Yamaha Corp. of America v. State Bd. of Equalization

• Decision Date: 29 June 1999
• Docket Number: No. B095911,B095911
• Citation: 86 Cal.Rptr.2d 362,73 Cal.App.4th 338
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 5382, 1999 Daily Journal D.A.R. 6865 YAMAHA CORPORATION OF AMERICA, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

Page 362

86 Cal.Rptr.2d 362

73 Cal.App.4th 338, 99 Cal. Daily Op. Serv. 5382,

1999 Daily Journal D.A.R. 6865

YAMAHA CORPORATION OF AMERICA, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

No. B095911.

Court of Appeal, Second District, Division 3, California.

June 29, 1999.

Bill Lockyer, Attorney General, David S. Chaney, Supervising Deputy Attorney General, and Philip C. Griffin, Deputy Attorney General for Defendant and Appellant.

Bewley, Lassleben & Miller, LLP, Kevin Duthoy, Jeffrey S. Baird, Joseph A. Vinatieri, and Jason C. Demille, Whittier, for Plaintiff and Respondent.

CROSKEY, J.

On December 24, 1996, this Court filed an opinion reversing the judgment of the trial court in this case, and finding in favor of appellant State Board of Equalization (the Board) and against Yamaha Corporation of America (Yamaha). Thereafter, Yamaha petitioned for a rehearing, which we granted. Following a rehearing, we again held in favor of the Board in our decision, filed February 21, 1997.

Yamaha then petitioned the Supreme Court for review, and its petition was granted. On August 27, 1998, the Supreme Court issued its decision in Yamaha Corporation of America v. State Board of Equalization (1998) 19 Cal.4th 1, 78 Cal.Rptr.2d 1, 960 P.2d 1031 (Yamaha ), holding that we had erred by concluding that the Board's interpretation of sales and use tax statutes, as set out in the Board's Business Taxes Law Guide opinion summaries (the annotations), were entitled to the same high degree of judicial deference as is given to quasi-legislative rules. However, the Supreme Court specifically did not reach the merits of the particular legal question raised by this case (i.e., whether Yamaha had use tax liability for musical instruments and promotional brochures stored in California and shipped as gifts to out-of-state donees) and remanded the cause to us for further proceedings consistent with its views as to the proper standard of review. (Id. at p. 15, 78 Cal.Rptr.2d 1, 960 P.2d 1031.)

We conclude that while the particular annotations, relied upon by the Board in

                this matter, are entitled to less weight than quasi-legislative rules, they nonetheless are entitled to "great weight."   In light of factors indicating that the Board's interpretation of the controlling statute, as set out in such annotations, is entitled to great weight, and based on our own independent interpretation of the Revenue and Taxation Code section at issue here, we also conclude, in keeping with our earlier opinion, that the trial court did err in its ruling in favor of Yamaha, and we again reverse
                

FACTUAL AND PROCEDURAL BACKGROUND

The Board appeals from a judgment in favor of Yamaha for a refund of use tax and interest thereon. The trial court concluded that certain gifts of stock-in-trade and promotional literature which Yamaha made to out-of-state donees fell within the exclusion from California's use tax that is provided by Revenue & Taxation Code section 6009.1 for "the keeping, retaining or exercising [of] any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state...." ¹

The Board challenges the trial court's conclusion that Yamaha did not owe sales or use tax on three separate categories of property which it gave away as promotional gifts to out-of-state donees. The first was stock-in-trade which Yamaha purchased out-of-state and gave away out-of-state. The second was noninventory promotional literature which Yamaha purchased out-of-state and gave away out-of-state. The third was additional non-inventory promotional literature, which Yamaha purchased in California under resale certificates and gave away out-of-state.

The facts are uncontroverted. Yamaha is in the business of selling musical instruments that are manufactured by its parent company, Yamaha of Japan. It purchased the instruments that are at issue in this case outside of California without paying tax, placed the instruments into its resale inventory, and later removed them from inventory for the purpose of making promotional gifts to musicians, musical equipment retailers, media and others. In addition, Yamaha purchased certain non-inventory promotional literature without paying tax; some of this literature was purchased out of state, and some was purchased in California under resale certificates.

