United Parcel Service, Inc. v. Armold
| Decision Date | 08 November 1975 |
| Docket Number | No. 47724,47724 |
| Citation | 218 Kan. 102,542 P.2d 694 |
| Parties | UNITED PARCEL SERVICE, INC., Appellee, v. Harold A. ARMOLD, Director of Taxation for the Department of Revenue of the State of Kansas, Appellant. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. K.S.A. 79-3704(a) exempts from the payment of compensating use tax any tangible personal property brought into the state 'by a railroad or public utility for consumption or movement in interstate commerce.'
2. In interpreting a statutory provision which is susceptible of more than one construction it must be given that construction which, when considered in its entirety, gives expression to its intent and purpose. The words of a statute must be taken in the sense in which they were understood at the time the statute was enacted.
3. Administrative regulations made by those charged with enforcement of statutory enactments are not controlling, but are nonetheless entitled to great weight unless they are repugnant to the statutory provisions or are clearly erroneous.
4. The provision in K.S.A. 79-3704(a) relative to 'movement in interstate commerce' is construed to exempt from taxation tangible personal property brought into the state which directly and immediately moves in interstate commerce. It is not necessary that property actually cross state boundaries if it is transporting property or persons which are the subject matter of an interstate shipment.
5. The vans and tractor-trailers used by United Parcel Service solely within the state to transport parcels traveling in interstate commerce were brought into the state for movement in interstate commerce so as to fall within the exemption provision of K.S.A. 79-3704(a) of the Kansas Compensating Tax law.
William N. Lacy, Topeka, argued the cause, and William L. Harris, Jr., Topeka, was with him on the brief for appellant.
Leonard Singer of Watson, Ess, Marshall & Enggas, Kansas City, Mo., argued the cause, and Gerald J. Letourneau, of Colmery, McClure, Funk, Letourneau & Wilkinson, Topeka, was with him on the brief for appellee.
The Director of Taxation for the Department of Revenue appeals from a judgment of the district court ordering the Department to refund the total amount of compensating use tax paid by United Parcel Service, Inc., on certain of its vehicles brought into the state. The sole issue for our determination is whether the district court erred in finding the vehicles in question were used for 'movement in interstate commerce' within the meaning of K.S.A. 79-3704(a). The taxing authority will be referred to as the Department, and the taxpayer as UPS.
The facts, as stipulated by the parties, are summarized as follows: UPS, an Ohio corporation authorized to do business in the State of Kansas, is a motor carrier engaged in the pickup and delivery of parcels in interstate commerce. Despite the fact it is an interstate carrier, UPS employs a substantial number of men and women within the state. UPS moves the parcels by van, transport, and sometimes through connnections with other interstate carriers, such as railroads. In conjunction with its Kansas business, UPS is taxed by the state in terms of personal property, income, and other matters. This case involves no issues regarding those taxes paid on a regular basis by UPS.
Operations of UPS in the State of Kansas are pursuant to Certificates of Public Convenience and Necessity issued by the Interstate Commerce Commission. These certificates are supplemented by an order of the Kansas Corporation Commission granting an interstate common carrier license to UPS, which provides in relevant part:
'This grant of authority shall not authorize the applicant to perform intrastate service between any two points within the state of Kansas, except when such traffic shall be validly moving from, to or through another state as part of a bona fide continuous interstate movement in good faith and not for the purpose of evading intrastate regulation.'
UPS has not applied for, nor does it hold, any rights granted by the Kansas Corporation Commission or otherwise to operate in intrastate commerce in Kansas.
Pursuant to the authorities herein mentioned, UPS can pick up parcels in Kansas which are being shipped to a point outside Kansas, but cannot pick up a parcel in Kansas which is destined for final delivery elsewhere in Kansas. Conversely, UPS can deliver parcels in Kansas if the shipment originated in a state other than Kansas, but cannot deliver parcels in Kansas which are shipped from a point in Kansas. The Department concedes that the parcels carried by UPS are moving in interstate commerce.
