as amended, in the sums of $3,080.37 and $11,772.43 respectively; that plaintiffs had paid the sums claimed as taxes, under protest, and that the taxes were levied without lawful authority and were illegal. Plaintiffs demanded judgment against the state of Washington for the amounts which they contended were illegally levied against them.

The defendant, state of Washington, having filed its answers asserting the legality of the taxes so levied, the two appeals were consolidated, both for hearing Before the superior court and for hearing Before this court in the event of an appeal.

Trial of the issues presented Before the court resulted in the entry of a judgment in plaintiffs' favor for the amounts demanded, and vacating the orders of the state tax commission appealed from. The judgment also enjoined the tax commission from enforcing or collecting any taxes based upon royalties due plaintiffs, and, by way of a declaratory judgment, found that plaintiffs 'are not and shall not be liable to the State of Washington for any taxes of any kind or character whatsoever with reference to or by reason of' certain hop-picking machine royalties, and that plaintiffs were not doing business in the state of Washington.

From this judgment, the state of Washington has appealed, assigning error upon the reversal of the orders of the state tax commission, and upon the entry of judgment against the state for the amounts, plus interest, which respondents had paid under protest. Error is also assigned upon the court's finding that respondents are not doing business in the state of Washington, and upon the court's declaratory judgment that certain sums collected by respondents by way of royalties are not taxable by the state of Washington.

Respondents are copartners engaged in business in Sacramento, California, as manufacturers and vendors of hop-picking machines. They own certain United States patents and licenses of other patents covering such machines, and sell the machines covered by these patents within the state of Washington and elsewhere.

In brief, respondents' business operations in the state of Washington may be described as follows: During the year 1940, William Gamache, a hop grower residing in Yakima county, visited California and saw in operation the hop-picking machines manufactured by respondents. Respondents delivered to him two of these machines which Gamache tested in his hop fields, and which he purchased, finding them satisfactory. Other hop growers in the vicinity became interested in respondents' hop-picking appliances, and consulted Lindeman Power Equipment Company (hereinafter referred to as Lindeman), a manufacturer of farm machinery in Yakima, the management of the company becoming interested in respondents' machines.

In the fall of 1940, after some negotiations, respondents entered into a contract with Lindeman, which was thereafter renewed from year to year, with some modifications. Several of these agreements are in evidence, and, from that dated November 1, 1944, which is fairly typical of all of them, we summarize the contract as follows: Respondents are named in the agreement as first parties, and the Lindeman corporation as second party. First is stated a list of the patents owned or controlled by respondents, then the parties agree upon the number of machines to be manufactured during the following year, in preparation for sale for the hop-picking season, on or Before August 1, 1945. Pertinent paragraphs of the agreement read as follows:

'(3) First party shall pay to the second party the full amount of the price received from the grower purchaser for each of the machines manufactured for the 1945 harvest, less the amount specified as a compensation in Paragraph 12, namely $500.00. The sale price to the grower for the 1945 season shall be not less than $6,000.00 nor more than $6,350.00 per machine unless mutually agreed upon between the parties hereto.
'(4) Design of the machines to be manufactured may be altered as mutually agreed upon.
'(5) Second party shall maintain records and accounts relative to its manufacture of said machines and shall make such records and accounts availabel to first party, and shall report expenses, materials on hand, and progress of construction as first party may demand.
'(8) Second party at its cost or expense shall carry full and adequate insurance upon said machines and/or any equipment, material or part thereof while in or upon its premises, payable in event of damage, destruction, or loss to first party, against damage, destruction, or loss by fire and other casualty.
'(9) Title of each said machine while in course of construction and when completed, and title to all equipment, materials and parts purchased to be used as part or parts of each said machine shall vest and remain in first party; and second party shall not convey title nor effect delivery of any said machine to any other person, firm or corporation without express authority of first party.
'(10) First party shall inspect and test each said machine when completed and ready for delivery, and, if said machine be found satisfactory, shall accept said machine and pay therefor the agreed upon price or any theretofore unpaid balance thereof; but such inspection, testing, acceptance and payment shall not constitute a waiver of the warranty of second party contained in paragraph 7 hereof.
'(11) Second party shall complete and make ready for delivery said machines on or Before August 1, 1945. If, in the opinion of first party, it shall become necessary in order to effect delivery of any said machines for which first party shall be obligated, that it manage and direct the manufacture of said machines in whole or in part, second party shall permit first party to use its plant, property, equipment, tools, labor, and such materials as may then be available for the completion of any said machines then under construction, at the cost or expense of second party, and second party shall pay to first party two hundred dollars ($200.00) for each month or major fraction thereof during which first party may manage and direct the manufacture of any said machines.
'(12) Second party shall pay to first party Five Hundred Dollars ($500.00) for each said machine manufactured under this agreement, in consideration whereof first party shall render services as consulting and supervising engineers in connection with said manufacture and shall devote to said services as much time as shall be feasible and reasonable in view of the necessity for such services and of the requirements of the other businesses of first party. First party shall defray travelling and living expenses in connection with these services from said payments.
'(14) Any loans made to second party by first party shall be used solely for the preparation to manufacture said machines or for the purchasing of materials or parts or for labor, and said funds so loaned shall not be commingled with or become a part of the funds of second party and second party will disburse said moneys so loaned to it from a separate bank account with the Seattle-First National Bank, Yakima Branch, Yakima, Washington.
'(15) First party will loan to second party for the purpose of assisting in the construction of machines, such sum of money as may be agreed upon from time to time between the parties hereto, being at all times, however, of sufficient amount to properly finance said manufacturing work and the purchase of materials therefor, and from time to time to make such additional loans as may be necessary.'

Other paragraphs of the agreement provide that Lindeman should handle or manufacture necessary parts to keep the hop-picking machines in repair, and have available at all times skilled repair servicemen to work on the machines. Lindeman was required to furnish respondents, on request, estimates as to current cost of construction of the machines, and loans from respondents to Lindeman were to be cancelled pro rata as the machines were constructed. Lindeman was to pay social security or industrial insurance charges, and agreed to assign to respondents all patents, if any, which might be issued to Lindeman or to any of its employees...

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4 cases
  • Simplicity Pattern Co. v. State Bd. of Equalization
    • United States
    • California Supreme Court
    • August 18, 1980 incorporating computer program applies to entire amount charged, including license fees and royalties); Thys v. State (1948) 31 Wash.2d 739, 199 P.2d 68 (annual royalties payable to purchasers of hop-picking machines included in the taxable selling Was the present sale one of tangi......
  • Thys Co. v. Brulotte
    • United States
    • Washington Supreme Court
    • June 6, 1963 in accord with the construction which this court gave to identical licensing contracts, for tax purposes, in the case of Tys v. State, 31 Wash.2d 739, 199 P.2d 68, cert. den. 337 U.S. 917, 69 S.Ct. 1159, 93 L.Ed. 1727.2 The correctness of that decision is open to serious question; but we......
  • White v. State
    • United States
    • Washington Supreme Court
    • January 28, 1957
    ...and against the taxing power. Pacific First Federal Savings & Loan Ass'n v. Pierce County, 27 Wash.2d 347, 178 P.2d 351; Thys v. State, 31 Wash.2d 739, 199 P.2d 68. The problem in this case, as in all of the cases in which courts have considered the apparent inequities resulting from the im......
  • Clark v. Clark
    • United States
    • Washington Supreme Court
    • November 5, 1948
    ... ... these statutes the court has been given a wide discretion in ... the division of the property, and it is a rule in this state ... that the supreme court will not interfere with the ... disposition of the property made by the trial court unless it ... ...

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