Yamaha gave away some of the musical instruments and promotional literature to donees in California, paid California use tax upon doing so, and concedes such tax was owed. However, respecting other instruments and literature, which Yamaha gave to donees outside California, Yamaha did not report or pay any tax, claiming that the property given to out-of-state donees was not subject to California sales and use taxes under Revenue & Taxation Code section 6009.1, which excludes from the definition of "storage" and "use," and thus from the requirement of paying a use tax (§ 6201), "the keeping, retaining or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state...."

The Board interpreted section 6009.1 differently from Yamaha, and, after a sales and use tax audit for the period 1984 The trial court concluded that the gifts at issue were excluded from use tax under section 6009.1. Specifically, the court made the following findings: "The gifts of musical instruments were made out-of-state. The merchandise at issue was delivered by common carriers, with freight charges paid by plaintiff. The gift was not effectuated until it was delivered to the donee, at their out-of-state business or residence. The only use of the property was for the storage and transportation outside the state for use solely outside the state, therefore [it] is excepted from taxation, Revenue and Taxation Code Section 6009.1[p] The merchandise was not used as a Marketing Aid within California. There is no evidence presented to indicate that Yamaha used the merchandise within California, except in storage and transportation solely for out-of-state use. Any promotional use of donating the instruments did not occur until its delivery outside the state's borders. As a gift, Yamaha could have revoked the gift prior to its delivery. Any marketing aid use did not occur until it was delivered at its out-of-state destination. [p] The storage of the merchandise at issue within California was for subsequent use solely outside the State of California. This falls squarely within the exception to taxable storage as prescribed by Revenue and Taxation Code Sections 6008, and 6009.1." The trial court entered judgment for Yamaha in the amount of $471,868.33, including the refund and pre-judgment interest thereon, and this timely appeal followed.

through 1989, the Board determined that use tax was owing based on the out-of-state gifts. Yamaha paid approximately $ 700,000 in use tax on the contested transactions and thereafter filed a claim for a refund, which was denied by the Board. Thus, on April 21, 1993, Yamaha filed the instant action, in which it alleged that the Board's taxation of the interstate gifts violated section 6009.1 and California's statutes governing administrative regulations and rulemaking (Gov.Code, § 11340 et seq.), as well as the Commerce Clause (Article I, section 8) and the Due Process Clause (Amend.XIV) of the United States Constitution.

CONTENTIONS

The Board contends that its interpretation of section 6009.1, as expressed in its annotations, is proper and correct, and that therefore, giving its interpretation at least some weight, in the specific circumstances here involved, should cause us to conclude that: (1) Yamaha owed tax respecting the property purchased in California under resale certificates; (2) by delivering property in California to common carriers for transportation to out-of-state donees, Yamaha made a completed gift, and hence a taxable use, of the property in California; (3) section 6009.1 does not exclude the gifts at issue in this case from use tax; and (4) the Board's construction of section 6009.1 does not violate the Commerce Clause.

Yamaha disputes these contentions. It contends that the Board's interpretation of section 6009.1 is in direct contradiction of that section's plain language, and that when the facts are analyzed by us independently, without reference to the annotations, we would conclude, as did trial court, that its gifts of musical instruments and promotional materials to donees outside California are excluded from taxation.

DISCUSSION

1. Overview of The Applicable Statutes, Regulations and the Annotations in Question

" 'The California Sales and Use Tax Law (Rev. & Tax.Code, § 6001 et seq.) [fn. omitted] embodies a comprehensive tax system created to impose an excise tax for the support of state and local government, on the sale, use, storage or consumption of tangible personal property within the state. [Citation.] [Fn. omitted.] The two taxes, sales and use, are mutually exclusive but complementary, and are designed to Focusing on the specific statutes and regulations that control our decision in this case, sales tax is due on any retail sale of tangible personal property in California unless the sale is specifically exempt by statute. (§ 6051.) A retail sale is a sale for any purpose except resale in the regular course of business. (§ 6007.) All of a retailer's sales are presumed to be taxable retail sales until the contrary is established. (§ 6091.) The retailer has the burden of proving that a sale is not at retail unless the retailer takes in good faith a timely and valid resale certificate. (§ 6091; tit. 18 Cal.Code Regs. § 1668.) A purchaser may validly issue a resale certificate when purchasing property that the purchaser intends to resell, provided that the purchaser will not store or use the property...