Shortly after UPS opened its Kansas City, Kansas, facility it purchased and brought into the state certain rolling stock consisting of vans and tractor-trailers which are used to move the parcels. Without reviewing the situation with its attorney, UPS paid a compensating use tax on the new fleet of vehicles in the amount of $24,434.49.
On June 16, 1972, UPS filed a claim with the Department for a full refund of the compensating use tax it had paid. The secretary of revenue denied UPS' claim for a refund, stating:
The claim was denied after a hearing before the State Board of Tax Appeals. The matter was then appealed to the district court, resulting in an order to refund the tax.
Under the scheme of revenue legislation, the sales tax was intended to levy a tax upon the privilege of selling tangible personal property at retail within a state, or the rendering or furnishing of certain services therein. A problem arose, however, with the realization that property could be purchased outside the state and subsequently brought into the state, thereby avoiding the general sales tax. To rectify this situation, numerous state legislatures enacted compensating tax laws to impose a tax on the sales of property purchased beyond their borders which otherwise would be subject to the sales tax.
The original Kansas Compensating Tax law levied a tax for the privilege of 'using' within the state articles of tangible personal property purchased after May 30, 1937. (G.S.1937 Supp. 79-3703.) The act was construed as not being applicable to property brought into this state for use by a railroad or public utility engaged in carrying on an interstate business, based on the assumption it would constitute an unconstitutional burden on interstate commerce. (Natural Gas Pipeline Co. v. Commission of Revenue & Taxation, 163 Kan. 458, 183 P.2d 234.) Later, the United States Supreme Court relaxed its application of the commerce clause to state excise tax laws. In the companion cases of Southern Pac. Co. v. Gallagher, 306 U.S. 167, 59 S.Ct. 389, 83 L.Ed. 586 and Pacific Tel. Co. v. Gallagher, 306 U.S. 182, 59 S.Ct. 396, 83 L.Ed. 595, the court upheld a state tax on the storage and use of property bought outside the state by a railroad company and a public utility on the theory the storage of property within the state was an event occurring after actual movement in interstate commerce had ceased and prior to the use or consumption of such property in interstate commerce. The opinions specifically noted that rolling stock was not involved.
As a result of this development, the 1945 Kansas legislature amended the law to reflect the change made by the Gallagher opinions. (G.S.1947 Supp. 79-3701 et seq.) The pertinent provisions now appear as K.S.A. 79-3703 and 79-3704(a). K.S.A. 79-3703 provides:
There is hereby levied and there shall be collected from every person in this state a tax or excise for the privilege of using, storing, or consuming within this state any article of tangible personal property. Such tax shall be levied and collected in an amount equal to the consideration paid by the taxpayer multiplied by the rate of three percent (3%). All property purchased or leased within or without this state and subsequently used, stored or consumed in this state shall be subject to the compensating tax if the same property or transaction would have been subject to the Kansas retailers' sales tax had the transaction been wholly within this state.'
K.S.A. 79-3704(a) provides:
'The provisions of this act shall not apply:
'(a) In respect to the use, storage or consumption of any article of tangible personal property brought into the state of Kansas by a nonresident who is within the state for not to exceed sixty (60) days for his or her use or enjoyment while within the state; or by a railroad or public utility for consumption or movement in interstate commerce;'
We have had occasion in the past to construe this exemption, but we limited our opinion to a consideration of the term 'consumption.' (Natural Gas Pipeline Co. v. Commission of Revenue & Taxation, supra.) In the instant case, we are asked to construe the alternative basis for exemption from the use tax under 79-3704(a); i.e., 'movement in interstate commerce.'
By further consideration of the various contentions and arguments of the parties we can better understand the nature of the issue. The Department has consistently maintained that the vehicles in question were not brought into the state for direct and immediate movement in interstate commerce, and for that reason UPS cannot take advantage of the exemption afforded by 79-3704(a). The Department's argument can be divided into three parts. First, it contends it has the constitutional power to tax these vehicles by virtue of their intrastate operations. Second, it argues that the vehicles do not move in interstate commerce since they do not cross state lines. Third, it contends the exemption should be read to require 'direct and immediate movement' in...
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